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

The Credit Expansion Process 257(67)Bank ABalance Sheetc=0.1, k=0 and f=0AssetsLiabilitiesCash 1,000,000 Demand deposits 1,000,000Total Assets 1,000,000 Total Liabilities 1,000,000Economically speaking, this means that from the point ofview of an individual bank, there has been a 900,000 m.u.decrease in the money supply, which has gone from 1,900,000m.u. at the time the loans were given (1,000,000 in depositsand 900,000 in money handed over to the borrowers) to1,000,000 m.u., the only money left once the loans are repaid.Therefore from the standpoint of an isolated bank the moneysupply clearly contracts.Given that all banks expand credit and receive originaldeposits simultaneously, we already know each bank is able tomaintain its cash reserves constant and grant loans for a multipleof its reserves. Hence the balance sheet of any bank, BankA for instance, would appear as follows:(68)Bank ABalance Sheetc=0.1, k=0 and f=0AssetsLiabilitiesCash 1,000,000 Demand deposits 10,000,000Loans 9,000,000Total Assets 10,000,000 Total Liabilities 10,000,000