Short squeeze party thread, page-324

What you are referring is to commonly known as fractional banking but contrary to popular believe, commercial banks CANNOT create money out of thin air. Only central banks can create (or reduce) money supply. But commercial banks can create debts. Say I have $100, and I lend you the money for a month and you need to pay me back after that (assuming no interest). For the period of that month, would you consider the total money supply to be $200 because technically, you have $100 cash in your pocket to spend, but I technically also own $100? In reality, the total money supply is only $100 because even though you have $100 in your pocket, you only have it on a temporary basis, and you net wealth is actually zero.

What I struggle to understand is how fractional banking relates to JD's comments about stock lenders having the full rights to recall stocks at any time, and stock borrowers are required to post collaterals.

Anyway, JD's statement is fully accurate. Borrowing stocks is a form of margin lending with potential for unlimited losses. No lender would ever let another counterparty walk out with their shares without sufficient collaterals to cover their own position.

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