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Gold/Mining/Energy : Gold and Silver Juniors, Mid-tiers and Producers
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To: tyc:> who wrote (61919)10/25/2008 1:59:18 AM
From: Valuepro  Read Replies (1) of 78410
 
I did not mean my example to be strictly correct as to the precise number of new money created from a 100 dollar deposit. It depends of the reserve requirement. Recently it moved to zero to aid recovery from the credit crisis. Just prior to that it was 3 percent under the US Federal Reserve Board.

However, from your example, if there is a 20 percent reserve requirement, a 100 deposit becomes an 80 dollar loan that is deposited, creating a 64 dollar loan that when deposited may create a loan of about 53 dollars, and so forth. Obviously a 7, or 3 or a zero reserve will result in substantially more wealth creation, but also increased risk of failure and total loss of the manufactured wealth if the original depositor wants all his money back.

The total of the original deposit and the artificially created new money is wealth to a banking bookkeeper (and the economy), but it is not money. The bank can go down, but the original 100 dollars still exists somewhere.

Fiat money and fractional (liar) reserve banking make everyone feel more wealthy than they truly are, but only for long as the fraud remains successful. When it isn't, the evaporation of money created out of thin air destroys institutions and people who had no idea they were helping to perpetuate a faulty system.
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