I just wonder how this works upstream. Don't the banks also owe that money to somebody? After all, value isn't just money, it's money plus time.
1. (most likely) The interest is still paid, but the outstanding notional payments are deferred. This causes no actual losses to banks, but may cause liquidity issues. VCentral bank can sort those easily.
2. (A bit less likely) Even interest rates are deferred, but they are capitalized to the loan so that your loan amount increases if you do not pay the interest. As above, no losses to the bank, but maybe liquidity issues.
3. (Least likely) Banks actually waive the payments. In this scenario it is primarily the shareholders that take the loss, but I would strongly expect that in this scenario government covers the losses of the bank.
Furthermore, Islamic banking has never relied upon fractional reserve banking.
So... no, not “factually incorrect”.
However, you are tendentiously representing heterodox economic theory as if it is mainstream; this is somewhat less than ideal, and impedes communication. And you go further, declaring that we abandoned fractional reserve finance in the 1930s. I am confident that even non-crank economists who subscribe to this theory will admit that the things that the original poster describes literally occur, to some reasonable level of approximation, and that the layout of money in a bank within US or European banking systems can therefore be meaningfully called "fractional reserve", even if endogenous-money theory is correct insofar as the underlying reserve multipliers are not a primary cause of changes in the total money supply (thus limiting the power of the central bank).
Given that we are much less interested in the total money supply and central bank policy, and much more interested in the basic mechanics of banking and where money is and is owed, the topic you raise is incredibly irrelevant at best, and a sign of gross overreach. Finally, the US and European banking systems cannot be said to run on the principles of Islamic finance and your mention of Islamic banking here is 100% totally irrelevant.
It is possible to advocate for this theory in discussions such as these. It may even improve understanding! This has not happened. Your posts do not promote understanding of economics or of banking, and you are not effectively advocating for this theory. I regretfully reiterate my conclusion that you are confused, and will note it is a further possibility that you are a crank.
Honestly, liquidity should not be a problem. The problem is effectively containing inflation.
Even when the bank holds the mortgages directly, the bank does not owe the mortgage income to deposit account holders. The bank may owe interest to those accountholders... but today, that is likely at or near 0% rates. If payments on the loan are suspended for N months, the people who lose out are the bank's shareholders.
In either case, this loss could be modeled as putting this month's interest payments at the end of the loan life, up to 30 years later, and discounting the amount received by the time value of money over that interval... or, alternatively, by moving all the interest payments back by N months over the lifetime of the loan and performing the discount that way; I think it works out to the same loss either way.
(To be clear, this is a real loss, in the same way that if I took $500,000 from your savings and retirement accounts, and bought myself a home, and lived in it rent-free for 5 years, and give you back the same $500,000, you have suffered a loss, and I have enjoyed a gain.)
It's notable that European bank shareholders haven't been doing well recently — for a variety of reasons. There may fundamentally be too many of them, with too many inefficient processes, being propped up by governments instead of failing in an orderly fashion and being consolidated. But that's a different policy discussion.
https://www.youtube.com/watch?v=2nBPN-MKefA
The first time I saw it I thought it was a luny conspiracy theory, but NO. It's all true.
This is not a surprise to anyone who understands how a modern monetary system works.
I guess this is why Bitcoin and its "there's a set amount of currency and we know exactly what it is" is so popular with people of a certain mindset; they expect that's how money works.
But because much of the money they got from somewhere can be requested at will (people can still remove money from their accounts), it is still liquid and still counts as money. So money is "created" this way.
That is how they create money. They don't literally just create whatever they need, only central banks can do that.
I don't doubt that the financial effect is what they say it is, but that does not look like what I would call creating money.
> In the modern economy, most money takes the form of bank deposits. But how those bank deposits are created is often misunderstood: the principal way is through commercial banks making loans.
> Whenever a bank makes a loan, it simultaneously creates a matching deposit in the borrower’s bank account, thereby creating new money. The reality of how money is created today differs from the description found in some economics textbooks:
> • Rather than banks receiving deposits when households save and then lending them out, bank lending creates deposits. > • In normal times, the central bank does not fix the amount of money in circulation, nor is central bank money ‘multiplied up’ into more loans and deposits
That value that backs up that money will be created by you.