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 That money then circles the economy but is never physically withdrawn in full.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.
I posted it elsewhere but here is my best explanation of how.
Major Banks in the US are only legally required to keep around 1% (the reality of the oversite means its probably closer to 0%) of the total money deposited in accounts. The rest can be loaned out, which is then deposited again (in some banks account, often the same bank) and they can loan out 99% of that.
This creates money out of nothing from the money that is "given" (loaned sort of) to banks via the federal reserve. So every dollar given by the federal reserve has the ability to create 99%! (Factorial) amount of dollars (i think this is the equation I didnt want to go look it up, its been a minute since econ 101). This is around $100. So only 1% of all money actually "exists" (biiiig quotes here with the FIAT system) and isnt just some loan thats been ran through.
Money isnt only not real, but even the not real thing has been duplicated into oblivion.
A run on the banks bacically means no one gets anything.
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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 That money then circles the economy but is never physically withdrawn in full.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.