What happens if the borrower cannot repay his loan in a fractional reserve banking system? Does that cause a catastrophic—or even slight—contraction in the quantity of money?

In a Fractional Reserve Banking System

Outcome #2 (Loan Not Repaid)

This fourth model depicts the effects on the quantity of money—within a fractional reserve banking system—using outcome #2, in which a grower borrows money and cannot repay it. The model shows the following transactions:

Grower Borrows $1,000

First, just like outcome #1, the grower borrows a thousand dollars from the bank for the purpose of buying corn seed.

Grower Buys Seed

Second, the grower buys seed from the seed dealer. He plants that seed; but the crop gets wiped out.

Grower Cannot Sell Seed

Third, with no corn harvested the grower has no seed to sell to the dealer.

Grower Defaults on Loan

Fourth, without the money from seed sales the grower cannot pay his loan—he defaults. Some say he skipped town.