Banks Create Money Out Of Thin Air. What Could Possibly Go Wrong?

You might rightfully wonder: How can a bank, like the neighborhood bank down the street, "Create money out of thin air"?

Banks can spin new loans out of old loans, creating a wheel of fortune by lending the same dollar to nine different customers-a feat that, to the uninitiated, is equally quite amazing and frightening!

This financial alchemy is perfectly legal and is in fact carried out with the aid and assistance of central banks everywhere, including our own Federal Reserve.

The table above demonstrates that banks can expand the money supply by a factor of ten when the reserve requirement is 10 percent.

The 0 percent reserve requirement on time deposits enables banks to expand the money supply by more than a factor of ten.

Banks then have to call in loans or sell securities to cover their depositor's demands for money.

Everything else was "Jokers are wild." Thus, banks could create as much funny money as the traffic would bear. 

https://mises.org/wire/banks-create-money-out-thin-air-what-could-possibly-go-wrong