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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Hawkmoon who wrote (102057)	9/16/2009 3:49:28 PM
From: Elroy Jetson	4 Recommendations Read Replies (3) \| Respond to of 116555

Q: What happens when a fractional reserve banking system lends out one billion Dollars? A: It increases the amount of money on deposit available to lend by more than a billion Dollars. This drives down interest rates. Think about that. What happens to the amount of money available to lend out when debt is destroyed through bankruptcies and foreclosures? The amount of money on deposit contracts sharply -- unless you have a central bank, like the Fed, which creates a huge amount of new money to offset the contraction. What will happen to interest rates if and when the Fed withdraws these newly created reserves, or what would have happened if they hadn't created these new reserves? Interest rates would have risen because so much capital is vaporized in bankruptcies and foreclosures that capital becomes scarce. Learn economics. .