I recently heard JEGriffin mention that fractional reserve banking works this way:
Assuming 10% reserves required by banks: I deposit $100, so the bank can now lend out up $900
I remember thinking myself that 10% reserves meant that if I deposited $100, the bank could loan up to $90 of that $100, leaving $10 reserves.
To me these are very different, the first example being inflationary, the second one not (I think).
Which one is correct? I figure JEG is correct, but just thought I'd ask.