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[–] WORF_MOTORBOATS_TROI 1 point -1 points (+0|-1) ago 

This isn't creating money. The op is adding credits and debits. On a balance sheet the deposits are all on one side of the balance sheet for money owed to others, while the loans are on the other side as money owed to the bank. The 10% "fractional reserve" is the amount that they must keep on hand in order to pay out tbe money owed to others in the event that a customer comes in to collect. That's why they pay more interest for a CD or something where you agree you won't collect until a certain future date.

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[–] BloatedVoatGoat ago 

People don't borrow money to put back into a bank. Doesn't make sense

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[–] ARsandOutdoors [S] ago 

The money eventually makes it back into the bank, where it becomes an asset on their balance sheet from which they can loan out against. They can do that over and over again until they hit their reserve ratio and can't do it any more.

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[–] BloatedVoatGoat ago 

They still have the liability ratio to maintain against the loans of 9:1. So they cannot make new loans using depreciating items like cars or non colletral loans but can against things that do appreciate like a home. So if you have paid down 10% on your home and have 20% equity they can write out 100% of the value in another loan. And with that we can see how housing broke the market.

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[–] TheSeer ago 

This is correct, but the full multiplier effect is perhaps easier to understand. Once everyone has deposited their money with the bank, there will be $1000 in reserves. AND $10,000 IN LOANS. From the one $1000 initial (new) deposit.

And get this. That is at 10% reserve ratio. Most Wall St banks are actually using 3% or less. Meaning they will loan out $30 - 50 THOUSAND, for every ONE THOUSAND in new deposits.

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[–] GunsSaveLives 0 points 1 point (+1|-0) ago 

This is accurate. Sadly. And the only thing backing the money is IOUs by the U.S. government to the Federal Reserve Bank, and - get this - the IOUs themselves are to be paid with U.S. dollars. If the government ever paid off all of the national debt our financial system would crumble.

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[–] Ilisyer 0 points 1 point (+1|-0) ago 

There are only 100 dollars.

I loan you 100 dollars.

You now owe me 105 dollars.

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[–] TheAntiZealot 0 points 1 point (+1|-0) ago 

There are 0 dollars.

You loan me 1,000 dollars.

I owe you 1,050 dollars.

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[–] gosso920 0 points 1 point (+1|-0) ago 

I have $10,000.

I buy shares of stock in BAC, C, WFC, JPM, GS, MS, PNC, STI, USB.

I have $16,000

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[–] ARsandOutdoors [S] 0 points 1 point (+1|-0) ago 

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[–] Gumbatron 0 points 4 points (+4|-0) ago 

Indeed, although lots of them have now dropped the "reserve" requirement entirely...

https://en.wikipedia.org/wiki/Reserve_requirement

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[–] ARsandOutdoors [S] 0 points 2 points (+2|-0) ago  (edited ago)

I'm big into finance and history of finance. I'm concerned that the Central banks across the world are stockpiling gold, instead of purchasing bonds from other central banks, of which have essentially an "unlimited" balance sheet. The world is awash in cash, because you have to convert to dollars to purchase oil we've been able to offshore the inflation. With interest rates rising, it's costly to hold US cash, harder to service your debts. The globe seems to be preparing for the end of the dollar-reserve and swift system. At this point America's debt can be weapon(ized?) against them.

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[–] FUCK__ISLAM 0 points 2 points (+2|-0) ago 

You have it wrong by an order of magnitude. Assuming, as the graphic does, a 10% reserve ratio then at step 1 the bank will loan $9,000. They don't make loans with deposits, they use deposits as a basis for making loans. They create the money at the time it is loaned. The Federal Reserve and its member banks are a money-printing government-backed cartel. Yet they are rapacious and crooked enough to sometimes go bankrupt despite a license to print money and evil and brazen enough to ask for public handouts when they do.

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[–] JewsAreWhite 0 points 1 point (+1|-0) ago 

this is the way that i've understood it

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[–] TheAntiZealot 0 points 1 point (+1|-0) ago 

Good post. Great username.

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[–] prairie 0 points 2 points (+2|-0) ago 

Leaves out the critical things: bank reaps interest from $thousands in loans they can make based on your $1000 deposit, and all this creation of money devalues everyone's money by driving up prices.

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