Let's imagine a person puts $100.00 in their savings account. I believe the reserve is 10%. The bank loans out the $100.00.
$100.00 loaned, $10.00 in reserve
$90.00 loaned, $9.00 in reserve
$81.00 loaned, $8.10 in reserve
$72.90 loaned, $7.30 in reserve
$65.60 loaned, $6.56 in reserve
$59.04 loaned, $5.90 in reserve
and so on...
The only loan that is funded with dollars in circulation is the first loan. The rest is money created out of thin air.
Let's say a month from now, this person goes to the bank and withdraws $100.00 from their savings account. What happens to all these loans?
This is called the Fractional Reserve Ponzi Scheme.
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