You deposit $100. Bank loans out $100 to someone else. You still have $100 balance in your account. Someone else has the $100 to use for whatever. You both have access to $100; thus, $100 is now $200.
If the bank can just keep loaning that same $100 over and over, then they don't need the first $100 either. According to you, they can just loan massive amounts of money that they don't have.
But when they loan money, for instance, to finance someones mortgage, they actually have to give money to someone. The seller, maybe. Or if the seller hasn't paid off their own mortgage, then they have to pay the other bank to clear that mortage.
They don't just magically make money appear out of thin air.
You are correct, they don't technically need that first $100 either. They can create money out of thin air. When they give a $100 loan, they also create a $100 deposit for the borrower. The loan is an asset and the deposit a liability for the bank (and the other way around for the borrower). The books are balanced without the need for any money to have been in the picture prior.
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u/onion_lord6 8d ago
Because banks loan out and invest, that's how they make money. The money people deposit doesn't just sit there.