Couldn't it be said that fractional reserve banks create the perception of there being more money?
Just look at how persistently people retain the belief that banks create money. Wouldn't those same people consider their lines of credit as being "good as cash", and react to them in the same way as they do to getting more money, i.e. by spending more, and thus driving up prices?
A demand deposit is basically just a loan. So... if more people are willing to lend out their money (by depositing it in a bank), then yes, there will be more money available for people to spend. However, this just increases the velocity of money. In other words, people are spending money instead of saving it.
I'm not sure (yet), if this causes price inflation. I think it gets kinda complicated.
I also suspect it's cyclical, so it may cause prices to rise at first, but then fall afterwards.
So the quantity of demand deposits in the system affects the price people are willing to pay, or can receive for cash, yes? And since it is the commercial banks which are responsible for the quantity of demand deposits in the system, it is they that are largely responsible for the loss in purchasing power of the dollar?
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theVAGINAntichrist 1 year ago
Alright, looking forward to it. : )
PanzerDivisionBOM 2 years ago
I'm going to clarify all these issues soon in an essay. My position will become more clear. I just haven't gotten around to it yet.
D4Shawn 2 years ago
Couldn't it be said that fractional reserve banks create the perception of there being more money?
Just look at how persistently people retain the belief that banks create money. Wouldn't those same people consider their lines of credit as being "good as cash", and react to them in the same way as they do to getting more money, i.e. by spending more, and thus driving up prices?
PanzerDivisionBOM 2 years ago
Would money suddenly appearing in your account at the bank increase the velocity of money in the economy?
YoAnarchy 2 years ago
So it is because of an increase in velocity that extra demand deposits affect the price of cash?
YoAnarchy 2 years ago
I don't have a definite answer for you though. There are some things I need to look into.
Essentially, what we are asking is: Is there such a thing as too much spending. Does spending cause inflation?
D4Shawn 2 years ago
A demand deposit is basically just a loan. So... if more people are willing to lend out their money (by depositing it in a bank), then yes, there will be more money available for people to spend. However, this just increases the velocity of money. In other words, people are spending money instead of saving it.
I'm not sure (yet), if this causes price inflation. I think it gets kinda complicated.
I also suspect it's cyclical, so it may cause prices to rise at first, but then fall afterwards.
D4Shawn 2 years ago
So the quantity of demand deposits in the system affects the price people are willing to pay, or can receive for cash, yes? And since it is the commercial banks which are responsible for the quantity of demand deposits in the system, it is they that are largely responsible for the loss in purchasing power of the dollar?
YoAnarchy 2 years ago
Most likely.
If I got a bunch of free money, I would no longer be in need of money. Thus, I would be more likely to put my money towards other things.
The more scarce a good becomes, the higher price people will pay. In your example, we have the opposite effect increased supply).
D4Shawn 2 years ago