> Loan creation doesn’t work like that for many many years. These days banks don’t even have a reserve requirement. They just create the money and balance the books later.
> Edit: to make my point clearer, banks don’t need your deposits to create new money. They just do.
This is not true. Like I said, banks only lend out money they have. The only way banks "create" money is because the same money can be lent out multiple times (Bank lends out Person A's money to Person B; Person B deposits their money at a bank; Bank lends out Person B's money to Person C; etc)
You are wrong. Banks don’t need deposits to create loans/money. They crate the money, out of thin air, as the conspiracy theorists like to say it, and they pay the central bank interest on it. That’s it.
I'm presenting an outdated and simplified version of the process, because yes, you're correct in the short term. The process happens asynchronously where the bank gets to loan out the money now and sort out the backing money later.
But it has the same _effect_: the government controls the maximum money supply and the creation of money.
and what would then happen if a bank were -- somehow -- induced to make more of those loans, which, as you describe "duplicate" or "create" money a number of times up to the number of loans made?
and how would the world look if that same bank then decided to stop making so many loans?
would there be a difference in the total money "created"/"duplicated" between those two worlds?
you can quibble with language ("Many people get ensnared in a series of linguistic traps when they talk about bank accounts." - quoting the article) but I think you'll find the OP and other commenters here have a sufficiently reasonable model of what is happening under the hood in the modern banking system. I suspect if you view the OP charitably and accept that he does understand what's going on and is describing the relative difference between these two hypothetical scenarios I gave above as "more or less money creation"...the essay becomes less "bad".
> Bank lends out Person A's money to Person B; Person B deposits their money at a bank
You describe this as a two-step process, but it's actually one step, with no actual cash involved. If Person B gets a personal line of credit, it is issued as a deposit in their account at Bank, not paid as cash which is then deposited.
Even if Person B immediately spends that money (on e.g. a house), it is transferred to Person C (former homeowner) directly as a bank deposit, either at the same bank or a different one. There's never any direct cash involved - only bank deposits are moving back and forth.
I glossed over it because it isn't really relevant to my point, but yes, the reserve requirement in the US is currently zero: https://www.federalreserve.gov/monetarypolicy/reservereq.htm
> Edit: to make my point clearer, banks don’t need your deposits to create new money. They just do.
This is not true. Like I said, banks only lend out money they have. The only way banks "create" money is because the same money can be lent out multiple times (Bank lends out Person A's money to Person B; Person B deposits their money at a bank; Bank lends out Person B's money to Person C; etc)