{"id":48660,"date":"2019-09-26T07:35:14","date_gmt":"2019-09-26T12:35:14","guid":{"rendered":"https:\/\/olduvai.ca\/?p=48660"},"modified":"2019-09-26T07:35:18","modified_gmt":"2019-09-26T12:35:18","slug":"how-fractional-reserve-banking-contributes-to-increases-in-money-supply","status":"publish","type":"post","link":"https:\/\/olduvai.ca\/?p=48660","title":{"rendered":"How Fractional Reserve Banking Contributes to Increases in Money Supply"},"content":{"rendered":"\n<h3 class=\"wp-block-heading\"><a href=\"https:\/\/www.cobdencentre.org\/2019\/09\/how-fractional-reserve-banking-contributes-to-increases-in-money-supply\/\">HOW FRACTIONAL RESERVE BANKING CONTRIBUTES TO INCREASES IN MONEY SUPPLY<\/a><\/h3>\n\n\n\n<p>Some commentators consider fractional reserve banking as a major vehicle for the expansion in the money supply growth rate. What is the nature of this vehicle?<\/p>\n\n\n\n<p>We suggest that fractional reserve banking arises because banks legally are permitted to use money placed with them in demand deposits. Banks treat this type of money as if it was loaned to them. &nbsp;However, is this really the case?<\/p>\n\n\n\n<p>When John places $<strong>100<\/strong>&nbsp;in a safe deposit box with Bank One he does not relinquish his claim over the $<strong>100.<\/strong>&nbsp;He has an unlimited claim against his money. Likewise, when he places $<strong>100<\/strong>&nbsp;in a demand deposit at Bank One he also does not relinquish his claim over the deposited $<strong>100<\/strong>. Also in this case John has an unlimited claim against his $<strong>100<\/strong>.<\/p>\n\n\n\n<p>Now let\u2019s assume that Bank One takes $<strong>50<\/strong>&nbsp;out of John\u2019s demand deposit without getting any consent from John in this regard and lends this to Mike. By lending Mike $<strong>50<\/strong>, the bank creates a deposit for $<strong>50<\/strong>&nbsp;that Mike can now use.<\/p>\n\n\n\n<p>Remember that John still has an unlimited claim against the $<strong>100<\/strong>&nbsp;while Mike has now a claim against $<strong>50<\/strong>. What we have here that the Bank One has generated an extra spendable power to the tune of $<strong>50<\/strong>. We can also say that Bank One has $<strong>150<\/strong>&nbsp;deposits that are Bank\u2019s One liabilities, which are supported by $<strong>100<\/strong>&nbsp;cash, which are Bank\u2019s One reserves. Note that the reserves comprise&nbsp;<strong>66.7<\/strong>% of Bank\u2019s One deposit liabilities. This example indicates that Bank One is practicing fractional reserve banking.<\/p>\n\n\n\n<p>Although the law allows for this type of practice, from an economic point of view, this results in money out of \u201cthin air\u201d which leads to consumption that is not supported by production, i.e., to the dilution of the pool of real wealth.<\/p>\n\n\n\n<p>&nbsp;\u2026click on the above link to read the rest of the article\u2026<\/p>\n","protected":false},"excerpt":{"rendered":"<p>HOW FRACTIONAL RESERVE BANKING CONTRIBUTES TO INCREASES IN MONEY SUPPLY Some commentators consider fractional reserve banking as a major vehicle for the expansion in the money supply growth rate. What is the nature of this vehicle? We suggest that fractional reserve banking arises because banks legally are permitted to use money placed with them in [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[2],"tags":[7380,175,17390,1708],"class_list":["post-48660","post","type-post","status-publish","format-standard","hentry","category-economics","tag-cobden-centre","tag-credit","tag-dr-frank-shostak","tag-fractional-reserve-banking"],"_links":{"self":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/48660","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=48660"}],"version-history":[{"count":1,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/48660\/revisions"}],"predecessor-version":[{"id":48661,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/48660\/revisions\/48661"}],"wp:attachment":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=48660"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=48660"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=48660"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}