Bitt,

I don't think this impacts the point you were trying to make here.
But since no one has mentioned it yet, I wanted to remind everyone of the multiplier effect inherent in fractional reserve banking.

If someone deposits $100, the banking system doesn't loan out $90, it loans out $900 with a reserve requirement of 10%
and it loans out ("creates") $1900 with a reserve requirement of 5%.

(A disguised but quick digression on convergent infinite series.)
Person A deposits $100 in Bank A.
Bank A loans out $90 to Person B.
If Person B sticks the money in a sock and buries it in his back yard (as we all are often wont to do), then that's the end of the story.

Otherwise:
Person B deposits the $90 in Bank B.
Bank B loans out $81 (90% of $90) to Person C.
Person C deposits the $81 in Bank C
which then proceeds to lend out $72.90, etc. etc.

Converging to $1000 "existing" from the original $100 deposit.
Of which $900 has been "created" by the fractional reserve system.
(or $1900 created in a 5% reserve system!)


Also, Bank A, B, and C are allowed to be one and the same bank.

I think most people vaguely recall hearing about this in school,
so pardon the posting space for reiterating this.
I just wanted to bring it up since no one else has mentioned it yet.

But fractional reserve banking inherently creates money.
And tweaking the reserve requirement is one tool that is used to alter the money supply.