alt Hacker News>What's that supposed to mean?
The misconception is that if a bank has a capital X, the law gives them power to create loans up to 10X.
What I'm saying is that without the law, the bank could create loans without a constraint, so say 20X, 100X 1000X.
The fractional reserve policy is actually a limit, not the source of lending in excess of capital.
Loans are money creation, and this creation is organic, it doesn't need a charter from the government.
Another misconception is that this money creation is monetary emission or that it somehow causes inflation. It doesn't, because it is gross money creation, not net money creation.
> What I'm saying is that without the law, the bank could create loans without a constraint, so say 20X, 100X 1000X.
No, they couldn't, and they didn't when no such laws existed. Canada and Scotland had prominent episodes in their histories when banking was fairly lightly regulated and no such laws existed; and their banks did not create '1000X' loans from thin air.
> Another misconception is that this money creation is monetary emission or that it somehow causes inflation.
No, it would absolutely contribute to inflation. As a thought experiment: just imagine the government banned private money creation tomorrow. Inflation would totally crash and the economy would collapse from a lack of demand.
> It doesn't, because it is gross money creation, not net money creation.
What is that supposed to mean?
> Loans are money creation, and this creation is organic, it doesn't need a charter from the government.
I agree on the first and last part. I'm not what you mean by organic.