Quote from: Cuenta Alternativa on Today at 04:57:33 AM

It is accurate, you have misunderstood. mocacinno is saying that banks create that money out of thin air, not that the money created does not exist. When commercial banks lend money by creating it out of thin air with a lower reserve ratio, in some cases 2.5% or even 0%, they are creating money out of thin air even though the money they send you is real.

Sorry, but what you describe it's still impossible and it's not fractional reserve.
When a bank lends you money for buying a house that money is directly spent as it leaves the bank to the previous owner, you can't do fractional reserves when you're paying money, you can only do that with reserves, that's why they are called so and not fractional loans.

Second, what happens when you're paying back your since this would mean the virtual cash gets erased and replaced by real money? Wink

Because otherwise, you would have a bank full of real money and virtual money back by nothing, when actually there is real money backing it up!

Quote from: mocacinno on Today at 06:05:16 AM

If my understanding of fractional reserve is correct, i might have explained it better....

I asked chatGPT for an ELI5 about fractional reserve banking in regards to the housing market, and this is what it came up with... To the best of my understanding, this is correct.
The bottom line is that, in this example, there was an initial deposit of $20.000 (for example, on somebody's saving account), and in the end the banks manage to lend out (and collect intrest on) $200.000 with only the $20.000 in the bank account to back up all those loans. The person with the saving account gets intrest on the $20.000 whilst all the borrowers have to pay the bank intrest on $200.000.

No, the bank is not making 200 000 out of 20 000!
Just as in the exact line you've quoted from the answer chatgpt gave you the banks sometimes loan 90% of the deposits.
So in your case with a deposit of 20 000, the bank will be able to make a loan of only 18 000!
For a consequent loan, it needs another step, which chatgpt mentioned one line below, the cycle, for that person to deposit the said loan in the bank, which, let's get real is impossible and it makes no sense at all.

So A deposits 20 000.
B takes a 18 000 loan and deposits 18 000!
C takes a 16 200 loan and deposits 16 200!
D takes a 14 580 loan and deposits 14 580!
Do you see this as actually happening in any economy or at least in 1% of consumer spending?

But wait, it's not even the 10x loan-to-deposit ratios, that cause
We have A,B,C,D deposits worth 68 780 we have 48 780 in loans and we have still 20 000 in cash since nobody took money out of this scheme.

Furthermore, how is that different from you having 200 000 loaned to your friend with no fractional reserves?
You have loaned him 200 000 and you won the rights to the house, the bank is indeed 180 000 short in cash, but has 180 000 on the loan it has given out! So fast forward ten years from now when the guy pays back his loan, what happens to the so called virtual money?