Krugman: Spend Now, Save Later

[Final-Fan]

TheRealMafoo said:
That's clearer, but still a question about it.

Let's say I am a bank, and I have $100.00. I loan the first guy $90.00, and he I know is 100% good for it, so I loan the next guy the $81....

When you loan money, it goes somewhere. So the first guy pays a bill, and the second guy improves his house. regardless of what the money is for, I have to pay $171 in real money to people, and I only have $100.

Where does the $71 come from, and if I can loan out that much more then I really have, what's the 10% hold back for? I would think it's so I have capital if someone wants to take money out of there account, but I am already in the hole $71 based on your system.

I don't get it.

[edit:  No wait.]
Yeah, on second thought I think I was pretty on target, but unfortunately my post is already dust.   

I think it has to do with the theory these guys are talking about ignoring turnaround time.  I suppose the big banks can afford to do that since they are big enough, I'm assuming, to run things on a statistical basis, i.e. no one is worrying about using the money they get from any particular bunch of loans to pay off any particular bunch of depostiors or anything like that, in normal cases.  So if the theory works they just go ahead an do it because it all averages out over time. 

In other words, if I'm right, you are getting hung up on the fact that they are ignoring reality.