It’s called “Fractional Reserve Banking”. The bank only needs to have about 10% of a loan on hand.
If a bank has $100, they can write a loan for $1,000; effectively putting $900 more into circulation. When that is spent, it gets deposited into a bank, which can then loan it out amplified again.
This could create infinite money, as I understand it. Since there is not infinite money, there must be a gap in my understanding somewhere.
If a bank has $100, they can write a loan for $1,000; effectively putting $900 more into circulation. When that is spent, it gets deposited into a bank, which can then loan it out amplified again.
Since there is not infinite money, there must be a gap in my understanding somewhere.
While this is true, the only “new money” created in that loan is the interest becase the capital is paid back , albeit over decades.
It’s called “Fractional Reserve Banking”. The bank only needs to have about 10% of a loan on hand.
If a bank has $100, they can write a loan for $1,000; effectively putting $900 more into circulation. When that is spent, it gets deposited into a bank, which can then loan it out amplified again.
This could create infinite money, as I understand it. Since there is not infinite money, there must be a gap in my understanding somewhere.
Afaik some countries have dropped reserve requirements altogether.
Loans can be given out as long as the recipient is credit worthy.
Money is free and infinite according to MMT
While this is true, the only “new money” created in that loan is the interest becase the capital is paid back , albeit over decades.