Thurs. 10/04/08 16:26 EDT
.post #49
Inflationary: causing an increase in the supply of money.
What do you mean by “pyramids multiple loans on top of the original deposit”?
You mean, like in this wiki explanation? If yes, then no, it’s not inflationary, according to my definition, because this process has not caused an increase in the supply of money. No new money has been introduced.[color=red]*[/color]
[color=red]*[/color]Until depositors deplete their account balances, at which point the bank must borrow, from the Fed, to meet the reserve requirement. Only then is new money created…created by the Fed.
Edit:
But, I think I get what you mean now by “That depends on your definition of inflationary.” If “inflation” is defined as “an increase in the sum total of the bank balance $ amounts in a system,” then yes, it is inflationary.
When I think of “inflation,” I guess what I mean is “the point at which there will actually be more new dollars chasing the same number of goods.” This won’t happen until the original depositor depletes his account balance and upsets the bank’s reserve ratio.
It’s not easy to define, and you made a good point.