# How fractional reserve banking and M0 work **URL:** \ **Category:** Great Debates\ **Created:** [October 18, 2018, 5:56am UTC](https://boards.straightdope.com/t/how-fractional-reserve-banking-and-m0-work/823134 "2018-10-18T05:56:30Z")\ **Posts on this page:** 20\ **Page:** 4
**Author:** ![Riemann](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/riemann/32/3133_2.png) [@Riemann](https://boards.straightdope.com/u/Riemann)\ **Post date:** [October 18, 2018, 6:38pm UTC](https://boards.straightdope.com/t/how-fractional-reserve-banking-and-m0-work/823134/61 "2018-10-18T18:38:30Z")
> [@Slash1972](#): > > Ok. I just opened a bank, and I have $1000 in deposits from 2 customers. > > What’s my first step to infinite money? Do the banknotes have a gold fringe? I think that’s what distinguishes M0 from M1. Ok, I’ll stop taking the piss, but I had a serious point in asking mustang what he thought about the Sovereign Citizens legal arguments. Because it might give him some insight to point out that his “arguments” here resemble theirs in presentation - numerous poorly-grasped ideas placed semi-coherently in proximity to one another in sentences without any real understanding. ---
**Author:** ![Colibri](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/colibri/32/1841_2.png) [@Colibri](https://boards.straightdope.com/u/Colibri)\ **Post date:** [October 18, 2018, 6:39pm UTC](https://boards.straightdope.com/t/how-fractional-reserve-banking-and-m0-work/823134/62 "2018-10-18T18:39:30Z")
> [@Hellestal](#): > > I’m not sure why someone would post a question to a factual forum when they believe they already know the answer, but it’s clear at this point that the OP does not stem from genuine curiosity. > > Kind of a shame because the original question was genuinely interesting. It was one I hadn’t seen before. Very rare. **Moderating** Given that **mustang19** is more interested in defending his proposed scheme than obtaining factual information, I’m going to move this to Great Debates.\* Colibri General Questions Moderator \*GD mods please forgive me.☹ ---
**Author:** ![Slash1972](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/slash1972/32/6461_2.png) [@Slash1972](https://boards.straightdope.com/u/Slash1972)\ **Post date:** [October 18, 2018, 6:39pm UTC](https://boards.straightdope.com/t/how-fractional-reserve-banking-and-m0-work/823134/63 "2018-10-18T18:39:45Z")
> [@mustang19](#): > > Offer somebody $1 to deposit $1000 (multiply these numbers by billions if they seem small), all the other banks will keep failing and getting bailed out so you get infinite money. Ok, I’ve done that to 1000 customers. So right now, it seems like I am $1000 in the hole, and I have deposits of $1,001,000. Now what? ---
**Author:** ![mustang19](https://avatars.discourse-cdn.com/v4/letter/m/e19adc/32.png) [@mustang19](https://boards.straightdope.com/u/mustang19)\ **Post date:** [October 18, 2018, 6:40pm UTC](https://boards.straightdope.com/t/how-fractional-reserve-banking-and-m0-work/823134/64 "2018-10-18T18:40:55Z")
> [@Slash1972](#): > > Ok, I’ve done that to 1000 customers. > > So right now, it seems like I am $1000 in the hole, and I have deposits of $1,002,000. > > Now what? You’re not 1000 in the hole because you invested a miniscule amount in treasuries to cover transaction costs. ---
**Author:** ![beowulff](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/beowulff/32/542_2.png) [@beowulff](https://boards.straightdope.com/u/beowulff)\ **Post date:** [October 18, 2018, 6:41pm UTC](https://boards.straightdope.com/t/how-fractional-reserve-banking-and-m0-work/823134/65 "2018-10-18T18:41:29Z")
> [@mustang19](#): > > Offer somebody $1 to deposit $1000 (multiply these numbers by billions if they seem small), all the other banks will keep failing and getting bailed out so you get infinite money. Wait, what? Offer some one $1 to deposit $1,000 - OK, that’s .1% interest, which isn’t very good, but let’s go with it. What do other banks falling have to do with my bank making money? ---
**Author:** ![mustang19](https://avatars.discourse-cdn.com/v4/letter/m/e19adc/32.png) [@mustang19](https://boards.straightdope.com/u/mustang19)\ **Post date:** [October 18, 2018, 6:42pm UTC](https://boards.straightdope.com/t/how-fractional-reserve-banking-and-m0-work/823134/66 "2018-10-18T18:42:23Z")
> [@beowulff](#): > > Wait, what? > Offer some one $1 to deposit $1,000 - OK, that’s .1% interest, which isn’t very good, but let’s go with it. What do other banks falling have to do with my bank making money? It doesnt matter if they fail. You get infinite money either way. ---
**Author:** ![mustang19](https://avatars.discourse-cdn.com/v4/letter/m/e19adc/32.png) [@mustang19](https://boards.straightdope.com/u/mustang19)\ **Post date:** [October 18, 2018, 6:43pm UTC](https://boards.straightdope.com/t/how-fractional-reserve-banking-and-m0-work/823134/67 "2018-10-18T18:43:33Z")
> [@beowulff](#): > > Wait, what? > Offer some one $1 to deposit $1,000 - OK, that’s .1% interest, which isn’t very good, but let’s go with it. What do other banks falling have to do with my bank making money? Its not interest its just an upfront free money in addition to normal operations. ---
**Author:** ![Slash1972](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/slash1972/32/6461_2.png) [@Slash1972](https://boards.straightdope.com/u/Slash1972)\ **Post date:** [October 18, 2018, 6:44pm UTC](https://boards.straightdope.com/t/how-fractional-reserve-banking-and-m0-work/823134/68 "2018-10-18T18:44:20Z")
> [@mustang19](#): > > You’re not 1000 in the hole because you invested a miniscule amount in treasuries to cover transaction costs. Ok. I’ve invested a miniscule amount in treasuries to cover transaction costs. So, right now, I have no money and $1,001,000 in deposits. Now what? ---
**Author:** ![Riemann](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/riemann/32/3133_2.png) [@Riemann](https://boards.straightdope.com/u/Riemann)\ **Post date:** [October 18, 2018, 6:45pm UTC](https://boards.straightdope.com/t/how-fractional-reserve-banking-and-m0-work/823134/69 "2018-10-18T18:45:54Z")
So, when we have infinity money, which tank should we build? ---
**Author:** ![mustang19](https://avatars.discourse-cdn.com/v4/letter/m/e19adc/32.png) [@mustang19](https://boards.straightdope.com/u/mustang19)\ **Post date:** [October 18, 2018, 6:46pm UTC](https://boards.straightdope.com/t/how-fractional-reserve-banking-and-m0-work/823134/70 "2018-10-18T18:46:22Z")
> [@Slash1972](#): > > Ok. I’ve invested a miniscule amount in treasuries to cover transaction costs. > > So, right now, I have no money and $1,001,000 in deposits. > > Now what? Now you have a massive bank with no effort and can invest infinite money. ---
**Author:** ![Slash1972](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/slash1972/32/6461_2.png) [@Slash1972](https://boards.straightdope.com/u/Slash1972)\ **Post date:** [October 18, 2018, 6:48pm UTC](https://boards.straightdope.com/t/how-fractional-reserve-banking-and-m0-work/823134/71 "2018-10-18T18:48:16Z")
> [@mustang19](#): > > Now you have a massive bank with no effort and can invest infinite money. You seem to be skipping over some steps. I have a bank with no income, and $1,001,000 in deposits. What’s my next step? What do I do to turn that $1,001,000 of other people’s money into infinite money that I can keep for myself? ---
**Author:** ![naita](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/naita/32/5862_2.png) [@naita](https://boards.straightdope.com/u/naita)\ **Post date:** [October 18, 2018, 6:49pm UTC](https://boards.straightdope.com/t/how-fractional-reserve-banking-and-m0-work/823134/72 "2018-10-18T18:49:28Z")
I think you’ll find that it is turtles all the way down. ---
**Author:** ![beowulff](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/beowulff/32/542_2.png) [@beowulff](https://boards.straightdope.com/u/beowulff)\ **Post date:** [October 18, 2018, 6:52pm UTC](https://boards.straightdope.com/t/how-fractional-reserve-banking-and-m0-work/823134/73 "2018-10-18T18:52:24Z")
> [@mustang19](#): > > Now you have a massive bank with no effort and can invest infinite money. Not infinite - in this example, you have around 1 million dollars you can invest. This is exactly how banks work, and how they make money. But, there are costs associated with doing business. Banks clearly make money (some are very profitable), but they don’t make “infinite” money. ---
**Author:** ![mustang19](https://avatars.discourse-cdn.com/v4/letter/m/e19adc/32.png) [@mustang19](https://boards.straightdope.com/u/mustang19)\ **Post date:** [October 18, 2018, 6:52pm UTC](https://boards.straightdope.com/t/how-fractional-reserve-banking-and-m0-work/823134/74 "2018-10-18T18:52:40Z")
> [@Slash1972](#): > > You seem to be skipping over some steps. > > I have a bank with no income, and $1,001,000 in deposits. > > What’s my next step? What do I do to turn that $1,001,000 of other people’s money into infinite money that I can keep for myself? Invest it. In treasuries or whatever. ---
**Author:** ![mustang19](https://avatars.discourse-cdn.com/v4/letter/m/e19adc/32.png) [@mustang19](https://boards.straightdope.com/u/mustang19)\ **Post date:** [October 18, 2018, 6:54pm UTC](https://boards.straightdope.com/t/how-fractional-reserve-banking-and-m0-work/823134/75 "2018-10-18T18:54:29Z")
> [@beowulff](#): > > Not infinite - in this example, you have around 1 million dollars you can invest. > This is exactly how banks work, and how they make money. But, there are costs associated with doing business. Banks clearly make money (some are very profitable), but they don’t make “infinite” money. Well of course it would be physically limited by Earths resources. ---
**Author:** ![Riemann](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/riemann/32/3133_2.png) [@Riemann](https://boards.straightdope.com/u/Riemann)\ **Post date:** [October 18, 2018, 6:55pm UTC](https://boards.straightdope.com/t/how-fractional-reserve-banking-and-m0-work/823134/76 "2018-10-18T18:55:56Z")
> [@mustang19](#): > > Well of course it would be physically limited by Earths resources. Are you suggesting that the fractional reserve banking system would prohibit a bank from building a spaceship? ---
**Author:** ![Slash1972](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/slash1972/32/6461_2.png) [@Slash1972](https://boards.straightdope.com/u/Slash1972)\ **Post date:** [October 18, 2018, 6:56pm UTC](https://boards.straightdope.com/t/how-fractional-reserve-banking-and-m0-work/823134/77 "2018-10-18T18:56:14Z")
> [@mustang19](#): > > Invest it. In treasuries or whatever. Ok. I’ve invested $1,000,000 in something that provides 5% a year. What’s the next step? I’m not seeing the “infinite” money yet. ---
**Author:** ![beowulff](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/beowulff/32/542_2.png) [@beowulff](https://boards.straightdope.com/u/beowulff)\ **Post date:** [October 18, 2018, 6:57pm UTC](https://boards.straightdope.com/t/how-fractional-reserve-banking-and-m0-work/823134/78 "2018-10-18T18:57:49Z")
Now we are getting somewhere. Without gaming the system (doing something illegal), there are limits on how much money you can make as a bank. There are always competitors who are trying to steal your customers, and the bigger you grow, the more expenses you have. Attracting new customers becomes a major expense. This is why NO business grows without bound. ---
**Author:** ![mustang19](https://avatars.discourse-cdn.com/v4/letter/m/e19adc/32.png) [@mustang19](https://boards.straightdope.com/u/mustang19)\ **Post date:** [October 18, 2018, 6:59pm UTC](https://boards.straightdope.com/t/how-fractional-reserve-banking-and-m0-work/823134/79 "2018-10-18T18:59:07Z")
> [@Slash1972](#): > > Ok. I’ve invested $1,000,000 in something that provides 5% a year. > > What’s the next step? I’m not seeing the “infinite” money yet. You already made 1000x instant money so you can just repeat that. Transaction costs are a minor technicality. If you make 0.1% a day with a 10x reserve requirement then you make 2700% a year and will have all the money in the world in 6 years. ---
**Author:** ![Slash1972](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/slash1972/32/6461_2.png) [@Slash1972](https://boards.straightdope.com/u/Slash1972)\ **Post date:** [October 18, 2018, 7:00pm UTC](https://boards.straightdope.com/t/how-fractional-reserve-banking-and-m0-work/823134/80 "2018-10-18T19:00:27Z")
> [@mustang19](#): > > You already made 1000x instant money so you can just repeat that. Transaction costs are a minor technicality. I haven’t made ANY money. That $1,001,000 belongs to someone else. It’s not mine. [Previous page](https://boards.straightdope.com/t/how-fractional-reserve-banking-and-m0-work/823134.md?page=3) [Next page](https://boards.straightdope.com/t/how-fractional-reserve-banking-and-m0-work/823134.md?page=5)