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this post was submitted on 06 Jul 2024
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Banks don’t actually lend out people’s savings. When they create loans, they create that money out of thin air. And fractional reserve banking (A.K.A. the “money multiplier”) is a myth.
Only insofar as you would say they destroy money supply when a loan is repaid. They just create a credit and a debit that cancel out.
Correct, the principal is essentially destroyed on payment. Once the loan is payed off, all the money that the bank had originally created has been destroyed.
Same with charging late fees, overdraft fees, etc. It's just all made up money.
This is a fundamentally different thing. When you go to pay the fees they charge you, you don’t get to create that money out of thin air.