Mish's Global Economic Trend Analysis Message Board

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Strategies & Market Trends : Mish's Global Economic Trend Analysis

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To: mishedlo who wrote (72697)	12/23/2007 4:30:45 PM
From: Tommaso	Read Replies (1) of 116555

As you know, all economics textbooks consider that when the banking system as a whole increases its lending, this increases the money supply by increasing the amount of checkable deposits. As you also know, the amount of actual printed cash in circulation (or hoarded) is much lower than the money supply. Expansion of credit--of loans outstanding--is identical with the money supply because these loans create demand deposits that are just as much money as if the deposit had resulted from actual cash. books.google.com This has been true since banking began to evolve: Fractional banking or fractional lending is the ability to create money from nothing, lend it to the government or someone else and charge interest to boot. The practice evolved before banks existed. Goldsmiths rented out space in their vaults to individuals and merchants for storage of their gold or silver. The goldsmiths gave these "depositors" a certificate that showed the amount of gold stored. These certificates were then used to conduct business.

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