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earlgrey

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About earlgrey

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    United States
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  1. I have to imagine this topic has a thread somewhere, but searching yielded little... I'm thinking through how lending affects inflation. Clearly it creates money, but few people are willing to address just how that happens, so I want to pitch an example to see what I'm missing. Example: $100,000usd home purchased with a 100% ltv loan from Seller, who owns the home outright. Please accept the over-simplification with only mild irritation. Bank's value is N, currency in circulation is C. I've put current values at the end of the bullet point. Bank writes a $100,000 note (a liability for Buyer and an asset to Bank) N+100,000, C Bank writes a $100,000 deposit into an account used by Bank N+200,000, C+100,000 Bank sends (via check, ach, etc.) $100,000 to Seller N+100,000, C+100,000 $100,000 note subject to capital requirements less than 5%, so Bank needs to get $5000 more in deposits So in that example, 100,000 "dollars" came in to existence. What am I missing in that process? Can a bank use a loan to cover capital requirements? In the example above, a $5000 loan wouldn't change Bank's value, but it would have $5000 more in cash on hand. Maybe I'm still getting hung up on "reserves" there. Thanks for any insight.
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