Take the next step. What happens when the borrower spends the money and the place they spend it banks with different bank?

What's amazing is that more people don't think this through. They just take the "thin air" story and that's it.

Alice gets a 400k mortgage at bank A, so she gets 400k in credit at her (new?) account at the bank. Alice then pays to Bob for the house by transfering the 400k to Bob's account at bank B. No real money or gold is moved. Alice owes bank A 400k with money slave interest rate (e.g. 7%), bank A owes bank B 400k + interbank interest rate (e.g. 4%), and bank B owes Bob 400k (but they phrase it as "he has credit").

Both Alice and Bob's salaries are just credit at banks in the same system. If they sell their cars they get money from the same system. There's no way out.

The banking system's accounting trick to create money was proven by prof Richard Werner.

The limits on cash transactions are growing. To pay for something like a car you'd need a bag of papers as higher denominations to match inflation would never be printed. Cops can seize cash without much of an excuse. Customs can seize cash over 10k without much of an excuse.

A small bank can only go down if other banks don't trust them. Like SBV a couple of years ago. But their assets are taken by a bigger bank. Lehman Brothers was a rare exception and it looks like Goldman wanted them to go down for some petty reason. But the AIGs will always be bailed out.

More small banks going belly up and more bailouts are coming. The world is reducing exposure to dollar. Central banks are selling US treasuries and buying gold. The US dollar's empire is crashing down and the Western banking cartel is getting desperate. They'll try to drag the world into war or some other old trick.

> No real money or gold is moved.

Money is moved; this is the problem with your analysis, see page 19 of the infamous Bank of England's "How Money is Created" paper [1].

[1]: https://www.bankofengland.co.uk/-/media/boe/files/quarterly-...

You missed an important bit... the banks (A & B) accounts at the federal reserve are updated (bank A down, bank B up) for the transfer. And that's where the rubber meets the road. If bank A doesn't have the assets, it all stops. Banks don't just give each other endless credit to solve payments...

There is no magic in banking. If you describe something and it sounds magical, a piece is missing. If you were running bank B, you'd never agree to what you described. You'd want the assets, or you'd want some kind of collateral even if you were willing to do an interbank credit, you'd limit it, you'd do all kinds of credit analysis on your bank counterparties... And what I just described is how trading of securities tends to work between banks. But even then, it's not how payments are solved...

If you count the loan as an asset, surely you have to count it as a liability for the borrower. And the bank has to actually give the money, so they're down that money.

In the end both are net zero.

The transaction is balanced in isolation, but the initial part (actually giving the money) is allowed to be negative for the bank as long as they're within their leverage ratio.

So yes, as a whole the bank gives money from thin air.

It's not net zero because you collect all the interest on money you didn't have to begin with and created out of thin air via an accounting trick.

Now obviously the liability will get zeroed out in the end, but in the meantime you get to keep all that accumulated sweet interest for ... uh... "managing risk"... it's a very beautiful thing!

So you have in fact created money out thin air, it's in the interest payments! You pay interest for basically "nothing!" (cough, cough, "managing risk"). And that interest does not get zeroed out! It's "pure" profit from an accounting trick.

You can't do this indefinitely. There a lot of risk management rules and capital requirement ratios which dictate how much money you can make of "the thin air". Also you should have enough liquidity to let the customer transfer the borrowed amount outside to actually use it.

i thought the central bank does this?

It goes up the chain to the central bank.