Or..... Lets say a bank has a fractional reserve lending level of 10%. The regional central bank for a brand new bank accepts the deposit from investors for 1,111.12. That new bank that hold no deposits or money in their vaults can now make a loan for 10,000. Money has now been created that was not there before and for the porpoise of debt. That money will now most likely be deposited into a different (or the same) bank. That bank can now lend out at a ratio of 9:1 or a new loan of 9,000. Which will be deposited making available 8,100. Now this is the illusion of a a roadblock to infinity. I guess you could make the argument of borrowing fractions of pennies and never reaching zero. However that argument is silly. The real truth is much more incredible. Lets say that this continues until there is a loan made for $1,111.12. That money is taken and invested into into a new central bank deposit for a new bank that can now start the process all over again at loaning out 10,000 from money that was never there.
The Fed sets the level to the amount of of money made by investment depositors. The statement that the Fed is there to control the banks is the whole fox guarding the hen house. However the Fed is the big smart fox that is rationing the slaughtering of chickens. He is still a fox and is still eating the chickens, he has just devised a plan to live in the henhouse forever. He figured out that eating all the chickens in one big feast is counterproductive and it is much better to not even let the hens know they are in trouble while providing them with a healthy diet.
They can't make a loan unless excess reserve is present. At 10% reserve ratio, they can loan $1,000, not $10,000. $10,000 is the amount that will be created in total if the process continues indefinitely. (1/0.1=10 10x1,000=10,000)
The $1,111.12 is the amount of investment deposits in the name of the new bank in the regional Federal Reserve central bank. At that point the bank can lend 9X's that amount, or $10,000. Once a deposit is made into a banks vaults, then it can be lent at the 90% ratio as your talking about. My scenario says that at some point a debter in the chain will then invest another 1,111.12 into a bank which will then go to the regional central bank and then make available another 10k loan. You have forgot about the role of the central bank in the equation and this chain. Of course not every one puts money back into banks, some bury it.
hmm, what about if i deposit 21 mormons in a bank with cks, how many mormons and cocs can i lend? Or can the bank just print mormons out of thin air? I don't quite understand, is there a machine that i should buy?