Thursday, September 26, 2019

Money as Debt Essay Example | Topics and Well Written Essays - 250 words

Money as Debt - Essay Example But as soon as people realize this a protection right has been created which limits banks money making called â€Å"9 to 1 Fractional Reserve System†. Basically, if the bank has $1K cash with them the they can lend up to $9K to borrowers based on the 1:9 fractional reserve system regulations. This does not mean that banks cannot limit the earning of money up to $9K. In reality, they can make money up to $90K which makes it 1 to 90 ratios. For instance, if the bank initially had $1K cash in possession, it means the bank can lend up to $9K to public. So, we can assume that if a person X takes the loan of $9K to buy a car from PersonY. Based on the person X’s promise to pay the money back, bank will create $9K cash and loan it to person Wythe tactical part is the Person Y will then deposits $9K in the bank. Based on the 9:1 federal reserved regulation, the bank can then reserve $900 ($9K/10) and loan out the rest which is $8100 ($90:$8100 =1: 9). Moreover, it moves on to the next loan. Transaction until the bank cant reserve money anymore. So the video explains how banks

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