Money, Bank Credit, and Economic Cycles - The Ludwig von Mises ...

The Credit Expansion Process 235(52) Bank ADebitCredit810,000 Cash Demand depositsfrom loans grantedby Bank C 810,000729,000 Loans Demand deposits 729,000729,000 Demand deposits Cash 729,000As this process continues, Bank A would receive depositsfrom the recipients of loans granted by Banks D, E, F, G, H, I,and J. We have greatly simplified the process in our explanation.In reality, the bank receives, on average, 10 percent of theten loans of 900,000 m.u. granted in the first stage by eachbank in the system. It then receives 10 percent of the ten loansof 810,000 m.u. made by each of the banks in the second phase,10 percent of the ten loans of 729,000 m.u. made by each in thethird phase, etc.Hence, if we suppose that each of ten banks receives1,000,000 m.u. in original deposits, and the banks expandcredit simultaneously, the balance sheet of any of them, BankA, for instance, would appear as follows:(53) Bank ABalance Sheetc=0.1 and k=0AssetsLiabilitiesCash 1,000,000 Demand deposits(primary) 1,000,000Loans 9,000,000 Demand deposits(secondary) 9,000,000Total Assets 10,000,000 Total Liabilities 10,000,000