• crashfrog@lemm.ee
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    11 months ago

    Loans don’t increase the money supply, though. They increase monetary velocity.

    • chicken@lemmy.dbzer0.com
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      11 months ago

      Most new money enters the system by being created via loans ultimately from the federal reserve bank. This is the primary way the money supply expands.

      • crashfrog@lemm.ee
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        11 months ago

        Right but that’s a lot different than the loan being discussed here, which is when the bank capitalizes its own loans via deposits.

        • chicken@lemmy.dbzer0.com
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          11 months ago

          That’s an assumption about what I meant, but the fact is both create money. Banks loan out new money, which must only be matched by deposits equal to a small percentage of their outstanding loans specified by the reserve requirement. Which not too long ago IIRC was temporarily removed entirely.