Quote from: polynesia on August 03, 2014, 05:19:02 AM

Quote from: Ltsknnr on August 03, 2014, 01:12:56 AM

Incorrect.

If that were true we wouldn't have such an extreme increase in the money supply, national debt, and inflation. The way the Fed and banks in the US works is this:

Person A deposits 100. The bank then creates on book 900 to use for loans and credit=1000 Bam, money created out of thin air.

The banks do this for every deposit that is made, and new money is created "on book" for the additional 9/10s of the fractional reserve rule. This is what results in the highly compounding increase in the money supply. In reality, the actual physical money supply that exists couldn't even pay off the interest on the outstanding national debt.

From an accounting point of view, if they create 1000 loans for every 100 deposit, what is the liability corresponding to the loan of 1000 (which appears on the asset side)?

Banks can leverage their equity in a 10:1 ratio. For every $1 their customers have on deposit, a bank will have a liability of $1.00. For every $1 that the bank loans, the bank will have $1 in assets (before accounting for loan loss protection).