Yes that's how it works anon and it's nothing new.
The entire system is based upon just that, people keeping their money in the banks. So as soon as things turn sour the shit hits the fan almost immediately, like it did in Greece last summer as an example.
>>1042438 I read the same book, 4th edition. I'm honestly not sure. Both fractional and reserve banking seem flawed. Fiat money has lots of flaws, but even the gold standard has some flaws. Competing currencies is also flawed. I'm not quite sure what the best monetary system is because even the so-called experts are divided. Among libertarians there's tons of different opinions. Ultimately though I think Friedman is right though. His k-percent rule seems to be ideal. The problem is that it's fiat money and there would always be the risk that the government will inflate the money supply to pay for expensive government programs. To prevent this maybe it would be a good idea to allow banks to print their money if they choose to, to compete with the dollar. I'm not sure if banks would do it though.
>>1042438 well its legal because you can go into a contract without a 100% guarantee you will give money back, or guarantee that you will fulful this contract Its a good system if things like people savings remains relaitively constant.
>>1042535 Guaranteed by the government. At least in Australia anyway.
Fractional reserve banking is great. By increasing the growth in credit, borrowers have access to credit they otherwise wouldn't under a full reserve system. Once you take into account the central bank's ability to influence bank reserves and hence overall credit growth, it's actually a real neat system.
>>1042523 I can see how it wold fuel an economy's growth with more money in circulation, but like someone said, when people start wanting their money bank, for instance because a bank was robbed and they speculate the bank will collapse, they bank will also collapse!
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