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by majormajor
1389 days ago
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Sure, though it's rare that you'd borrow money without intending it to leave the bank (cases like paying off higher-interest stuff with lower-interest borrowing aside), but that aside, yeah, all the bits about how the banks have to have their accounts reconciled with the Fed and backing assets and all is really the core of my disagreement with the "banks can basically just print money infinitely" claims. Which I've sometimes seen people cite that BoE article as support of leaning on that "they just add a number in their computer when you take out a loan" bit. If it were that simple, I'd love to just make myself a bank and print myself some money, after all. ;) My understanding is also that these discussions of "money" ignore things like investments or non-liquid assets, which I think is another big source of fuzziness. E.g. borrowing against other assets, including stock, that might have appreciated incredibly rapidly which gives you more purchasing power (the ability to "spend more money") without requiring anyone else to actually have given you money for anything specific. |
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This does not preclude, however, asset bubbles as we saw in Japan in 1991 and globally in 2008. The banks create loans which drives up the price of assets. Those assets, now appearing to be worth more, enable the banks to create bigger loans, because hey, the asset is worth more! This is a positive feedback loop and a major failure mode of this system. Regulation tries to tamp it down but does not always succeed.