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Actually the "toy model" is exactly how it works. When you take a loan from the bank and deposit their check your bank must pay whoever the amount on their chec
by fspeech 4y ago
Actually the "toy model" is exactly how it works. When you take a loan from the bank and deposit their check your bank must pay whoever the amount on their check. There is not some mysterious ledger they just mark.
The fact that a bank takes an illiquid asset - your promise to pay them back - and turns it into a liquid claim on themselves is not creating money out of "thin air". Your promise to pay the bank is not "thin air" as you will quickly find out if you break your promise.
- bambataa 4y agoBy your logic, my promise to pay them back is what creates the cash? As someone upthread said, the BoE wrote a report on this: 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... I assume they would know.
- Akronymus 4y agoAnd you paying them back destroys that money.