Your bank has 10% reserve requirement. There is no penalty for early loan
- "bank ABC" 'deposits' the loan money in lendee's "bank ABC" account - The bank is now risking a loss of what?: - 20k, or 100k? - What does the bank's balance sheet look like? - What happened to money supply in economy? - did it go up by 90k? - What happened to capital reserve of bank? - did it go down by 20k?
- You hold the money in your account for an insignificant amount of time so the interest is negligible, then you pay back the loan.
- There should be no net change to the bank's balance sheet. - There should be no net change to the money supply in the economy. - Did this loan payoff destroy 90k in the economy?
case 2 Lendee spends entire loan on goods or services. Pays it back after 30 years under 3% compound interest - all same questions...