Council of Canadians

Doug Henwood dhenwood at
Thu Apr 6 15:53:05 PDT 2000

kenneth.mackendrick at wrote:

>Yes, it is my understand that this is exactly what a loan is - money created
>out of thin air only to disappear again when it is paid back (this is exactly
>what the banks do... they open an account an put money it it - from where -
>from an 000-0001 account (or something like that - which isn't really an
>account, it's just a number that, at the end of the day [term of the
>loan], has
>to be 0). Please, correct me.

A loan is like that only in the very short term (though I should say this is a topic of theological dispute among economists). A bank makes a loan - then it needs to find the funds (either by taking deposits or selling short-term notes or bonds) to cover the loan. In a credit bubble, the process can get way ahead of itself, but you can't create money out of thin air forever without creating inflation or a credit bubble.


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