If a company issues a bond and I buy it then I have to give my own existing money in exchange.
If a company takes out a loan from the bank, the bank isn’t putting up existing money, it just creates a new asset and starts accounting for it. Hence new money is created from nothing.
What stops the bank from creating too many loans is that the bank would become insolvent and all the workers have to carry their stuff out in cardboard boxes (except the execs they probably have someone to do that for them).
> If a company issues a bond and I buy it then I have to give my own existing money in exchange.
> If a company takes out a loan from the bank, the bank isn’t putting up existing money, it just creates a new asset and starts accounting for it. Hence new money is created from nothing.
Sorry, your analogy doesn't work out, because the roles are reversed.
Look at the situation where a company sells me a bond, to be paid back in ten years. But instead of me handing money over to them, I give them an IOU (or credit line) that they can draw down any time they wish to.
We can create this pair of bond and IOU out of nothing, just like the bank can create deposit-loan pairs out of nothing.
However, just like with the bank, people don't borrow money to let it just sit there. They want to invest.
So they spend their deposit, and draw down their IOU.
And once your customer does that, you better have some money in your 'safe' that you can hand to them.
In the classic case, that money comes from outside deposits.
> What stops the bank from creating too many loans is that the bank would become insolvent and all the workers have to carry their stuff out in cardboard boxes (except the execs they probably have someone to do that for them).
If a company takes out a loan from the bank, the bank isn’t putting up existing money, it just creates a new asset and starts accounting for it. Hence new money is created from nothing.
What stops the bank from creating too many loans is that the bank would become insolvent and all the workers have to carry their stuff out in cardboard boxes (except the execs they probably have someone to do that for them).