Oh, and I'd note one other thing, Mafoo:

You erroneously assume that money will be loaned out, and paid back before more money is lent out again. That is not the case. Mortgage notes typically last 10-30 years. That is quite a long time in which to give the opportunity for the monetary base to inflate. I'd be interesting to see if there is any analysis on what typical cash reserve ratios are, after a given amount of time the money has been deposited.

This may be exactly what your saying... but i'm pretty sure this is what HS is saying, and this is how it works.

If you put 100 dollars in the bank.

They can loan up to 90 dollar due to  the capital reserve requirment.

Of the 90 dollars loaned out, they can loan out up to an additional 81 dollars using those loan as the "base".  Though it will be less then 81 dollars since you need to divide the capital 90 dollars by the percentage of risk that said loan will default. 

So say that 90 dollar loan was judged to have a 25% chance to default...  that leaves me with a theoretical $67.5 i've made.  So i can loan out an additional 60.75. 

That 60.75 goes to a guy with a 33.3% chane to default.  So that leaves me with 40.50 as a capital base and $36.45 I can loan out.

Etc. Etc.

Part of the problem with the collapse was, that a lot of HIGH percentage risks of default were being brought down in "percentage" by bundling it with one or two stone cold locks on paying it back. 

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.

In addition to what others have said: 

I think the problem of "double counting" applies to the entire idea of this "loan value".  I mean, on the one hand you're saying that 1 dollar given to the bank gives it a theoretical "loan value" of (approaching) 10 dollars because it can loan 90% of it out to someone, who puts it in the bank (or more realistically spends it on someone but the point is it eventually probably mostly gets put in the bank by SOMEONE), which loans 90% of that out to someone, who puts it in the bank, etc. ad infinitum. 

But on the other hand, apply that argument to Person A and Person B.  Person A puts his dollar in the bank.  Bank loans their 90 cents out to Person B, who puts it in the bank as well.  But wait!  Person A's dollar's "loan value" is counting Person B's money's loan value!  Person B's dollar (OK, 90 cents) got counted twice ... and this happens at every point along the chain!  If you apply that to every dollar everyone puts in the bank, then aren't you counting everyone's money many, many times over in your calculation of loan value? 

I mean, maybe an economist could look at my post and laugh at me, but right now I don't see how it makes sense. 

[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. 

But what your talking about (and what your post above this one is talking about), is circulation. This happens regardless of if I let the bank spend my money, or I spend my money and not save it.

The only thing I can see that helps the economy by putting the money in the bank above stuffing it under my mattress, is the money get's to be utilized while I am not spending it, but that does not explain where the 10X thing comes from.

This is the problem that happened in the Great Depression. Everyone got scared of banks, so they just took there money and saved it themselves, and there was not enough money in circulation.

First off, thanks for rescuing what I deleted lol. 

Secondly, I believe my other post makes a relevant argument about the 10X thing.  I don't know whether we're right or wrong, but I think that my post has at least identified the source of befuddlement. 

And by the way, "stuffing the money under the mattress" is what's happening today as well, just it's the banks doing it, and not us. The reason banks don't lend money, is not because they don't have it, but because they are scared of who to lend it too.

In the old days, people took there money out of the bank because they were worried they were making bad investments with it, and know it could go away. Today, banks are worried themselves they investments are bad, and are effectively being smarter stewards of our capital.

Well, kind off... Banks have no problems lending money to risky borrowers, they just set the interest rate accordingly. Today, it's extremely difficult to know what that interest rate should be. What 5 years ago was a sure thing, today is an unknown.

This is why for years I said we would be far better off if the government just let what was going to fail, fail. That would give all the banks a clear landscape to better predict who to give a loan too.

Also, zomg Mafoo and I are agreeing against other people in something about economics
[edit: naw I'm kidding we do agree on some stuff. 

[BTW, Mafoo, do you know what the climate is like down there?  How's the winter?  Get more/less snow?]

But you can't loan the same money out twice, at the same time.

When I bought my house and got a loan from the bank, it wasn't just a line in a ledger somewhere. The bank that I got my loan from had to right a real check to a real family that took real money and was gone. The only way that money will ever be see again my by lender, is if I pay it back to them.

Until I do that, they can't lend it again, because they don't have it.

That loan is 5% interest... where is the 10X?