Here is someone's theory of how money is created.
Banks need to have 10% in reserves, either notes on the floor, or deposit at the Fed.Let's take two banks. Bank A has $100 in notes, and bank B has $1000 in notes. Bank B makes a loan of $1000 in the form of a bank draft that gets deposited to bank A. Bank B now has 1000 in liabilities on the bank draft, 1000 asset in the form of the lien that created the loan, and still the $1000 in notes. Bank A deposits the bank draft to the Federal Reserve, and now has 1000 in liabilities to the depositor of the draft, 1000 in assets at the Fed, and still the 100 in notes. Now with the 1000 deposit at the Fed, bank A can create a 10,000 loan by a bank draft that gets deposited to bank B and bank B deposits that check to the Fed. Now Bank B can legally create a $109,000 loan, and the notes haven't moved at all. Yes some notes will move sometimes, and some of the deposits at the Fed may have to be redeemed in some notes, but this notion that the supply of paper notes somehow constricts or controls cash production is complete balderdash.
Any complaints about this or is this sound?
is it a theory or did it actually used to be the case??
or are you repeating deliberate falshoods?
here is some information differeing from what you call a theory\....
" The Depository Institutions Deregulation and Monetary Control Act of 1980 had begun phasing out interest-rate ceilings on deposits and modified reserve requirements in complex ways. Combined with subsequent administrative deregulation under Greenspan through January 1994, these changes left all the financial liabilities that M2 adds to M1 — savings deposits, small time deposits, money market deposit accounts, and retail money market mutual fund shares — utterly free of reserve requirements and allowed banks to reclassify many M1 checking accounts as M2 savings deposits. M2 and the broader measures became quasi-deregulated aggregates with no legal link to the size of the monetary base."
http://mises.org/story/3556
Bank A: $100 in notes
Bank B: $1000 in notes
Bank A can loan at most $90. Bank B can loan at most $900 - both banks are required to keep 10% of deposits on reserve.
If Bank B loaned $900 to Bank A, then:
Bank A: $1000
Bank B: $1000
This analysis is, of course, over-simplified but the important point is that new money is created by inter-bank loans.
Clayton -
Banks need to have 10% in reserves, either notes on the floor,
"...changes left all the financial liabilities that M2 adds to M1 — savings deposits, small time deposits, money market deposit accounts, and retail money market mutual fund shares — utterly free of reserve requirements and allowed banks to reclassify many M1 checking accounts as M2 savings deposits. M2 and the broader measures became quasi-deregulated aggregates with no legal link to the size of the monetary base."
is this info not true then?
Let's take two banks............
here is someones theory??
bank a, bank b the federal reserve?
did they bother to check? do you know otherwise if its a theory or fact? are you trying to find out the truth or repeating someones theory because.....?
this sounds factual....but could be false.