We should all agree with this!

[Toddsterpatriot]

To clarify: you then agree with my scenario laid out in post #267?

I'm still waiting for you to show the error in my post #190.

I have. That is what this whole discussion is about. Now stop dodging my question. Do you agree with my scenario as laid out in post #267?

Your scenario in #267, like my scenario in #190, is correct.

Deposits are always larger than loans.
Every loan is fully funded.

 

[ShackledNation]

I'm still waiting for you to show the error in my post #190.

I have. That is what this whole discussion is about. Now stop dodging my question. Do you agree with my scenario as laid out in post #267?

Your scenario in #267, like my scenario in #190, is correct.

Ok, then you necessarily acknowledge that a single, $1000 deposit allows a single bank to make a $9000 loan. That is what the scenario proved.

Deposits are always smaller than loans.
Every loan is fully funded.

Are you sure that is what you meant to say? If you believe deposits fund loans, but deposits are smaller than loans, then how is every loan fully funded by deposits? In all of the scenarios, deposits are larger than loans.

I am beginning to think you don't really know what your position is.

 

[Toddsterpatriot]

I have. That is what this whole discussion is about. Now stop dodging my question. Do you agree with my scenario as laid out in post #267?

Your scenario in #267, like my scenario in #190, is correct.

Ok, then you necessarily acknowledge that a single, $1000 deposit allows a single bank to make a $9000 loan. That is what the scenario proved.

Deposits are always smaller than loans.
Every loan is fully funded.

Are you sure that is what you meant to say? If you believe deposits fund loans, but deposits are smaller than loans, then how is every loan fully funded by deposits? In all of the scenarios, deposits are larger than loans.

I am beginning to think you don't really know what your position is.

Ok, then you necessarily acknowledge that a single, $1000 deposit allows a single bank to make a $9000 loan.

A bank with a single $1000 deposit which made a $9000 loan and did not, later in the day, get another $9000 in funds, would quickly be shut down.

Are you sure that is what you meant to say?

You're right, I meant to repeat that deposits are always larger than loans.
Constantly correcting your mistakes is exhausting. I corrected the post.

 

[Toddsterpatriot]

I have. That is what this whole discussion is about. Now stop dodging my question. Do you agree with my scenario as laid out in post #267?

Your scenario in #267, like my scenario in #190, is correct.

Ok, then you necessarily acknowledge that a single, $1000 deposit allows a single bank to make a $9000 loan. That is what the scenario proved.

Deposits are always smaller than loans.
Every loan is fully funded.

Are you sure that is what you meant to say? If you believe deposits fund loans, but deposits are smaller than loans, then how is every loan fully funded by deposits? In all of the scenarios, deposits are larger than loans.

I am beginning to think you don't really know what your position is.

a single, $1000 deposit allows a single bank to make a $9000 loan. That is what the scenario proved.

In all of the scenarios, deposits are larger than loans.

Are you sure that is what you meant to say?
I am beginning to think you don't really know what your position is.

 

[ShackledNation]

Your scenario in #267, like my scenario in #190, is correct.

Ok, then you necessarily acknowledge that a single, $1000 deposit allows a single bank to make a $9000 loan. That is what the scenario proved.

Deposits are always smaller than loans.
Every loan is fully funded.

Are you sure that is what you meant to say? If you believe deposits fund loans, but deposits are smaller than loans, then how is every loan fully funded by deposits? In all of the scenarios, deposits are larger than loans.

I am beginning to think you don't really know what your position is.

Ok, then you necessarily acknowledge that a single, $1000 deposit allows a single bank to make a $9000 loan.

A bank with a single $1000 deposit which made a $9000 loan and did not, later in the day, get another $9000 in funds, would quickly be shut down.

No it wouldn't. The bank created the $9000 loan in the form of a $9000 checking account (demand deposit). Both were created at the same time, by the bank, "out of thin air" so to speak. That is exactly what happened in the example you agreed with.

I think I see your confusion. You think that because Salesman B deposited his check at Bank A, and Salesman A deposited his at Bank B, something changes, and somehow the money wasn't created out of thin air and is now financed by deposits when it wasn't before. Back to the example:

Customer A deposits $1000 into Bank A, which creates a corresponding deposit account.
Customer B deposits $1000 into Bank B, which creates a corresponding deposit account.
Both banks have $1000 of reserves, $1000 of deposits, and $0 of loans.
The reserve ratio at each bank is 100%.

Bank A loans $9000 to Debtor A and creates a deposit account for him.
Bank B loans $9000 to Debtor B and creates a deposit account for him.
Both banks have $1000 of reserves, $10000 of deposits, and $9000 of loans.
-->notice in the above that there was never a $9,000 deposit. The loan was created, distributed, and spent before any new deposit entered the picture.
The reserve ratio at each Bank is 10%.

Debtor A pays Salesman B $9000 from the loan via a check from Bank A.
Debtor B pays Salesman A $9000 from the loan via a check from Bank B.
Salesman B deposits his check (from Bank A) into Bank B.
Salesman A deposits his check (from Bank B) into Bank A.
-->Here is where I think you are getting confused. You think the deposits from the two Salesmen created the two $9,000 loans. This is absurd, because loans were created before the deposits. Furthermore, where is this money coming from? Salesman B is depositing $9,000 that came from Bank A, and Bank A got that $9,000 from what? Go up a paragraph, and the answer is clear. Bank A created that money out of thin air when it made the loan.

Bank A and Bank B both have $9000 checks from each other. They cancel each other out.
Both banks still have $1000 of reserves, $10000 of deposits, and $9000 of loans.
The reserve ratio at each Bank remains 10%.

Each Bank created $9000 in loans even though each bank only had $1000 in deposits at the time the loan was created.

 

[EdwardBaiamonte]

Each Bank created $9000 in loans even though each bank only had $1000 in deposits at the time the loan was created.[/I]

yes but the critical factor is the Fed which sets interest rates and reserve requirements to

control the real money created. Banks have little to do with process except to be servants of the Fed.

 

[ShackledNation]

Each Bank created $9000 in loans even though each bank only had $1000 in deposits at the time the loan was created.[/I]

yes but the critical factor is the Fed which sets interest rates and reserve requirements to

control the real money created. Banks have little to do with process except to be servants of the Fed.

More like the Fed allows the banks to practice fractional reserve banking with less risk.

Without the Fed, banks would still be creating money. The Fed just allows them to create even more without fearing a bank-run. The banks lobbied to create the Fed for this exact reason.

 

[EdwardBaiamonte]

Without the Fed, banks would still be creating money.

that would depend 1000% on what the new banking laws were!!!!!

 

[Toddsterpatriot]

Ok, then you necessarily acknowledge that a single, $1000 deposit allows a single bank to make a $9000 loan. That is what the scenario proved.


Are you sure that is what you meant to say? If you believe deposits fund loans, but deposits are smaller than loans, then how is every loan fully funded by deposits? In all of the scenarios, deposits are larger than loans.

I am beginning to think you don't really know what your position is.

Ok, then you necessarily acknowledge that a single, $1000 deposit allows a single bank to make a $9000 loan.

A bank with a single $1000 deposit which made a $9000 loan and did not, later in the day, get another $9000 in funds, would quickly be shut down.

No it wouldn't. The bank created the $9000 loan in the form of a $9000 checking account (demand deposit). Both were created at the same time, by the bank, "out of thin air" so to speak. That is exactly what happened in the example you agreed with.

I think I see your confusion. You think that because Salesman B deposited his check at Bank A, and Salesman A deposited his at Bank B, something changes, and somehow the money wasn't created out of thin air and is now financed by deposits when it wasn't before. Back to the example:

Customer A deposits $1000 into Bank A, which creates a corresponding deposit account.
Customer B deposits $1000 into Bank B, which creates a corresponding deposit account.
Both banks have $1000 of reserves, $1000 of deposits, and $0 of loans.
The reserve ratio at each bank is 100%.

Bank A loans $9000 to Debtor A and creates a deposit account for him.
Bank B loans $9000 to Debtor B and creates a deposit account for him.
Both banks have $1000 of reserves, $10000 of deposits, and $9000 of loans.
-->notice in the above that there was never a $9,000 deposit. The loan was created, distributed, and spent before any new deposit entered the picture.
The reserve ratio at each Bank is 10%.

Debtor A pays Salesman B $9000 from the loan via a check from Bank A.
Debtor B pays Salesman A $9000 from the loan via a check from Bank B.
Salesman B deposits his check (from Bank A) into Bank B.
Salesman A deposits his check (from Bank B) into Bank A.
-->Here is where I think you are getting confused. You think the deposits from the two Salesmen created the two $9,000 loans. This is absurd, because loans were created before the deposits. Furthermore, where is this money coming from? Salesman B is depositing $9,000 that came from Bank A, and Bank A got that $9,000 from what? Go up a paragraph, and the answer is clear. Bank A created that money out of thin air when it made the loan.

Bank A and Bank B both have $9000 checks from each other. They cancel each other out.
Both banks still have $1000 of reserves, $10000 of deposits, and $9000 of loans.
The reserve ratio at each Bank remains 10%.

Each Bank created $9000 in loans even though each bank only had $1000 in deposits at the time the loan was created.

The bank created the $9000 loan in the form of a $9000 checking account (demand deposit). <-----why do you think this

Refutes this-----> A bank with a single $1000 deposit which made a $9000 loan and did not, later in the day, get another $9000 in funds, would quickly be shut down.

With new services, including cell phone apps, your ShackledBank is going to be disappointed if it depended on loaned funds staying in that new demand account for more than a few hours.

You think the deposits from the two Salesmen created the two $9,000 loans.

No I don't, I think you have to fund the loans by the end of the day.
Funding them instantly works.

 

[ShackledNation]

Ok, then you necessarily acknowledge that a single, $1000 deposit allows a single bank to make a $9000 loan.

A bank with a single $1000 deposit which made a $9000 loan and did not, later in the day, get another $9000 in funds, would quickly be shut down.

No it wouldn't. The bank created the $9000 loan in the form of a $9000 checking account (demand deposit). Both were created at the same time, by the bank, "out of thin air" so to speak. That is exactly what happened in the example you agreed with.

I think I see your confusion. You think that because Salesman B deposited his check at Bank A, and Salesman A deposited his at Bank B, something changes, and somehow the money wasn't created out of thin air and is now financed by deposits when it wasn't before. Back to the example:

Customer A deposits $1000 into Bank A, which creates a corresponding deposit account.
Customer B deposits $1000 into Bank B, which creates a corresponding deposit account.
Both banks have $1000 of reserves, $1000 of deposits, and $0 of loans.
The reserve ratio at each bank is 100%.

Bank A loans $9000 to Debtor A and creates a deposit account for him.
Bank B loans $9000 to Debtor B and creates a deposit account for him.
Both banks have $1000 of reserves, $10000 of deposits, and $9000 of loans.
-->notice in the above that there was never a $9,000 deposit. The loan was created, distributed, and spent before any new deposit entered the picture.
The reserve ratio at each Bank is 10%.

Debtor A pays Salesman B $9000 from the loan via a check from Bank A.
Debtor B pays Salesman A $9000 from the loan via a check from Bank B.
Salesman B deposits his check (from Bank A) into Bank B.
Salesman A deposits his check (from Bank B) into Bank A.
-->Here is where I think you are getting confused. You think the deposits from the two Salesmen created the two $9,000 loans. This is absurd, because loans were created before the deposits. Furthermore, where is this money coming from? Salesman B is depositing $9,000 that came from Bank A, and Bank A got that $9,000 from what? Go up a paragraph, and the answer is clear. Bank A created that money out of thin air when it made the loan.

Bank A and Bank B both have $9000 checks from each other. They cancel each other out.
Both banks still have $1000 of reserves, $10000 of deposits, and $9000 of loans.
The reserve ratio at each Bank remains 10%.

Each Bank created $9000 in loans even though each bank only had $1000 in deposits at the time the loan was created.

The bank created the $9000 loan in the form of a $9000 checking account (demand deposit). <-----why do you think this

Refutes this-----> A bank with a single $1000 deposit which made a $9000 loan and did not, later in the day, get another $9000 in funds, would quickly be shut down.

Because the bank is meeting the 10% reserve requirement and doesn't need another $9000 in deposits. A bank with a single $1000 deposit of cash creates a $9000 loan, which it finances by creating a $9000 demand deposit for the debtor. Reserve requirement = 10%. No problem.

With new services, including cell phone apps, your ShackledBank is going to be disappointed if it depended on loaned funds staying in that new demand account for more than a few hours.

You think the deposits from the two Salesmen created the two $9,000 loans.

No I don't, I think you have to fund the loans by the end of the day.
Funding them instantly works.

The loans at each bank at the end of the day are funded by money created out of thin air by the other bank. This is really not hard to follow. I'm starting to suspect you are just trolling.

 

[Toddsterpatriot]

No it wouldn't. The bank created the $9000 loan in the form of a $9000 checking account (demand deposit). Both were created at the same time, by the bank, "out of thin air" so to speak. That is exactly what happened in the example you agreed with.

I think I see your confusion. You think that because Salesman B deposited his check at Bank A, and Salesman A deposited his at Bank B, something changes, and somehow the money wasn't created out of thin air and is now financed by deposits when it wasn't before. Back to the example:

Customer A deposits $1000 into Bank A, which creates a corresponding deposit account.
Customer B deposits $1000 into Bank B, which creates a corresponding deposit account.
Both banks have $1000 of reserves, $1000 of deposits, and $0 of loans.
The reserve ratio at each bank is 100%.

Bank A loans $9000 to Debtor A and creates a deposit account for him.
Bank B loans $9000 to Debtor B and creates a deposit account for him.
Both banks have $1000 of reserves, $10000 of deposits, and $9000 of loans.
-->notice in the above that there was never a $9,000 deposit. The loan was created, distributed, and spent before any new deposit entered the picture.
The reserve ratio at each Bank is 10%.

Debtor A pays Salesman B $9000 from the loan via a check from Bank A.
Debtor B pays Salesman A $9000 from the loan via a check from Bank B.
Salesman B deposits his check (from Bank A) into Bank B.
Salesman A deposits his check (from Bank B) into Bank A.
-->Here is where I think you are getting confused. You think the deposits from the two Salesmen created the two $9,000 loans. This is absurd, because loans were created before the deposits. Furthermore, where is this money coming from? Salesman B is depositing $9,000 that came from Bank A, and Bank A got that $9,000 from what? Go up a paragraph, and the answer is clear. Bank A created that money out of thin air when it made the loan.

Bank A and Bank B both have $9000 checks from each other. They cancel each other out.
Both banks still have $1000 of reserves, $10000 of deposits, and $9000 of loans.
The reserve ratio at each Bank remains 10%.

Each Bank created $9000 in loans even though each bank only had $1000 in deposits at the time the loan was created.

The bank created the $9000 loan in the form of a $9000 checking account (demand deposit). <-----why do you think this

Refutes this-----> A bank with a single $1000 deposit which made a $9000 loan and did not, later in the day, get another $9000 in funds, would quickly be shut down.

Because the bank is meeting the 10% reserve requirement and doesn't need another $9000 in deposits. A bank with a single $1000 deposit of cash creates a $9000 loan, which it finances by creating a $9000 demand deposit for the debtor. Reserve requirement = 10%. No problem.

With new services, including cell phone apps, your ShackledBank is going to be disappointed if it depended on loaned funds staying in that new demand account for more than a few hours.

You think the deposits from the two Salesmen created the two $9,000 loans.

No I don't, I think you have to fund the loans by the end of the day.
Funding them instantly works.

The loans at each bank at the end of the day are funded by money created out of thin air by the other bank. This is really not hard to follow. I'm starting to suspect you are just trolling.

Because the bank is meeting the 10% reserve requirement and doesn't need another $9000 in deposits.

Because the demand account they created, temporarily, adds $9000 in deposits.

It's amazing how much you can lend if your borrowers never withdraw the funds.

 

[ShackledNation]

The bank created the $9000 loan in the form of a $9000 checking account (demand deposit). <-----why do you think this

Refutes this-----> A bank with a single $1000 deposit which made a $9000 loan and did not, later in the day, get another $9000 in funds, would quickly be shut down.

Because the bank is meeting the 10% reserve requirement and doesn't need another $9000 in deposits. A bank with a single $1000 deposit of cash creates a $9000 loan, which it finances by creating a $9000 demand deposit for the debtor. Reserve requirement = 10%. No problem.

With new services, including cell phone apps, your ShackledBank is going to be disappointed if it depended on loaned funds staying in that new demand account for more than a few hours.

You think the deposits from the two Salesmen created the two $9,000 loans.

No I don't, I think you have to fund the loans by the end of the day.
Funding them instantly works.

The loans at each bank at the end of the day are funded by money created out of thin air by the other bank. This is really not hard to follow. I'm starting to suspect you are just trolling.

Because the bank is meeting the 10% reserve requirement and doesn't need another $9000 in deposits.

Because the demand account they created, temporarily, adds $9000 in deposits.

And it was created out of thin air. The $9000 loan was not made from any existing deposits.

 

[Toro]

Ok, then you necessarily acknowledge that a single, $1000 deposit allows a single bank to make a $9000 loan. That is what the scenario proved.


Are you sure that is what you meant to say? If you believe deposits fund loans, but deposits are smaller than loans, then how is every loan fully funded by deposits? In all of the scenarios, deposits are larger than loans.

I am beginning to think you don't really know what your position is.

Ok, then you necessarily acknowledge that a single, $1000 deposit allows a single bank to make a $9000 loan.

A bank with a single $1000 deposit which made a $9000 loan and did not, later in the day, get another $9000 in funds, would quickly be shut down.

No it wouldn't. The bank created the $9000 loan in the form of a $9000 checking account (demand deposit). Both were created at the same time, by the bank, "out of thin air" so to speak. That is exactly what happened in the example you agreed with.

I think I see your confusion. You think that because Salesman B deposited his check at Bank A, and Salesman A deposited his at Bank B, something changes, and somehow the money wasn't created out of thin air and is now financed by deposits when it wasn't before. Back to the example:

Customer A deposits $1000 into Bank A, which creates a corresponding deposit account.
Customer B deposits $1000 into Bank B, which creates a corresponding deposit account.
Both banks have $1000 of reserves, $1000 of deposits, and $0 of loans.
The reserve ratio at each bank is 100%.

Bank A loans $9000 to Debtor A and creates a deposit account for him.
Bank B loans $9000 to Debtor B and creates a deposit account for him.
Both banks have $1000 of reserves, $10000 of deposits, and $9000 of loans.
-->notice in the above that there was never a $9,000 deposit. The loan was created, distributed, and spent before any new deposit entered the picture.
The reserve ratio at each Bank is 10%.

Debtor A pays Salesman B $9000 from the loan via a check from Bank A.
Debtor B pays Salesman A $9000 from the loan via a check from Bank B.
Salesman B deposits his check (from Bank A) into Bank B.
Salesman A deposits his check (from Bank B) into Bank A.
-->Here is where I think you are getting confused. You think the deposits from the two Salesmen created the two $9,000 loans. This is absurd, because loans were created before the deposits. Furthermore, where is this money coming from? Salesman B is depositing $9,000 that came from Bank A, and Bank A got that $9,000 from what? Go up a paragraph, and the answer is clear. Bank A created that money out of thin air when it made the loan.

Bank A and Bank B both have $9000 checks from each other. They cancel each other out.
Both banks still have $1000 of reserves, $10000 of deposits, and $9000 of loans.
The reserve ratio at each Bank remains 10%.

Each Bank created $9000 in loans even though each bank only had $1000 in deposits at the time the loan was created.

Your math is incorrect.

A bank with $100 in reserves will have $900 in liabilities (deposits, wholesale funding, bonds, etc.) and have $1000 in assets (loans, bonds, etc.). This is a mathematical truism that must hold.

A bank cannot make $900 in loans with $100 in deposits. It can make $900 in loans with $100 in equity capital (reserves) and $800 in deposits.

 

[Toddsterpatriot]

Because the bank is meeting the 10% reserve requirement and doesn't need another $9000 in deposits. A bank with a single $1000 deposit of cash creates a $9000 loan, which it finances by creating a $9000 demand deposit for the debtor. Reserve requirement = 10%. No problem.


The loans at each bank at the end of the day are funded by money created out of thin air by the other bank. This is really not hard to follow. I'm starting to suspect you are just trolling.

Because the bank is meeting the 10% reserve requirement and doesn't need another $9000 in deposits.

Because the demand account they created, temporarily, adds $9000 in deposits.

And it was created out of thin air. The $9000 loan was not made from any existing deposits.

It was made of the simultaneously created deposits. Not thin air.

You can't create assets out of thin air.

When I go to ShackledBank and take out a $9000 loan, based on your $1000 in deposits, and wire the money out 2 minutes later, do you need more deposits, or loans from another bank, by the end of business? Why?

 

[ShackledNation]

Because the bank is meeting the 10% reserve requirement and doesn't need another $9000 in deposits.

Because the demand account they created, temporarily, adds $9000 in deposits.

And it was created out of thin air. The $9000 loan was not made from any existing deposits.

It was made of the simultaneously created deposits. Not thin air.

The deposits were created out of thin air.

When I go to ShackledBank and take out a $9000 loan, based on your $1000 in deposits, and wire the money out 2 minutes later, do you need more deposits, or loans from another bank, by the end of business? Why?

I've already answered that question in depth with an example of course. But money is still created out of thin air, because it comes before the deposits. In fact, the only reason the deposit of $9000 was possible was because the money was created out of thin air in the first place.

Bank A loans $9000 to Bob. Bob buys a car with a check from the Bank. Salesman Sue, a customer of Bank A, deposits the check at Bank A. Bank A credits Sue's account $9,000 and closes Bob's account. Answer this question: where did the $9000 deposit to fund the loan come from? Whose deposit financed the loan allowing it to be created? (Hint: Sue is the wrong answer). At the end of the day, where did the deposit from Sue ultimately come from? (Hint: Bob is the wrong answer).

The answer to both questions is...out of thin air.

 

[Toro]

And it was created out of thin air. The $9000 loan was not made from any existing deposits.

It was made of the simultaneously created deposits. Not thin air.

The deposits were created out of thin air.

When I go to ShackledBank and take out a $9000 loan, based on your $1000 in deposits, and wire the money out 2 minutes later, do you need more deposits, or loans from another bank, by the end of business? Why?

I've already answered that question in depth with an example of course. But money is still created out of thin air, because it comes before the deposits. In fact, the only reason the deposit of $9000 was possible was because the money was created out of thin air in the first place.

Bank A loans $9000 to Bob. Bob buys a car with a check from the Bank. Salesman Sue, a customer of Bank A, deposits the check at Bank A. Bank A credits Sue's account $9,000 and closes Bob's account. Answer this question: where did the $9000 deposit to fund the loan come from? Whose deposit financed the loan allowing it to be created? (Hint: Sue is the wrong answer). At the end of the day, where did the deposit from Sue ultimately come from? (Hint: Bob is the wrong answer).

The answer to both questions is...out of thin air.

The bank needs $9000 before it can lend the money to Bob.

Banks need capital before they can make any loans.

 

[ShackledNation]

Ok, then you necessarily acknowledge that a single, $1000 deposit allows a single bank to make a $9000 loan.

A bank with a single $1000 deposit which made a $9000 loan and did not, later in the day, get another $9000 in funds, would quickly be shut down.

No it wouldn't. The bank created the $9000 loan in the form of a $9000 checking account (demand deposit). Both were created at the same time, by the bank, "out of thin air" so to speak. That is exactly what happened in the example you agreed with.

I think I see your confusion. You think that because Salesman B deposited his check at Bank A, and Salesman A deposited his at Bank B, something changes, and somehow the money wasn't created out of thin air and is now financed by deposits when it wasn't before. Back to the example:

Customer A deposits $1000 into Bank A, which creates a corresponding deposit account.
Customer B deposits $1000 into Bank B, which creates a corresponding deposit account.
Both banks have $1000 of reserves, $1000 of deposits, and $0 of loans.
The reserve ratio at each bank is 100%.

Bank A loans $9000 to Debtor A and creates a deposit account for him.
Bank B loans $9000 to Debtor B and creates a deposit account for him.
Both banks have $1000 of reserves, $10000 of deposits, and $9000 of loans.
-->notice in the above that there was never a $9,000 deposit. The loan was created, distributed, and spent before any new deposit entered the picture.
The reserve ratio at each Bank is 10%.

Debtor A pays Salesman B $9000 from the loan via a check from Bank A.
Debtor B pays Salesman A $9000 from the loan via a check from Bank B.
Salesman B deposits his check (from Bank A) into Bank B.
Salesman A deposits his check (from Bank B) into Bank A.
-->Here is where I think you are getting confused. You think the deposits from the two Salesmen created the two $9,000 loans. This is absurd, because loans were created before the deposits. Furthermore, where is this money coming from? Salesman B is depositing $9,000 that came from Bank A, and Bank A got that $9,000 from what? Go up a paragraph, and the answer is clear. Bank A created that money out of thin air when it made the loan.

Bank A and Bank B both have $9000 checks from each other. They cancel each other out.
Both banks still have $1000 of reserves, $10000 of deposits, and $9000 of loans.
The reserve ratio at each Bank remains 10%.

Each Bank created $9000 in loans even though each bank only had $1000 in deposits at the time the loan was created.

Your math is incorrect.

A bank with $100 in reserves will have $900 in liabilities (deposits, wholesale funding, bonds, etc.) and have $1000 in assets (loans, bonds, etc.). This is a mathematical truism that must hold.

A bank cannot make $900 in loans with $100 in deposits. It can make $900 in loans with $100 in equity capital (reserves) and $800 in deposits.

Reserves are counted as assets, not equity. These simple examples do not involve equity, nor do they need to. Also, $800 in deposits is not required to make $900 in loans.

 

[Toddsterpatriot]

And it was created out of thin air. The $9000 loan was not made from any existing deposits.

It was made of the simultaneously created deposits. Not thin air.

The deposits were created out of thin air.

When I go to ShackledBank and take out a $9000 loan, based on your $1000 in deposits, and wire the money out 2 minutes later, do you need more deposits, or loans from another bank, by the end of business? Why?

I've already answered that question in depth with an example of course. But money is still created out of thin air, because it comes before the deposits. In fact, the only reason the deposit of $9000 was possible was because the money was created out of thin air in the first place.

Bank A loans $9000 to Bob. Bob buys a car with a check from the Bank. Salesman Sue, a customer of Bank A, deposits the check at Bank A. Bank A credits Sue's account $9,000 and closes Bob's account. Answer this question: where did the $9000 deposit to fund the loan come from? Whose deposit financed the loan allowing it to be created? (Hint: Sue is the wrong answer). At the end of the day, where did the deposit from Sue ultimately come from? (Hint: Bob is the wrong answer).

The answer to both questions is...out of thin air.

But money is still created out of thin air, because it comes before the deposits.

Banks can create offsetting assets and liabilities all day long.
Hell, I'm not a bank and I can do that. Look, I just wrote a $1 million IOU to my wife!
The difference is that bank liabilities are considered money.

 

[ShackledNation]

It was made of the simultaneously created deposits. Not thin air.

The deposits were created out of thin air.

When I go to ShackledBank and take out a $9000 loan, based on your $1000 in deposits, and wire the money out 2 minutes later, do you need more deposits, or loans from another bank, by the end of business? Why?

I've already answered that question in depth with an example of course. But money is still created out of thin air, because it comes before the deposits. In fact, the only reason the deposit of $9000 was possible was because the money was created out of thin air in the first place.

Bank A loans $9000 to Bob. Bob buys a car with a check from the Bank. Salesman Sue, a customer of Bank A, deposits the check at Bank A. Bank A credits Sue's account $9,000 and closes Bob's account. Answer this question: where did the $9000 deposit to fund the loan come from? Whose deposit financed the loan allowing it to be created? (Hint: Sue is the wrong answer). At the end of the day, where did the deposit from Sue ultimately come from? (Hint: Bob is the wrong answer).

The answer to both questions is...out of thin air.

The bank needs $9000 before it can lend the money to Bob.

Banks need capital before they can make any loans.

The Bank does not need $9000 before it makes a loan. That is simply not correct.

 

[Toro]

Reserves are counted as assets, not equity. These simple examples do not involve equity, nor do they need to. Also, $800 in deposits is not required to make $900 in loans.

You are correct. My mistake.

The transmission mechanism of monetary policy is primarily through the banks. (Or at least it used to be.) Banks are governed by rules and laws regarding capital ratios, which is the amount of assets a bank can hold relative to regulated capital (which is usually some form of equity). This is the amount of capital that acts as a buffer in case of losses to the bank. In your examples, it is the capital ratios which allow, or disallow, the leveraging of banks' high-powered money, i.e. reserves.

Here is an example

A bank's balance sheet might look like this with a 9:1 capital ratio;

Loans $100
Assets $100

Deposits $90
Shareholders' Equity $10
Liabilities and Shareholders' Equity $100

That's a truism that MUST hold. Assets MUST equal liabilities and shareholders' equity.

Let's say that the economy faces a financial crisis and instead of the bank making loans, it deposits all it's money at the central bank. It's balance sheet would now look like this

Deposits at central bank $100
Assets $100

Deposits $90
Shareholders' Equity $10
Liabilities and Shareholders' Equity $100

The deposits at the central bank are now counted as reserves. But the bank does not have the ability to increase loans and the money supply because it is constrained by its capital ratio.

That was the point I was trying to make. Simply because reserves go up, it does not mean the money supply rises. This is what happened after the housing bubble.