"Money creation is truly a bizarre thing to ponder, let alone accept. It’s actually a very simple process, but really difficult to accept."
It's all in the math (and not even rocket science math!)
- Initial deposit, D = $1,000/-- Money multiplier = 1/R, where R = reserve ratio (in percentage).
- Using 10% reserve ratio, 1/0.1 = 10x multiplier (a lower reserve ratio increases the multiplier effect). This is simple logic, the less of depositor's money held by the bank (lower reserve ratio), the more of depositor's 'money' it can 'take' to create 'new' credit or money (or more precisely, 'debt').
- Money supply = D x 1/R = $1,000 x 10 = $10,000 'new' money created. It's all simple arithmetic. The math, however complex and imprecise as it is turned into and applied to the real world, is still the work of men not of God.
