Tag Archives: loans create deposits

Keeper quote from Joseph Schumpeter. He nailed endogenous money as "credit money" and observed correctly how "money" gets created by banks' extending credit — "they create deposits in their act of lending." This effect is now amplified through non-bank and quasi-bank financial institutions. The contemporary financialized economy runs largely on privately created credit. This has an even greater effect than Schumpeter likely anticipated. Economists' ignoring this unduly limit the scope of...

David Graeber and the Bank of England. Lars P. Syll’s BlogHow money is createdLars P. Syll | Professor, Malmo University

The unfortunate fact that bank deposits are considered money has one side effect: our mysticism about money extends towards banking. The apparent ability of banks to "create money out of thin air" seems unfair, and this leads to questions about what limits their ability to lend. The answer is a lot simpler than one might suspect. For any other business (with the possible exception of the resource industry), output is largely constrained by their ability to find customers that they can sell...