I was also going to show banks' Balance Sheets in my previous post but I thought that the whole thing might become confusing & lengthy. Anyway, let me post
Bank A's Balance Sheet now :
Initially, Person A has deposited $100
Code:
Liabilities Assets
Checking Account of Person A - $100 Reserves held with Fed - $100
Person B gets a Loan.
Code:
Liabilities Assets
Checking Account of Person A - $100 Reserves held with Fed - $100
Checking Account of Person B - $90 Loan to Person B - $90
Person B buys stuff from Person C, who banks with a different bank.
Code:
Liabilities Assets
Checking Account of Person A - $100 Reserves held with Fed - $10
Checking Account of Person B - $0 Laon to Person B - $90
Obviously, Bank A isn't actually in a position to redeem $100 to Person A because they have only $10, which is the "problem" that Austrians talk about -
non-availability of demand-deposits on demand! I mean this has been the raison d'etre for central-banking, to minimize bankruns by issuing new money when banks are unable to redeem demand-deposits because they have lent out the money in demand-deposits. But again, the new money comes from the central-bank, not from FRB itself.
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