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Every time I read about inflation, it is only attributed to governments via the central banks. I wonder how it works with the private banks. Say some entrepre
by TekMol 5y ago
Every time I read about inflation, it is only attributed to governments via the central banks.
I wonder how it works with the private banks.
Say some entrepreneur goes to their bank and borrows $100k. They try to build a business, pay rent, employees, SAAS license costs, advertising and ... goes bankrupt.
So the $100k never comes back to the bank.
Did this create $100k?
- CarelessExpert 5y agoThe short answer is: yes. Loans expand the money supply.
- lifty 5y agoI think yes. The money will remain in circulation forever.
- mohanmcgeek 5y agoYour company will need some kind of collateral or a cashflow in order for the bank to extend credit. When you file bankruptcy, the assets are auctioned the bank gets back some of that money, if not the whole 100k You created money when borrowed the 100k. The rest of it doesn't matter. It's the case with the government and the central bank too. Money is created when the government borrows money from the bank by issuing bonds. The idea of government "printing" money is plain wrong. (except in a physical sense when the mints print your currency notes)
- throw0101a 5y ago> I wonder how it works with the private banks. […] Did this create $100k? Central banks do not create money, contrary to popular opinion. Money is created in two ways: by the Treasury/Mint via bills and coins, and via private banks with credit. See Roche: > This paper provides a general understanding of the workings of the modern fiat monetary system in the United States within the context of the global economy. The work is primarily descriptive in nature and takes an operational perspective of the monetary system using the understandings of Monetary Realism. * https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1905625 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1905625