On Canceling Debt and Modern Banking

With regards to Joe the Usurper canceling some student debts:

You have to understand how modern banking works, especially at the federal ("We own the printers") level. It costs them nothing in the short term to cancel debt.  That doesn't mean they won't still raise your taxes, though.

Debt is money created out of nothing. It's an entry in a spreadsheet. When you pay it off, the money returns to being nothing, a '0' in the spreadsheet. Only while the debt is active does the money exist. The trick is that you have to pay real money as the interest. When debt is canceled, the bank loses nothing but the income stream of interest payments.

Paying off debts is deflationary. The money is returned to sender and destroyed.  Canceling debts is inflationary, because the money isn't destroyed. It's still out there, being traded around.  It's exactly the same as printing money and handing it out. Okay, well, to be honest, it's the issuance of the debt in the first place that is inflationary. But if the money isn't zeroed out again through repayment, it is a permanent net increase in the money supply, making the rest of the currency worth just that bit much less.

Ah, the joys of modern banking.  What, you thought that the banks could only lend out money they actually had on deposit?  Silly citizen, that hasn't been the case for decades.  

In traditional fractional reserve banking, if a bank maintained a 5% reserve, they could lend out 95% of total deposits.  In modern fractional reserve banking, they can lend out 19 times their total deposits.  And if you put the loaned money back into a bank account, it counts as a deposit.

As an item of curiosity, the current mandatory reserve rate is: zero.  Banks can create all the debt money they like, with no limit.  They're just numbers on spreadsheets, after all.  Until the Fed monkeys around with the reserve percentage, forcing small banks to call in their loans, bankrupting small businesses.  (Anybody else remember 2008?  This is what really happened then to collapse the economy.  And when small banks couldn't meet the new, higher standard, the Fed forced them to sell out to the big banks.)  (Never forget that the 2008 recession was a choice the government made.  It didn't happen by accident.)