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Banking, one more time....
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Ben Riensche
Posted 12/13/2014 03:00 (#4236978 - in reply to #4235708)
Subject: Please humor my request:


Jesup, IA
John or Old McD: please humor my request. Ok, so a bank issues a note to customer, then issues a corresponding deposit in that customer's deposit account. Got it. Bank assets and liabilities increased simultaneously. "Money" was created by an accounting transaction.

However, that situation is just temporary. No money has left the bank to engage in commerce. The customer needs to withdraw the money to send to merchant to make a purchase.

Please humor me and explain what happens when the customer withdraws money to make their purchase.

Conventional wisdom says the bank has to hand out cash and reduce the customer's deposit. And when this happens, the cash ledger and the demand deposit are reduced, thereby shrinking the bank by an equal amount.

Doesn't this offset the "money" creation? What customer is going to let their deposit account balance be reduced without leaving with a sack of cash?


(Ok, most don't leave with a sack of cash. They are content if the bank transfers funds to whomever they are buying something from. But again the transfer offsets the money creation)



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