Analysis of Money as Debt Video by Paul Griggon - Essay Example

Basically, if the bank has $1K cash with them they can lend up to $9K to borrowers based on the 1:9 fractional reserve system regulations. This does not mean that banks cannot limit the earning of money up to $9K. In reality, they can make money up to $90K which makes it a 1 to 90 ratio.

For instance, if the bank initially had $1K cash in possession, it means the bank can lend up to $9K to the public. So, we can assume that if person X takes the loan of $9K to buy a car from Person Y. Based on person X’s promise to pay the money back, the bank will create $9K cash and loan it to person Wythe tactical part is the Person Y will then deposits $9K in the bank. Based on the 9:1 federal reserved regulation, the bank can then reserve $900 ($9K/10) and loan out the rest which is $8100 ($90:$8100 =1: 9).

Moreover, it moves on to the next loan. Transaction until the bank cant reserve money anymore. So the video explains how banks work.