Someone defaults on paying a mortgage, but the bank created the money out of thin air... how is this a loss for the bank, if they created the money from the 10% reserve they should have? I don't get it.
Someone deposits 200,000. Bank keeps 20,000 as reserve (10%) They loan out 180,000 for a new home. People get paid the money for the home (those who constructed it or who owned it), and they deposit it in banks.
scenario 1: Loan gets paid back.
200,000 + interest still exists: it's in the banking system. People get dividends, and they spend the money: amount of money in circulation increases.scenario 2: Loan does not get paid back (default on mortgage) Banking system still has 200,000, plus they own a home as well. They sell the home. People get dividends, and they spend the money: amount of money in circulation increases. They don't sell the home: amount of money stays constant, until they sell the home.
As long as not everyone asks to withdraw their cash, everything is fine, right?
I don't get it. This has to be wrong. Can someone clarify?