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[Music]

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banks are allowed to create money

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through a system called fractional

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Reserve banking whenever you deposit

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money the bank is legally required to

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keep a certain percentage of it

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somewhere safe but can lend everything

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else here's an example based on a 10%

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Reserve requirement John goes to his

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bank and deposits

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$1,000 John's Bank keeps $100 and lends

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the remaining $900 to month there is now

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$1,900 in the financial system John's

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$1,000 deposit and Mike's $900 loan next

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Mike uses the $900 to buy a laptop from

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Karen then Karen deposits her $900 at

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another bank the bank keeps 10% and

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lends the remaining $810 to George there

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is now

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$2,710 in the system John's $1,000

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deposit Karen's $900 deposit and

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George's $810 loan this goes on and on

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until John's initial $1,000 is turned

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into approximately $10 ,000 Believe It

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or Not commercial Banks actually create

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more money than central

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banks