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 don’t loan out money they don’t have. The money regular folks give to the bank is used to loan out. If everyone tried to withdraw their money at the same time, or if lots of the loans they gave out weren’t getting paid back, the bank could end up in a situation where they completely fail. The government has tons of regulations on banks to make this unlikely. The government also has the ability to actually print new money and in the past used this to support banks in hard times to prevent them from failing.
If you’re referring to money as physical notes and coins then look up “fractional reserving”.
Basically, bank money is an IOU and mostly are not required to have the physical cash available to settle a mass withdrawal request. Thus money creation can certainly be facilitated by lending money they don’t have. Once the person spends that money, then money is effectively injected into the economy, despite being generated from nothing.
If you’re referring to money as physical notes and coins then look up “fractional reserving”.
Basically, bank money is an IOU and mostly are not required to have the physical cash available to settle a mass withdrawal request. Thus money creation can certainly be facilitated by lending money they don’t have. Once the person spends that money, then money is effectively injected into the economy, despite being generated from nothing.
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