> Student loans are issued by banks.

Which comes from depositors supposedly "hoarding" money in banks. (In fact, banks loan out a >1 multiple of deposits, called fractional reserve banking. So "hoarding" money in banks results in more money being spent, not less!)

This gets us back to the original comment by Zanny that a dollar handed to a poor person has a different net effect than one handed to its richest. A poor person will spend the money. A wealthy person will deposit it, and it will have a smaller overall impact.

Even in a hypothetical scenario where banks always loan the maximum amount they can, a dollar in the bank would result in less money in the economy than simply handing the dollar to someone on the street. Fractional reserve lending means that the bank can issue a 90 cent loan after receiving a 1 dollar deposit. And we assume that the 90 cent loan will stay in the bank as a deposit so that they can issue another loan for 81 cents. And so on. In this model, a dollar in the bank actually results in ZERO net money entering the economy. It's all deposits in the bank that can't be withdrawn because it would cause a cascading loan call.

At any point in this lending chain, if someone decides to withdraw the money they were loaned, it stops the chain and some amount of money less than 1 dollar enters the economy. It might be 90 cents, 81 cents, or 15 cents, but it will always be less than the dollar that was initially deposited. So even in the model where banks always lend as much as possible, there's still less money entering the economy than was deposited.

And of course, banks are aware of the cascading loan call problem and therefore keep more reserves in aggregate than the minimum so that they don't end up in this situation. Which means that the impact of a dollar deposited scales back even further.

> ZERO net money entering the economy

If I borrow money from the bank, they simply list it as a credit to my checking account. I can then write checks to buy things. The vendor deposits my checks in his checking account. The money never left the bank, but it still resulted in commerce - for all intents and purposes, it "entered the economy".

Right. And the instant the vendor cashes your check, it's no longer available as a deposit at your bank, so the bank can't use it for lending. The point at which your loan "enters the economy" is the same point at which the bank can no longer use it for fractional lending. And in all cases, the amount that enters the economy is less than the amount that was originally deposited.

There is no scenario in which you depositing a dollar in the bank "results in more money being spent, not less" in comparison with you spending a dollar. It quite obviously cannot be the case, because a spent dollar is economic activity of its own plus whatever economic activity occurs as the result of depositing the dollar, because the spent dollar is most certainly on its way to the bank as well.

>This is not a real scenario. Virtually no one's education is funded by direct loans from wealthy individuals. Student loans are issued by banks.

Where exactly do the banks obtain the capital which funds their balance sheet? From something other than individuals with investable (deposits/debt/equity) funds?

> This model of banking assumes a fixed monetary supply, which is not the case. Banks literally create money when they issue loans. If they didn't, the monetary supply would be fixed except in rare instances where the Fed creates money ex nihilo. As you are doubtless aware, the money supply fluctuates constantly. Where you imagine those fluctuations in supply come from? The article I linked from the Bank of England also covered this, in bold, at the beginning. "Whenever a bank makes a loan, it simultaneously creates a matching deposit in the borrower’s bank account, thereby creating new money."

Indeed, if a bank makes a loan on its own book then there's a credit in the deposits account and a debit in the loans account. This has created commercial bank money. It's part of the M1 monetary aggregate.

Now as for the creation of high powered central bank money, I'll point you to the Federal Reserve Balance Sheet[0] where you can see that the Fed has created "around" 2.5 trillion dollars "ex nihilo" since 2008. Literally, they have printed that much money (it's reserve balances, but I'm sure the member banks could cash them in for physical if they asked Janet nicely). Now you might be surprised that the Fed (and other central banks) create money every single day. They also destroy it too. They do this by buying and selling securities which expand or contract their balance sheet.

> Deposits in this context are money. Loans are not. The bank gives you a loan for $100k. This creates an asset and a liability. (Double entry accounting is still mercifully intact.) The $100k sitting in your account now is literally money. You can spend it, transfer it, withdraw it, roll around on the floor in it, whatever you like. It's money. The $100k loan the bank marks down as an asset is not money. It can't be spent, only paid back. It can't be withdrawn, only sold.

If the bank creates a $100k loan "out of thin air" how can you withdraw it or roll around the floor in it? Do they print it out on notes which have the bank's name and logo on them?

> The fixed supply model of banking is intuitive but it's also insufficient describe how modern banking actually works. Everyone agrees that monetary supply is not fixed.

I'm not sure anyone ever said the money supply is fixed? That would be really problematic. The money supply changes by the second, you can see weekly numbers displaying fluctuations in central bank money and commercial bank money (ie: M0/M1/M2 etc) at the St Louis Fed[1]. It would be pretty weird for there to be a fixed money supply (even on the gold standard, after loss and destruction of the metal there's a ~3% annual expansion in supply iirc).

> I don't know what percentage of Chase's capital comes in the form of deposits.

54% in 2015[2]. Where do you think they get the rest of their capital? And how much would they have to pay for it?

> You're forgetting that the Fed pays 0.5% on reserves, which covers that $4000 cost. Obviously breaking even still isn't a functioning business strategy. The point is that banks do not have to lend every dollar possible in order to be profitable, not even close.

So depositing money with the Fed isn't lending it? Does that mean it doesn't show up on the left side of a bank's balance sheet?

> I'll decline to mock up a balance sheet for you. I'm not denying double entry accounting.

You'd be amazed at how simple it makes a discussion when you have a balance sheet and income statement. There's no conjecture, it's just facts. And thanks for the in depth debate! It's been a while since I TA'd this stuff in college.

[0]: https://fred.stlouisfed.org/series/WRESBAL [1]: https://fred.stlouisfed.org/categories/25 [2]: http://www.marketwatch.com/investing/stock/jpm/financials/ba...

You seem to hold conflicting viewpoints. You agree that loans create money but you don't agree that repaying a loan destroys that same money?

Indeed, if a bank makes a loan on its own book then there's a credit in the deposits account and a debit in the loans account. This has created commercial bank money. It's part of the M1 monetary aggregate.

If I hold $100k of a student's debt, and that debt is 'extinguished' then it doesn't change the money stock in the economy. If a debt between 2 individuals is "wiped off the books" then a dollar doesn't "leave the economy".

I'm not sure if we're talking past each other or what.

> If the bank creates a $100k loan "out of thin air" how can you withdraw it or roll around the floor in it? Do they print it out on notes which have the bank's name and logo on them?

I'm not sure why you're pretending to have trouble understanding this concept. This is you being disingenuous.

The rest of this seems to be us definitely talking past each other. I'm not super interested in how Chase's assets and liabilities break out. I engaged in the conversation specifically because you seemed to be asserting that loan repayment doesn't destroy money. I'm not sure what you're asserting anymore, and the rest is tangential anyway.

There's also the discussion around fractional reserve lending, but I don't think we actually disagree much about the mechanics except that you think banks are essentially obliged to loan every deposited dollar and I don't, but I don't know this this is an interesting point to continue.