> If your bank only has $100 in deposits, you simply can't loan out $101.
Why not? I think the assumption here is that money is like a physical commodity. If we were talking about apples then of course your statement would be correct. But we're not.
When a bank "lends" you $100 it just creates two entries: one in your current account that says +$100 and one in your loan account that says -$100. The latter is called a liability. There is nothing physical. In fact, the only thing that "exists" are the entries in the ledger. The money is completely abstract and appears only between the time the loan was created and the loan being paid back.
Why not? I think the assumption here is that money is like a physical commodity. If we were talking about apples then of course your statement would be correct. But we're not.
When a bank "lends" you $100 it just creates two entries: one in your current account that says +$100 and one in your loan account that says -$100. The latter is called a liability. There is nothing physical. In fact, the only thing that "exists" are the entries in the ledger. The money is completely abstract and appears only between the time the loan was created and the loan being paid back.