Banks effectively create credit by lending other's deposits. Is this a good thing for the economy?

Question

e.g. a bank received a deposit of $100. Therefore it can lend $95, keeping some in reserve in case someone wants to make a withdrawal. The $95 is spent, and the receiver deposits this into the bank, who can then lend most of it out again. Is this money creation a good thing for the economy, given that the injection of money stock creates inflation?

Answer 1

IMO, this is Mostly very _bad_ for the TRUE economy! This sort of practice is one of the things that lead to the demise of the "Silver Certificate" form of currency this nation used for trade many years ago. Now we have a "Federal Reserve NOTE", essentially an I.O.U. and when we run out of money, the mints just print more.

So what makes these I.O.U.'s different from Monopoly Money? What makes that plastic credit card any more valuable than a plastic fork? How much 'money' backs up that credit card, fork & WHY? Who says?

It seems to me this nation runs mostly on "Numbers". They are used to identify you, describe where you live, your height, weight, your credit worthiness, how much 'money' you owe or have/don't have in your accounts, describe your accounts' locations, types & balances.

Bad system overall!! -However- this game of Numbers DOES create jobs and make businesses a profit. ~That's Only As Long As~ every holder of these I.O.U.'s don't call them "Due & Payable Immediately" =all at once=. If that ever happens, listen for a -very- loud *C*R*A*S*H*!!!!

Answer 2

It is good for the economy because the fact is when they do lend it out they charge interest at alot higher interest than the official interest rate for personal lones

e.g. if some one borrows $100 then thebank charges 17% interest to make the money keep circulating and at the same time make a huge profit