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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Banks can create money, note that it’s a different thing than creating *wealth*, and that when a bank creates money, nobody is getting any richer, it just reflects a new loan balance.
One key thing to remember is that when you deposit money in a bank, it’s not like they’re just holding it in a vault for you, what you’re doing is lending the bank money. Part of the deal, though, is not just that they’ll pay you back on demand, but that they’ll pay anyone on your behalf.
So if you deposit $100 and walk out with a checkbook, you can make out 100 checks to “Cash” for $1 each, and in a sense, you now have the equivalent of a hundred dollar bills. You’re not richer, the bank’s not richer.
The bank, in turn, can lend your deposit to someone else, say a restaurant. They buy, idk, olive oil, and then the olive oil factory deposits the money into another bank, and walks out again, with a checkbook. The olive oil maker has $100 in cash (well, checks), and so do you. So the bank has “created” $100 in cash. But it’s not made anyone richer because of it, because the bank owes you $100 and the restaurant owes the bank $100, and then some other bank owes the olive oil maker $100.
This works fine unless everyone wants their money back at the same time, which is a run on the bank.
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