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Not quite. They get money from somewhere, that they loan out. But because much of the money they got from somewhere can be requested at will (people can still
by Scarblac 7y ago
Not quite. They get money from somewhere, that they loan out.
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.
- nicky0 7y agoActually the banks do just create the money. They put an entry on the balance sheet "they owe us this much" and call it an asset.
- afiori 7y agoThat is creating liquidity, what they are doing is essentially selling debt. It is different from just creating money.
- qubex 7y agoIn our modern system of endogenous money, money is circulated debt.
- phaemon 7y agoIt is not different from just creating money, it is exactly how money is created. Please read the PDF linked by yrro upthread.
- afiori 7y agoIt is not creating money, it is turning credit into money.
- phaemon 7y agoSure, because you know more about money creation than the central bank for the UK. Read the damn pdf and learn something.
- afiori 7y agoFor sure I don't know more, but I am trying to make sense of what is being said in common terms: if banks can get free magical loans it is still a loan, if banks can just make money out of nothing then that is creating money. 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.
- yrro 7y agoPlease see https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/money-creation-in-the-modern-economy https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/m... > 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
- Scarblac 7y agoBut their total loans can only be up to some percentage of their total assets. So in that sense they still have to get the assets first, before they can create the loans.
- afiori 7y agoWhat this mean is that banks can go in credit of others and then sell that credit as money; they cannot just say "now I am a billion dollar richer" they have to find someone that promises to cover that billion dollar.