Monetary Inflation and Deflation may not be a two-way street. I'm thinking it may be more like a ratchet. Seeking confirmation from the community on this idea.
-We know that 10% reserve requirement fractional reserve lending would take a 10 dollar deposit, loan out 9 dollars, deposit 9 dollars, loan out 8 dollars, etc until the 10 dollars had turned into something like 79 dollars.
-The way that deflation occurs is for people to pay back loans, thus causing the destruction of money.
The idea I came up with tonight however is, when you pay back a loan, you're not necessarily destroying the money created during the original loan. You're likely only killing one of its child-loans (not the 9 dollar loan, but maybe the 5 or the 4 that occurred later on down the chain).
Therefor, once the money is created, it may be like a genie being let out of the bottle, it cannot ever be fully recontained. Is my logic sound or have I overlooked something? Monetary expertise requested from fellow turdites.
Nevermind, I think I was wrong. Even in our current low interest rate environment, theres enough interest owed to knock off the children as well. If enough people get scared to the point where new lending stops, the money supply could literally go to zero. So its definitely the potential to be a 2 way street, not a ratchet as I was imagining earlier.