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Strategies & Market Trends : Booms, Busts, and Recoveries
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To: Ilaine who wrote (11744)12/9/2001 5:04:40 PM
From: Don Lloyd  Read Replies (1) of 74559
 
CB -

I seem to be missing his point. Is it that he wants to prevent people from writing checks against deposits which the banks have loaned out?

I think that he is agreeing with you that a 100% reserve bank cannot create credit, or money, but is disagreeing with you in that banks can still make outstanding loans based on savings and time deposits, and presumably other bank capital as well.

It is not that you can't write checks against loans, but the reverse; it is the bank that can't make loans of the money in your checking account because you can write checks against the total at any moment without warning or notification. This is not true in a true savings account or time deposit. To use that money you must effectively go to the bank to retrieve it, giving the bank the chance to find an alternate backing for the loaned funds originally based on your savings or time deposits.

As usual, arguing with you has improved my understanding.

Regards, Don
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