How Withdrawals Can Lead to Money Destruction - Limited Reserve Framework

This video is attempting to convey how withdrawals can lead to money destruction. Withdrawals pull reserves out of the banking system. When reserves are pulled out of the banking system it creates the potential for banks to become deficient in reserves. Usually if banks become deficient in reserves they either 1) go to the Federal Funds Market, 2) go to the Fed’s Discount Window, or 3) sell assets (like bonds or loans). If they can’t do any of these 3 actions, 4) they may have to call in loans. When a bank calls in a loan, a loan payment must be made, and loan payments destroy money. That’s right, new loans create money; and therefore, loan repayments destroys money.
This video is made for 1st year college students or AP/IB Economics students. It focuses on foundational economic concepts.

[@supernovic99]

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