Creating Money

So the bank lends James $8,333.33 and gives him a checking account. This is created money! But they can do it, because their books balance. They have acquired an asset -- James' promise to repay, with interest -- and a liability -- James' checking account -- and the two just balance. Plus, they still have some excess reserves! But, as we will see in the next page, they can't loan any more without running into difficulties.

The details for Step 3 are shown in Table 3 part B below.

Table 3B

First National Bank of Enumclaw
3	loan	8333.33333
	total deposits	78333.3333
	required reserves	13055.5556
	actual reserves	20000
	excess	6944.44444

James Buys the Car