> If accounting balanced to 0 means no money is created
Accounting does balance to zero. Debt and money are added, and they sum to zero. Proof:
Let bank start at 0 (or pick any value).
Bank receives X dollars from entity A. Now bank has X dollars in reserves and owes entity A exactly X dollars, so net position of bank is zero (X dollars in reserves - X dollars owed = 0). A started with X, gave it to the bank, and the bank owes A X. So A has the same starting position.
Bank lends 0.9X = Y to B. Now B has Y, but owes Y, so B net position is 0. Bank lent Y, but is owed Y, so net change here is 0.
This happens every step. It's most certainly every single time a net 0 transaction.
If you care to continue to claim it's not net 0, please clearly demonstrate as I just did how it is not net 0.
>Ok, may be not quite 10X. It's 1+.9+.81+.72+... which ends up about 9.4X.
No, in the limit it is exactly 10X. Proof:
Let S = 1+0.9 + 0.9^2 + 0.9^3 + ....
Then 0.9S = 0.9 + 0.9^2 + 0.9^3 + ....,
Subtract (S-0.9S) and all terms cancel except the first 1, so (S-0.9S) = S/10 = 1, so S = 10.
>The debt among friends example doesn't create money because it's the same $10 passing from friend to friend while the IOU issued is not very liquid.
It's exactly the same thing. The bank lending is no different from any entity lending. The bank does not print up new money each time - it's the same money as you put it.
Bank IOUs are completely liquid either. All 10X money cannot be withdrawn at the same time - one is lent from someone else's assets, and this is only possible as long as everybody does not try to withdraw their assets at once. This is why there is a certain reserve needed - it allows normal withdrawals and deposits, which are around that fraction (10%) of needed assets.
If everybody in the 10X wanted to withdraw their money, there would not be enough money. All the banks would need to call in all loans, and that is chaos. It simply is money that sits in zero sum on balance sheets.
Ever wonder why there is a reserve? This is why. It's the expected amount of cash needed to let people with savings in the bank do day to day transactions. Bank runs used to happen (and still could) when reserves get too low, because all that 10X is not money that can be pulled out at once. The Fed provides a buffer against bank runs because it can provide liquidity as needed.
But the money multiplier is not some magic source of money any more than lending money from friend to friend is. It's exactly the same process.