Quote: SBR "The way you describe is not really creating money. You are counting the same money being deposited/loaned multiple times. If you were to net up all the positions you'd get back to a constant level (in the absence of any central bank action). So in your example the net position remains £10K - the first bank has a net position of £1K (+10K, -9K), the second a net position of £900 (+9K, -8.1K) and there's £8,100 lent onwards. There's no extra money in the economy here - you're just counting some of it multiple times. Summing up all the deposits etc. does have some meaning, which is why economists do it.'"
So how come the money supply increases as a result of all this?
Quote: SBR "To come back to my rloriginal questionrl, in reality where banks do not create money [ifrom nothing[/i, when a loan is repaid the money supply is reduced as that money is being counted one less time. Back to your example if the second bank is repaid and then repays the 9K to the first then the first bank now has £10K and that's your lot. The money the bank had "created" has now been "destroyed", if you like that terminology. I remain intrigued as to how LeighGionaire believes this works though (although I suspect he hasn't actually thought it through).
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The drain on the money supply occurs when the money lent is not deposited or if in some way it is returned iti the central bank.
Quote: SBR "None of this makes interest in anyway special from any other charge any business makes for its products or services.'"
Interest is not special. It just requires money. The question is where does that money originate from?
Quote: SBR "They cannot pay all their depositors at the same time. A bank which could do so would be unable to pay any interest on deposits as it would be unable to make any money from the deposits. They would have to charge a fee for holding the money just to cover their overheads - you'd essentially just be renting some space in their safe. The only reason banks pay people for depositing money is because they (believe) they can make more money investing it themselves.'"
And? Yes you would just be renting their safe. That is what kind of what full reserve banking means which is similar to what you describe.
With full reserve banking there can never be a run on a bank the bank can't meet. With fractional reserve banking there can be such a run and if it occurs then the "lender of last resort" has to bail the banks out i.e the taxpayer.