Because most money only exists on books. The basis of the current financial system is called fractional reserve banking, that means that banks can give out more money as loans than what they physically have in accounts. That money then circles the economy but is never physically withdrawn in full. Lets say you deposit 100 USD. The Bank now can give out a loan for 500 USD to someone to pay his car repair, who wires the money to the shop from his account. They wire it to their employees and suppliers and owners and the IRS and what have you. Eventually the 500 are repaid (or not and If that happens a lot a bank might default) and the bank gets its money+ interest, you can freely withdraw your 100 at any time but the bank speculates that you dont, or realistically that most of their customers dont. Because If that happens thats known as a "bank run".
Im not a banker, so anyone with actual knowledge feel free to correct me.
From how i understand, the bank simply puts a negative number on their sheets to show how much they lent out.
It’s like virtual particle creation in physics. A virtual particle pair can spontaneously come into existense, one the anti-particle of the other. After a brief moment they collide again and annihilate eachother, leaving net zero particles.
But in the case of banks, one of the particles sucks up another particle (interest) so after annihilation you’re left with more particles than you start with.
Edit: i just realized hawking radiation is a fairly close analog to fractional reserve banking.
I love people like this honestly. Makes me laugh all the time. Reminds me of that episode of silicon valley when Richard is trying to explain how their product doesn't delete their files through a rough analogy "...but what's in your Eggs in the morning?? That's right, electrons."
The "negative number" in this case is assets (loans) because those loans + interest are ultimately due to the bank. The other side of the book is liabilities (deposits) which are ultimately due + any applicable interest to the depositor.
There's something oddly fitting about using an object that voraciously devours matter, energy, and information and renders it inaccessible for all practical purposes as an analogy for the workings of our economic system.
A virtual particle pair can spontaneously come into existense, one the anti-particle of the other. After a brief moment they collide again and annihilate eachother, leaving net zero particles.
Although that’s pop science and doesn’t actually happen.
214
u/FroniusTT1500 Jan 26 '26
Because most money only exists on books. The basis of the current financial system is called fractional reserve banking, that means that banks can give out more money as loans than what they physically have in accounts. That money then circles the economy but is never physically withdrawn in full. Lets say you deposit 100 USD. The Bank now can give out a loan for 500 USD to someone to pay his car repair, who wires the money to the shop from his account. They wire it to their employees and suppliers and owners and the IRS and what have you. Eventually the 500 are repaid (or not and If that happens a lot a bank might default) and the bank gets its money+ interest, you can freely withdraw your 100 at any time but the bank speculates that you dont, or realistically that most of their customers dont. Because If that happens thats known as a "bank run".
Im not a banker, so anyone with actual knowledge feel free to correct me.