What happens when someone pays his debt in a fractional-reserve banking system? ?
Posted on August 28th, 2009 by admin
Banking
What happens when someone pays his debt in a fractional-reserve banking system?
What happens when someone pays his debt in a fractional-reserve banking system?
Is only his past debt subtracted from the reserve or also all subsequent debts that was loaned to other people with his initial debt?
For instance, a person A borrows 100$ then it becomes part of the reserve, then a person B can borrows from his deposit 80$, then a person C 64$, given a reserve requirement of 10% for banks.
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When money is borrowed from a bank, it essentially creates new currency. However, when it is paid back, that money is not destroyed and it goes to the bank’s reserves. This is how the money supply normally grows.
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I’m not sure textbook explanations apply any more. When fractional reserve banking was invented is when the lie began and Alice fell through the looking glass and down the rabbit hole. How can one understand a Matrix banking system?