Quote from: o_e_l_e_o on April 27, 2020, 08:15:11 PM

Two additions to the above points.

Running alongside fractional reserve, is that when banks give out loans, they can create new money out of nothing. Lets say you take out a loan for $1000. The bank issues a credit to you of $1000, and also a debit against you of $1000. The bank's bottom line doesn't change; their books are still perfectly balanced - a new $1000 liability, and a new $1000 asset. Except now you have $1000 you can spend, $1000 which didn't exist before you took out the loan.

Secondly, a month ago, the Federal Reserve reduced the minimum reserve requirement of US banks from 10% to 0% - https://www.federalreserve.gov/monetarypolicy/reservereq.htm. This essentially means banks can print unlimited money in the form of new loans, since there is no requirement for them to hold any percentage in their reserves.

LOL
I think this was needed because banks may see higher loans taken as a result of covid19. In UK for example there is this "furlough worker" scheme which means the
employer pays 80% of wages. They will pay them from own pockets and in June they will claim those money back from the government. Some employers however need to
take a loan in order to do that.

I don't really know about the US but for sure some companies need money to survive. The 0% minimum reserve requirement sounds dangerous if misused.