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

250 Money, Bank Credit, and Economic CyclesIf we suppose that the borrowers pay this money to otherpeople, who eventually take it to another bank, for instanceBank B, which also issues banknotes without backing, Bank Bwould make the following journal entries:Bank B(61) Debit Credit900,000 Cash Banknotes 900,000810,000 Loans Banknotes 810,000Bank B’s balance sheet would appear as follows (once theborrowers return the bills to the bank to withdraw the correspondingunits of commodity money):(62)Bank BBalance SheetAssetsLiabilitiesCash 90,000 Banknotes 900,000Loans 810,000Total Assets 900,000 Total Liabilities 900,000The process continues in this manner and spreadsthroughout the system. If we suppose that the reserve ratio, c,for banknotes is equal to 0.1 and k = 0, we know the systemwill be able to create from nothing:[41] d(1 – c) =1,000,000(0.9) = 9,000,000c 0.1