NO, I explicitly stated that above. The reserves let them cover small withdrawals, checks and other day-to-day transactions. What's critical is that everyone does not try and withdraw their entire account balances all at once, because there will not be enough to cover those withdrawals AND honor their other obligations because of the new money they've created IN THE FORM OF CREDIT!!!! The reserves are a FRACTION of outstanding liabilities, that's WHY it is called FRACTIONAL RESERVE BANKING. Dude, you're so smart, why is this eluding you?

Even the Federal Reserve and Keyenesian economists like Krugman acknowledge that new money is created, in fact they aver it MUST be created, to keep the economy growing and healthy, and that FRB is the way to do it. Have you never read Krugmans's famous baby sitting coupon essay on exactly how it works? Google it.

Credit is how they create new money, which is inflationary. Defaulting on that credit is how money is destroyed (it just gets written off) which is deflationary. If no new money were created, why would they keep statistics on exactly how fast the money supply is growing? They did that, you know. It was called "M3," until it got so out of hand that the government stopped reporting it for fear of causing a panic. It's not a "conspiracy theory," you just cannot, for some reason, understand it.

When credit is extended at a factor of 10 to 1, and the banks all honor each other's paperless credit transactions, it becomes rapidly inflationary, because banks are counting these non-existent credit dollars as if they were real FRN's, and then extending $10 worth of credit on each one of those. You can imagine that this cycle can easily explode (as we have just seen it do) once it becomes apparent that there are not actually that many dollars, let alone assets, in the world. The credit extended in this recent boom created debt obligations that exceeded the GDP of the entire world several times over. That can only occur via the multiplicative effects of FRB.

It's not a matter of "belief," it's a matter of fact. You're simply not comprehending what you're looking at. How do you explain debt obligations, CREDIT, that exceeds the total GDP of the entire world several times over if there's no "new money" created? You can't loan many times more than you have, than the entire world has, by making "simple transfers of money."

RoR, you're being willfully ignorant here. I really don't know what else to say. I can link you to a graph for M3, that shows the exponential explosion in the money supply commensurate with the credit boom, and you;d have to face the fact that new money was being created at exactly the same rate as the creation of new loans and other debt based securities. Would that satisfy you? Why are you being so obtuse?

http://seekingalpha.com/article/21027-the-return-of-m3-money-supply-reporting

RoR, consider the following scenario:

1) I deposit my life savings of $100 into Conrad's bank.
2) Conrad has to hold onto $10 of that, but he lends the other $90 to NonE, who was otherwise broke.

How much money do I have? I have $100, all in my bank account, which I can access at any time.

How much money does NonE have? He has $90, in cash, which he can do whatever he wants with.

Before this series of transactions, I had $100 in cash, and NonE had nothing. Now I have $100 in savings, and NonE has $90 in cash. We went from $100 in cash to $90 in cash + $100 in savings. And since savings and cash are all denominated in the same units, it may as well be $100 in cash to $190 in cash. That's the inflationary nature of fractional reserve banking.

And just to be clear: I imagine your objection will be that after Conrad's bank lends my $90 to NonE, I won't really be able to access my savings at any time. After all, if I withdraw more than $10, I will break the bank.

That's true, except that most banks have more than one customer. So unless there is a run on the bank, this illusion of additional money is able to continue. And with the advent of central banking, the individual banks are able to provide liquidity even when a run on the bank occurs.

In other words, it's all leveraged up in a game of musical chairs, and the government does whatever it can to prevent the music from stopping.

Right, and if NonE deposits that $90 in another bank, they'll lend out 81 bucks while still telling him his balance is $90, so the multiplier effect is compounded, the money supply goes up exponentially that way.

Doncha just LOVE Robert Heinlein?

- NonE