[Puffer Fish]

I have posted links at least 3 times to 2 articles about the experiment in Germany in 2014 where a bank loan 200K euros to a Prof. while his students observed every employee of the bank. The conclusion was the bank created the 200K euros.

That depends what you mean by "money".

You do realise that assets will balance out liabilities, don't you?

In the private banking system, you can't create money from nothing without someone else owing that money.

The new money you have created represents debt, and is ultimately backed by debt.


As the most basic simple hypothetical example, a person could borrow money from themselves and write "I owe you" notes.


It's this type of mentality that "money comes from nowhere" that often leads to economic bubbles. More and more money gets thrown everywhere, people get into more debt because they assume that money is going to keep flowing in the future, but people do not realise that money is going to come to an end because at some point the society cannot take on any more debt. Then the creation of "new money" gets cut off, the multiplier effect stops, and the entire economy has to begin to unwind out of that multiplier effect.

[Potemkin]

This is how banks work.

A bank needs to have money saved by a saver to be able (or maybe permitted is a better word) to loan out money.

If a bank tries loaning out money (that is not real money, government currency) that is not backed by something, the people who run the bank will be prosecuted for fraud.


(The Central Bank plays by slightly different rules though, which is how you get inflation)

This is actually not correct, @Puffer Fish. Not at all correct.

[Puffer Fish]

This is actually not correct, @Puffer Fish. Not at all correct.

Then we disagree.

[Potemkin]

Then we disagree.

Indeed, though in your case you are also choosing to disagree with reality. Lol.

[Steve_American]

This is how banks work.

A bank needs to have money saved by a saver to be able (or maybe permitted is a better word) to loan out money.

If a bank tries loaning out money (that is not real money, government currency) that is not backed by something, the people who run the bank will be prosecuted for fraud.


(The Central Bank plays by slightly different rules though, which is how you get inflation)

Puffer Fish, I see one place you are confused.

Savers leave their money in the bank, it just sits there. This is by definition.

However, almost all the money created by a loan stays in the banking system. It is mostly in checking accounts, so it keeps moving around as person after person keeps spending it. [Here corps and businesses are 'persons'.] Banks need deposits to make loans, but they can be in checking accounts. Therefore, 'savers' are not needed. Also, the deposits don't need to be in the bank at the moment the loan is made. The reserve requirement only applies about a week later.

Again, my point is that the deposits in checking accounts are moving from person to person and still are used by the banking system to meet the reserve requirements for additional loans. The money doesn't need to have been saved to support a new loan. Then the money of the new loan can support an additional new loan. Etc. Etc.
.

[Steve_American]

That depends what you mean by "money".

You do realise that assets will balance out liabilities, don't you?

In the private banking system, you can't create money from nothing without someone else owing that money.

The new money you have created represents debt, and is ultimately backed by debt.


As the most basic simple hypothetical example, a person could borrow money from themselves and write "I owe you" notes.


It's this type of mentality that "money comes from nowhere" that often leads to economic bubbles. More and more money gets thrown everywhere, people get into more debt because they assume that money is going to keep flowing in the future, but people do not realise that money is going to come to an end because at some point the society cannot take on any more debt. Then the creation of "new money" gets cut off, the multiplier effect stops, and the entire economy has to begin to unwind out of that multiplier effect.

Puffer Fish, by money I mean 'money'. What do you think money is?

I assert that it doesn't matter that the money created by a bank loan is balanced by the "negative money" of the repayment contract. The people in the economy who get the money from the loan spend it or save it as if it was the same as all other money.

I'm glad that we agree that bank loans cause recessions in the future. At least your last paragraph seems to say that. My question for you is why is it that you think that Goc. deficit spending to replace the money saved and money that leaves the nation to buy imports, that this money from Gov. deficit spending is worse than having the money being replaced in the economy by 'persons' borrowing from banks, if you agree that someday in the next (say) 10 to 20 years the 'society' will have to stop borrowing and this will cause a recession?
. . . AFAIK, Gov. deficit spending has not led to inflation except in asset prices. Asset prices in corp. stock and real estate have gone way up because of the Fed's QE programs. And, yes, I think that this was a bad thing.
. . . I assert that the current inflation was not caused by Gov. deficit spending. My evidence is that Japan deficit spent much more over the last 30 years and it has inflation of about 1% even now. More evidence is that the US deficit spent for 28 years from 1991 to 2019 and for all of that time inflation was low. How can that be if the Quantity Theory of money and inflation is correct?
. . . Some economists assert that inflation happens when the owners of corps choose to increase prices to increase they profits. They can't always do this because they need an excuse to blame the resulting inflation on. They got that in 2020 with the supply chain mess caused by the pandemic. And now the war in Ukraine. Etc.
. . . So, now corps are increasing their profits solely because they have a convent boogeyman to blame the resulting inflation on.
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