Grower Borrows $1,000

Grower Borrows $1,000—Model #2

Again, the grower borrows $1,000 from the bank to buy seed.

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Grower	Dealer	Bank	Money/Deposits
Receives $1,000 from loan.	Not involved.	Transfers $1,000 to grower's account.	No change in quantity of money.
Account Balance: $1,000.	Account Balance: $2,250.	Account Balance: $250.	Total Money: $3,500. Deposit Liabilities: $3,500.

Grower

Dealer

Bank

Money/Deposits

Receives $1,000 from loan.

Not involved.

Transfers $1,000 to grower's account.

No change in quantity of money.

Account Balance:
$1,000.

Account Balance:
$2,250.

Account Balance:
$250.

Total Money: $3,500.

Deposit Liabilities: $3,500.

In this 100% reserve system the bank must use its own money to buy notes (i.e. make loans).

So, without knowing of his impending disaster, the grower buys seed from the dealer...