Re:Starting an Airline
by nhaehnle on Tuesday September 24, 2013 @11:51PM
(#6442520)
To be more precise, when a bank gives a loan of $1000 million, then it creates $1000 million.
This is a straightforward conclusion of how monetary aggregates such as M1 are defined: Among other things, M1 includes money in checking and similar accounts. The creation of the loan involves, among other things, adding $1000 million to some checking account, without reducing the amount of money anywhere else.
Hence, $1000 million is created net.
This contradicts the story that most people are familiar with, but it is a more accurate description of reality than that other story.
This is a straightforward conclusion of how monetary aggregates such as M1 are defined: Among other things, M1 includes money in checking and similar accounts. The creation of the loan involves, among other things, adding $1000 million to some checking account, without reducing the amount of money anywhere else.
Hence, $1000 million is created net.
This contradicts the story that most people are familiar with, but it is a more accurate description of reality than that other story.