• @[email protected]
    link
    fedilink
    21 year ago

    You know what? Let me simplify if for you:

    Person A deposits $100 to the Bank

    Person A’s account is worth $100. The Bank has $100 in its reserves.

    Person B takes out a loan of $80 from the Bank.

    The Bank now has only $20 in its reserves.

    Person B pays the $80 to Person A for a service

    Person A deposits the $80 to the Bank.

    Person A’s account is worth $180.

    The Bank now has $100 ($80 deposit + $20 left from earlier) in its reserves.

    2 days later, nothing’s changed, except Person A needs some extra money quickly, so they go and try to withdraw the $180 in their account. The Bank only has $100 in its reserves.

    • @Ilovethebomb
      link
      01 year ago

      That’s why we have a “fractional reserve” system in place pretty much everywhere.

      And besides, they haven’t created that money, as the first person has a balance of -80.