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Mr.Farrar. There is a key paragraph in your response which I do not understand. Can you clarify it and help me?
"When I went into debt................the bank did not have to pull all of the money for the mortgage or loan, out of its vaults, only the fraction of the reserve set by the Fed..............The rest was a book keeping entry, as…
Mr.Farrar. There is a key paragraph in your response which I do not understand. Can you clarify it and help me?
"When I went into debt................the bank did not have to pull all of the money for the mortgage or loan, out of its vaults, only the fraction of the reserve set by the Fed..............The rest was a book keeping entry, as a credit to the bank."
I understand the rest. My savings account is a liability because the bank must pay interest to me, plus, the bank must give me the money if I demand it. The loan they gave me is an asset for the bank because I must pay interest to them on it. This interest goes in their profit column . Furthermore, the bank can sell my loan to another institution and make some money from that sale.
Your words, which I have quoted above are what I am trying to understand. Can you please expand on them? For instance: are you saying that if I borrow $100 the bank gives me $85 from ITS VAULT and the other $15 comes from the Fed's reserve? Or is there a different interpretation of your words? Please help me to get it right.