Re: Hummel Inquiry

["James R. Olson, jr." <jhavok@xxxxxxxx>]

At 07:35 PM 10/11/97 GMT, William F. Hummel wrote:
>On Fri, 10 Oct 1997 James R. Olson, jr. wrote:
>
>>Currently, the Fed sets the reserve requirements, somewhere in the vicinity
>>of 15% or so, I think, so a bank can lend out about 7 times what it has
>>funds to cover, just by writing checks.  One of the tools of adjusting the
>>money supply is changing the reserve requirement.
>------------
>The reserve requirement is 10% and applies to checkable deposits
>only.  This means the bank can lend up to 90% of such deposits,
>holding 10% in reserve.  Your figure is the so-called money
>multiplier and applies to the banking system as a whole, not to
>an individual bank.  For a better understanding, you might want
>to visit www.netcom.com/~masonc/essays/hummel.html

I confess to a certain degree of confusion, I think it may come from the
term "reserve" being used in two different senses within the system.

I'll have a look at that essay.