<p>The reason for that is that banks do not keep 100% reserves, hence when they issue new loans they expand money supply and the amount of money in circulation will be much higher that the amount of base money/gold reserves.</p>

CC BY-SA 4.0
2023-10-16T09:58:58.767Z
According to my image, the bank does store 10% in reserves, and they reissue out the 90% in terms of loans. This means that 100% is leaking out of the pipe, and 90% is being injected into the pipe.
Bryan
CC BY-SA 4.0
2023-11-15T13:18:55.273Z
@Bryan Banks cannot and do not "lend out reserves". All bank loans create new deposits by extending credit. For the bank, a new loan asset is balanced out with a new deposit liability. For the borrower, a new loan liability is balanced out with a new deposit asset. Change in net financial equity for both parties is zero before and after bank loans being made.
Jamie Smith
CC BY-SA 4.0
2023-11-15T23:53:47.593Z
@JamieSmith please read the question, the question is about gold standard. Gold standard does not work the same way as fiat system
1muflon1
CC BY-SA 4.0
2023-10-16T09:57:29.393Z
2023-10-16T10:09:57.643Z
2023-10-16T10:09:57.643Z
1muflon1
<p>I was reading Ray Dalio's book on Priciples for dealing with the changing world order, and I came across this statement</p>
<p>&quot;&quot;&quot;<br />
At first there are the same number of claims on the &quot;Hard money&quot; as there is hard money in the bank. Then the holders of paper claims and the banks discover the wonders of credit and debt. (Which means there is more claims on &quot;hard money&quot; than there is hard money in the bank)<br />
&quot;&quot;&quot;</p>
<p>This did not make sense to me, because money is being <em>taken out</em> from the circular flow in the circular flow model.
<a href="https://i.sstatic.net/kneiu.jpg" rel="nofollow noreferrer"><img src="https://i.sstatic.net/kneiu.jpg" alt="Circular flow model image" /></a></p>
<p>Note: I've never actually learnt economics in school, so I may be missing some of the key elements that looks stupid obvious to an individual that went to school. I have studied microeconomics before through online courses though. Recommendations on easier books to read are welcome.</p>

<macroeconomics>
How does the claims on gold increase when debt is involved?
Bryan
# How does the claims on gold increase when debt is involved?

(Asked by: username_0 on 2023-10-16)

I was reading Ray Dalio's book on Priciples for dealing with the changing world order, and I came across this statement

"""  
At first there are the same number of claims on the "Hard money" as there is hard money in the bank. Then the holders of paper claims and the banks discover the wonders of credit and debt. (Which means there is more claims on "hard money" than there is hard money in the bank)  
"""

This did not make sense to me, because money is being *taken out* from the circular flow in the circular flow model.
[![Circular flow model image](https://i.sstatic.net/kneiu.jpg)](https://i.sstatic.net/kneiu.jpg)

Note: I've never actually learnt economics in school, so I may be missing some of the key elements that looks stupid obvious to an individual that went to school. I have studied microeconomics before through online courses though. Recommendations on easier books to read are welcome.

**Tags:** macroeconomics


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## 1 answers

### Answer by username_1 on 2023-10-16. Score: 0

The reason for that is that banks do not keep 100% reserves, hence when they issue new loans they expand money supply and the amount of money in circulation will be much higher that the amount of base money/gold reserves.

> **Comments:**
> **username_0**: According to my image, the bank does store 10% in reserves, and they reissue out the 90% in terms of loans. This means that 100% is leaking out of the pipe, and 90% is being injected into the pipe.  
> **username_2**: @username_0 Banks cannot and do not "lend out reserves". All bank loans create new deposits by extending credit. For the bank, a new loan asset is balanced out with a new deposit liability. For the borrower, a new loan liability is balanced out with a new deposit asset. Change in net financial equity for both parties is zero before and after bank loans being made.  
> **username_1**: @username_2 please read the question, the question is about gold standard. Gold standard does not work the same way as fiat system  

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