> No, the deposit is a liability with a matching asset that comes with it. The asset is needed to balance the asset. They certainly don't lend it out to other c

> No, the deposit is a liability with a matching asset that comes with it. The asset is needed to balance the asset. They certainly don't lend it out to other customers When a customer (customer A) deposits $10 of cash at a bank, the bank has a new $10 asset (the cash), and a new $10 liability (the deposit it owes to the customer). If another customer (customer B) then comes in and asks for some cash in the form of a loan, the bank can loan that customer the $10 cash, at which point the bank goes from having a $10 asset in the form of cash, to a $10 asset in the form of an outstanding loan. This new asset is less liquid than the cash, but the bank's balance sheet still balances. > which always happens through new money creation You are correct here - bank lending is the process through which the vast majority of money is created. Before the loan, customer A thinks they have $10. After the loan, customer A and customer B both think they have $10. In this sense, $10 of new money is created. Interest rates moderate the rate at which banks lend and the rate at which money is created, and the Central Bank acts as one of the most important price-setters in the economy. > They do buy short duration government bonds with it because they're not stupid and can get a better return than on reserves, and bonds are acceptably liquid. Nothing they do can be construed as investment. Savings really are savings and are effectively removed from the economy. Even if you believe that banks only buy short duration government bonds (which is provably not the case[1]), this is still a form of lending, as it effectively finances government borrowing, and the Government can spend their borrowed money as they see fit (such as for building infrastructure). [1] See JP Morgan's consolidated balance sheet as an example, page 206 - https://www.jpmorganchase.com/content/dam/jpmc/jpmorgan-chase-and-co/investor-relations/documents/annualreport-2023.pdf https://www.jpmorganchase.com/content/dam/jpmc/jpmorgan-chas...