Introduction to Loan Model

Introduction to Bank Loan Model

To test the hypothetical need for a perpetual increase in the quantity of money let's look at the process of money lending from the perspective of a single set of transactions within a Fractional Reserve Banking system*.

On the next three pages I will briefly:

Introduce the actors in this series of transactions.
Briefly describe the banking system under which these transactions occurs, and...
Describe the basic transactions between the actors.

Let's begin with the actors...

Notes:

*I have run a set of four models depicting two different borrower outcomes—1) borrower repays and 2) borrower defaults—in two different banking systems—1) 100% reserve banking and 2) fractional reserve banking. I have used only the third model—borrower repays in a fractional reserve banking system—for the main part of this presentation. Find all the models in the Appendix.