# How much is a trillion dollars? **URL:** \ **Category:** Great Debates\ **Created:** [December 11, 2008, 10:36pm UTC](https://boards.straightdope.com/t/how-much-is-a-trillion-dollars/476782 "2008-12-11T22:36:49Z")\ **Posts on this page:** 4\ **Page:** 2
**Author:** ![whorfin](https://avatars.discourse-cdn.com/v4/letter/w/6f9a4e/32.png) [@whorfin](https://boards.straightdope.com/u/whorfin)\ **Post date:** [December 13, 2008, 5:20pm UTC](https://boards.straightdope.com/t/how-much-is-a-trillion-dollars/476782/21 "2008-12-13T17:20:25Z")
> [@Kobal2](#): > > I give $10.000 to bank A. It must keep 1k, but can lend 9k off it to someone. That someone puts it in bank B, who in turn must keep 1k (let’s round up, shall we ?) but can lend 8k off of it. Here’s your mistake. If it worked like this, you’d be right, there would be no effective creation of money. However, if I borrow $9,000 from bank A, and then I buy something from X, where are we? I have $9000 worth of stuff, and I owe the bank $9,000. X has $ 9,000 dollars that he didn’t need to borrow to get. (say, he’s a painter, and sold a painting made with stuff X had on hand). So now, you have $10,000. It’s in the bank-you have an IOU worth 10k. +10k Bank A has $2,000 cash, and an IOU worth 8k that I gave it. It also owes you 10k. Net worth=0 I have a painting, worth 9k. I also owe the bank 9k. Net worth, =0 But X has $9,000 and doesn’t owe anyone anything. Now we’ve created money. X now goes to his bank, deposits the 9,000, and the cycle begins again. > [@](#): > > So bank A ends up with $1000, Bank B has another $1000 and there’s $8000 out there as the last loan - total 10k, no ? $10,000 in “high-powered money”. Let’s simplify by imagining this to be cash. Absent some counterfeiter, there’s always going to be $10,000 of cash in the economy. As I show above, that doesn’t prove that there is $10,000 in money in the economy > [@](#): > > Now, I understand that at any given time, the bank may or may not have as much “real” money as there is on your account - in Pratchett’s words, “The bank promises to give you your money back anytime you want, provided you do not to ask it to”. From what little I’ve studied the subject back in high school, the Depression happened when people stopped trusting the banks and all asked for their money back _en masse_, thus starting a vicious circle. You don’t want to take the fiat out of a fiat-based system. And this is why the FDIC now guarantees bank accounts up to (I think), 100,000. Lots more money than I have, anyway. So if a bank can’t pay, the money isn’t lost-it’s insured. Not like the great depression, where when a bank couldn’t pay, the money went poof. Also, reserve requirements reduce this risk–a bank with 10 billion in deposits is pretty sure that it won’t have $10 billion of withdrawals. It might have 50 million, though. So it might want to keep only 50 million in cash on hand. A 10% deposit requirement makes the bank keep $1 billion on hand. The point is to set this level far higher than the average cash need-so that it’s very very unlikely that the demand for withdrawals will be greater than the cash-on-hand. ---
**Author:** ![mecaenas](https://avatars.discourse-cdn.com/v4/letter/m/91b2a8/32.png) [@mecaenas](https://boards.straightdope.com/u/mecaenas)\ **Post date:** [December 13, 2008, 10:17pm UTC](https://boards.straightdope.com/t/how-much-is-a-trillion-dollars/476782/22 "2008-12-13T22:17:46Z")
Sorry, in my rush to post a response I neglected to stop and think through the fractional reserve money creation process and shortcut straight to the end result. There’s a pile of real world cash I have in my hand = $10,000 I deposit that $10,000 in Bank A Bank A keeps $2,000 in reserve and happily lends Person B $8,000 Person B deposits their new $8,000 in Bank B (there are now $18,000 sitting in bank accounts) Bank B keeps $1,600 of Person B’s money and lends out $6,400 to Person C. Person C deposits their new $6,400 in Bank C (there are now $24,400 sitting in bank accounts) etc. etc See what I mean about creating money? ---
**Author:** ![whorfin](https://avatars.discourse-cdn.com/v4/letter/w/6f9a4e/32.png) [@whorfin](https://boards.straightdope.com/u/whorfin)\ **Post date:** [December 13, 2008, 10:41pm UTC](https://boards.straightdope.com/t/how-much-is-a-trillion-dollars/476782/23 "2008-12-13T22:41:24Z")
> [@mecaenas](#): > > See what I mean about creating money? Yes, but it’s an inevitable result of the system-not of any individual actor. No one entity can “print” money-no bank can lend more than the deposits it has. ---
**Author:** ![Kobal2](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/kobal2/32/20_2.png) [@Kobal2](https://boards.straightdope.com/u/Kobal2)\ **Post date:** [December 14, 2008, 5:44am UTC](https://boards.straightdope.com/t/how-much-is-a-trillion-dollars/476782/24 "2008-12-14T05:44:10Z")
> [@mecaenas](#): > > Sorry, in my rush to post a response I neglected to stop and think through the fractional reserve money creation process and shortcut straight to the end result. > > There’s a pile of real world cash I have in my hand = $10,000 > > I deposit that $10,000 in Bank A > > Bank A keeps $2,000 in reserve and happily lends Person B $8,000 > > Person B deposits their new $8,000 in Bank B (there are now $18,000 sitting in bank accounts) > > Bank B keeps $1,600 of Person B’s money and lends out $6,400 to Person C. > > Person C deposits their new $6,400 in Bank C (there are now $24,400 sitting in bank accounts) > > etc. etc > > See what I mean about creating money? OK, I think I got it now, thanks for the patient explanation. [Previous page](https://boards.straightdope.com/t/how-much-is-a-trillion-dollars/476782.md?page=1)