Perpetual Money Growth To Pay Interest
One Hundred Percent Reserve Banking

Many of the advocates of the perpetual growth hypothesis claim that the need for more money somehow comes as a by-product of the fractional reserve banking system. This presentation will deal with that fractional reserve banking in models 3 & 4, but we must first establish how money loans get repaid, with interest, with a fixed supply of money.

Briefly, for the uninitiated and for the review of experts, in a 100% reserve banking system banks must keep a reserve of commodity money equal to (or greater than) the amount of their demand (or checkable) deposit liabilities*. This means that banks in this system can only make loans from the bank's own money or from money represented by time deposit liabilities, which must remain in the bank for a contractual period of time and generally pay interest.

On the next page we begin the first of two models based on a 100% reserve banking system with an introduction...

* The demand deposit accounts implicitly contain a 100% reserve requirement, even though banks have not followed this legal requirement for years (decades or centuries). Bank regulatory authorities could require 100% reserves, but typically they set them much lower.

 

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