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  • Re: how does defaulting on debt affect money supply?

    Lol. Yea that is similar to the conclusion I came to in my other text. "If the reserve requirement is 1%. So the bank can lend 1000$ for every $100 it has. Than if it lends me a $100 and I default, the bank goes under because it lost money. Because the bank went bankrupt, or just has less money to lend, the supply of credit shrinks and therefore
    Posted to Economics Questions (Forum) by Lawrence on Thu, Mar 11 2010
  • Re: how does defaulting on debt affect money supply?

    If the reserve requirement is 1%. So the bank can lend 1000$ for every $100 it has. Than if it lends me a $100 and I default, the bank goes under because it lost money. Because the bank went bankrupt, or just has less money to lend, the supply of credit shrinks and therefore the money supply shrinks. Right? Is that the logic of it?
    Posted to Economics Questions (Forum) by Lawrence on Thu, Mar 11 2010
  • Re: how does defaulting on debt affect money supply?

    Elaborate on your answers. I don't understand. Where is the flaw in my reasoning from my previous post? If the bank lends money that was created from thin air and that money isn't paid back then that is extra money in the economy, that won't be sucked out. Right???
    Posted to Economics Questions (Forum) by Lawrence on Thu, Mar 11 2010
  • Re: how does defaulting on debt affect money supply?

    The bank borrows from the central bank. So let's say the bank lends me $1000. I take the $1000 spend it on whatever I want, then tell the bank I can't pay. The $1000 is now added to the money supply, but it's not returned to the bank which would have returned it to the central bank. So there's an extra $1000 in the money supply. Right
    Posted to Economics Questions (Forum) by Lawrence on Thu, Mar 11 2010
  • how does defaulting on debt affect money supply?

    If you default on debt why does the money supply contract? If I borrow $100 from the central bank, then spend it into the economy and then tell the central bank I default, I can't pay the money back, than that is $100 extra in the system that will never be taken out. Correct? If I had paid the money back then the money would be back at the fed and
    Posted to Economics Questions (Forum) by Lawrence on Thu, Mar 11 2010
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