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When banks issue mortgages, they don't decrease a number in their own accounts to balance it. The act of creating the mortgage itself creates new money out of t
by native_samples 4y ago
When banks issue mortgages, they don't decrease a number in their own accounts to balance it. The act of creating the mortgage itself creates new money out of thin air, the act of repaying it destroys the money again. This is fractional reserve banking and is how most money is created. It's also why there's a relationship between interest rates and inflation: raise interest rates and borrowing becomes more expensive, so it happens less, so less money is created.
- radford-neal 4y agoYes, when banks issue mortgages, they create money. When a non-bank (you, for instance) issues a mortgage, new money isn't created. When counting how much money there is, you count the bank balances, not the mortgages.
- native_samples 4y agoBut non-banks by and large don't issue mortgages, or if they do they're pseudo-banks that make the loan and then turn around and immediately sell it to a bank.