Edit: So basically we have two explanations. One goes by actual money loaned out again and again by different people and banks, thus “creating” money. The other one: Banks actually loan out money they dont have and never had by creating the same volume as asset.
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They do it by loaning it out.
It’s more accurate to say they “share” money instead of creating it.
If you have a car and don’t drive it all the time. Normally you leave it parked in the garage. Your roommate borrows the car when you’re not using it.
To the wider economy, this “creates” a second car by doubling utilization.
Banking does this. There’s no difference between a “borrowed” dollar and a “real” dollar. In fact, your “real” dollar might be a “borrowed” dollar because you might be paid with corporate debt.
When both people want to use the same dollar at the same time, this causes problems (bank run).
We as a society have decided to accept this. Banking and debt provide useful functions to society so we regulate and allow it.
Most “recessions” are in fact products of bad debt. Debt in general is a multiplier. When times are good, they’re REALLY good, and when they’re bad, they’re BAD. This is the fundamental cause of good economic times and recessions.
It’s not capitalism in general, but debt specifically.
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