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Sure, but loaning out deposits creates money, does it not? Most of that loaned out money is getting deposited into another bank account. And that deposited loa
by rpeden 4y ago
Sure, but loaning out deposits creates money, does it not?
Most of that loaned out money is getting deposited into another bank account. And that deposited loan will (minus a percentage kept in reserve) get loaned out again. And so on, etc. I might be missing something important, though.
- jameshart 4y agoLoaning out deposits creates money + debt. The amount of money is cancelled out by the amount of debt.
- karpierz 4y agoI guess it's unclear what you mean by "creating money". Anytime I lend money to someone, they're going to spend it on something. They have a liability (their debt to me) and an asset (the thing they "bought", which could be anything from a T-bill, to a bagel). Basically, any debt "creates money."
- olalonde 4y agoIf you lend money to someone, it's no longer available for you to spend. However, if a bank loans out the money that you deposited, both the borrower and you can spend it. This is known as money creation, as it expands the money supply.
- phkahler 4y agoIf that were true, bank runs could not happen.
- karpierz 4y ago> if a bank loans out the money that you deposited, both the borrower and you can spend it. When you "spend" money that you deposited with the bank, what you're actually doing is getting the money you lent to the bank paid off. What's the difference between that and you lending money to someone to buy a bagel/T-bond, and then at some point in the future, getting money back so that you can buy a sandwich/car?
- stygiansonic 4y agoYes that is roughly how it works. https://en.m.wikipedia.org/wiki/Money_creation#Role_of_commercial_banks https://en.m.wikipedia.org/wiki/Money_creation#Role_of_comme...
- zopa 4y agoIf a bank loans you money and you use it to build a house, or start a restaurant, then in due course there will be: - new money, created by the loan; and - a new, valuable asset — the house or restaurant — worth very roughly that amount of money. Case by case these won’t always balance, but we trust private banks and borrowers to get it broadly right in aggregate. It all works out except for when it doesn’t. But somebody had better be creating money in a growing economy. Otherwise the stock of desirable stuff will grow while the stock of money remains constant. And once that happens, people start hoarding money rather than doing the hard work of investing in new productive assets. But creating new productive assets is where the growth comes from, not to mention a big chunk of the jobs. I doubt bank-created money is the only way to avoid deflation and depression. But it’s about the least centrally-controlled alternative I can think of.
- phkahler 4y ago>> Sure, but loaning out deposits creates money, does it not? No. It moves it to someone else and creates a debt. It needs to be paid back.