This is simply incorrect. Banks can and do create money when they give out loans. Unfortunately, our everyday vocabulary doesn't contain the terminology to desc

This is simply incorrect. Banks can and do create money when they give out loans. Unfortunately, our everyday vocabulary doesn't contain the terminology to describe this properly, and this is how people end up confused. A better intro than the link you posted is this one: http://neweconomicperspectives.org/2011/09/mmp-blog-15-clearing-and-pyramid-of.html http://neweconomicperspectives.org/2011/09/mmp-blog-15-clear... The crux is that there are really (at least) two types of money: Central bank money, and money used by "the public". They live in two different "monetary circuits", and while those circuits are not entirely unrelated, they are completely isolated from each other; money cannot go from one circuit to the other. Ignoring cash for simplicity (and it is little volume anyway), central bank money is only the electronic currency on accounts at the central bank, and it only moves between banks and other financial institutions. Money used by the public is cash in circulation as well as money on checking accounts and so on. Banks cannot create central bank money, but they can and do create money in the other "monetary circuit". It is true that the amount of money in the public monetary circuit must be less than the amount of central bank money times a factor (the inverse of the reserve ratio). However, in practice, this limit works the other way around: When the amount of money in public use grows "too large", central bank money is automatically created by the central bank (this has nothing to do with quantitative easing; it is part of the normal market operations that the central bank always performs to achieve its interest rate target). Because of this, the reserve ratio does not limit the creation of money by banks.