Comment: Re:Obvious Missing - GOLD (Score 1) 868
Uh, you have that a little backwards/wrong. Fractional reserve banking is not a myth, it is very real. Banks can lend more than they have in reserve. To your point, they don't lend from their reserves, they borrow the money from another bank at a lower interest rate than they lend it to obligor. Thus, they create a positive cash-flow through arbitrage. They only keep enough money in reserve to service their debts, and then pocket the excess (aka executive pay and bonuses). What they don't plan on, due to moral hazard, is that the economy might shift (I'll save the reasons for another post) and the obligor may not be able to repay the debt. When enough of their loans go into default (Minsky moment), the bank becomes insolvent because it cannot repay it's debts. And, instead of the exorbitantly rich executives bailing out the banks, they turn to the government, central banks, etc to save the bank. If they don't get enough money injected to cover their debts, the bank collapses. Thus, all of that banks debts go into default, and the cycle repeats itself. This causes the money markets to shift (decreased demand and negative speculation) and the currency devalues. As key currencies devalue, the value of commodities (gold, silver, oil, platinum, pork bellies, frozen concentrated orange juice, etc) goes up. Ultimately, we find that in our debt-based fiat monetary system, the value of our currency is directly tied to the solvency of the banks, which is why the government has established the policy of propping up failing banks (aka moral hazard).
But yeah, when the obligor borrows money, it does create a deposit. This is part of a much larger and very nefarious system...