There seems to be some confusion in certain circles as to what
banks actually create. Do they just create debt or do they
create “money”. Money is a tricky term, but let’s go back to
basics on the design of the US monetary system. The monetary
system in the USA is designed around private competitive banking
(see here for a full explanation of our monetary system’s
design). That is, most of the “money” in our system exists in
the form of bank deposits. When a bank makes a new loan this
results in a new deposit in the banking system. All those digits
in your bank account are numbers that some bank entered into the
system. And no, they didn’t need to call the central bank first,
check their reserve balances or calculate some silly mythical
money multiplier before they issued these deposits. Banks are
never reserve constrained. So they issue loans almost entirely
independent of the government (with the obvious exception of
some regulations which obviously don’t work to constrain them
that well). The key to unders