The Residential Real Estate Crash Index Message Board

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Strategies & Market Trends : The Residential Real Estate Crash Index

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To: The Vet who wrote (87903)	9/2/2007 12:06:47 PM
From: Hawkmoon	Read Replies (1) of 306849

Hmmm... That still doesn't destroy any money.. Yeah.. maybe my example breaks down using the logic you're providing.. But it would depend on where the bank accessed the funds they gave out as a loan. I just know that when a debt is defaulted upon, somewhere along the line it represents the reduction of the monetary base, which generally represents the destruction of money. Issue debt, you create money (the Fed issues reserve notes -eg: cash-.) Default on debt and someone has to cover the losses and it reduces the money supply. "However, "The actual creation of money always involves the extension of credit by private commercial banks." U.S. Treasury. "Money is created when loans are issued and debts incurred. Money is extinguished when loans are repaid." John B. Henderson, Sr. Specialist Price Economics, CRS, 1983. Banks create the money as bookkeeping entries when borrowers sign promissory notes and pledge collateral. The Bank makes a debit to a loan account ledger and equal credit to a checking account. They give you a deposit slip. When you write checks against the new numbers you put new money into circulation that never existed before. "Banks simply make book entries for its loan customers saying 'you have a deposit of ____dollars with us."" en.wikipedia.org en.wikipedia.org Now he doesn't mention that when loans are defaulted on, that also results in money destruction. Hawk

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