3 ms·

It seems to be a common misconception that money is created out of thin air! If it was just created as needed in an uncontrolled fashion, then we’d end up with

• crazygringo 3y ago
  That's a very weird counter argument: > This column explains that banks do not create money out of thin air. From an economic viewpoint, commercial banks create private money by transforming an illiquid asset (the borrower’s future ability to repay) into a liquid one (bank deposits); they would quickly be insolvent otherwise. When a bank makes a loan of $10K to a person, it's not "transformed" out of anything. Saying it's "transformed out of the borrower's ability to repay" is sheer nonsense. It makes as much sense as saying it's transformed out of fairy dust. It's not transformed out of anything. It's simply created, the way any IOU is. But nobody is claiming the creation is money is unconstrained, on the other hand. Just because it's generated out of nothing doesn't mean there aren't rules around it if you want to keep your bank in business.
• RetroTechie 3y ago
  That is conflating 2 aspects: Money is created out of thin air. But in a controlled fashion (as in: regulated, central bank / government policy).