missed your reply...
anyway infinite credit market.
Lets take your MM effect to its logical conclusion. The UK. No reserve required. The MM is infinite. Or nearly so. RIght. But they do not, in fact, have an infinite money supply. Why not? Because there are not an infinite number of qualified people looking to borrow in infinite amount of money. Because the amount of money lent vs the amount of money deposited is a function of the market for credit.
In the US, there are legal requirements for who banks can lend money to and how much they can lend to those borrowers. A bank will lend exactly the amount of money for which they can find qualified borrowers. Its a market equation that has nothing whatsoever to do with the required reserve.
So your bank zero, lets say it could find qualified borrowers to lend out exactly 90M. And lets say the RR is 10% and the bank has 100M on deposit. SO they lend out the 90M, just like in your example.
Now, lets say the RR is lowered to 5%. THat does not automatically create new borrowers. The fact is that theyll still lend out the exact same amount. 90M, the amount of money they can sell. The demand for credit has not changed... theyll lend out the same 90M.
Now, lets say that that the RR is raised to 50%. You know how much money theyll lend out? Still 90M. They'll borrow enough to make their reserve. If they have qualified borrowers looking to borrow 90M, its happening. Period. You could set a 150% reserve, and its still happening.
The required reserve rate simply has no effect on money supply. You think it does because youre not getting how moneylending works. You think the system is way less complicated than it really is.
TO put it another way, imagine that your first business,, the one that gets the $100M. Imagine that the CEO picks up the cash, is on the way to bank 0, when he gets overtaken and devoured by a pack of cannibals. They eat his flesh and burn his money with his bones.
SO the 100M deposit never happens. The loan officer in bank 0 is sitting at his desk. The next company ceo comes into bank zero. What do you think happens?
Do you think CEO B walks in, and the bank officer has a bottle of lube in one hand, a porno in the other, and he says "Well, im terribly sorry, but we didnt get enough deposits today. So, although youre perfectly qualified to borrow $90M, instead of lending it to you, which is the whole way my company makes money, im just going to spend the day masturbating?"
Of course not. Hes going to lend CEO B the goddamn money. Because thats his whole purpose. And this would be true regardless of the reserve or money on deposit. Because, say it with me, banks don't use deposits to fund loans.