Quote:
Originally Posted by jammies
As usual, wiki is your friend: http://en.wikipedia.org/wiki/Money_creation and http://en.wikipedia.org/wiki/Fractional-reserve_banking explain the process pretty well; essentially the money is created by lending money against a reserve. You do not need to have $700 billion in "real" money, you only need to have enough "real" money to satisfy the "fractional" proportion of your loan, the rest exists only as debt on the books.
Creating money in this way is inflationary, as you are essentially conjuring money out of nothing (although to be fair the money eventually disappears once the loan is paid out - except that currently, old loans are just rolled over into new loans instead). Currently the USA "exports" a lot of this inflation to other nations who buy US dollars for various purposes, notably purchasing oil. |
Yeah I understand (understood) that much but I guess I didn't understand the whole story of it and the long term implication of it how the $700B enters and exits the system.
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