If one says "If they took his money and lent it, they would not be creating money," then where do they get the money to lend it to this individual?

Expert Answers

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The way the banking system works is that the banks are allowed to loan out money rather than having to keep it all in their vaults.

When Person A deposits money, some of that money is lent to B, for example.  But the bank is not literally taking A's money and giving it to B.  A may still come and get that money if he wants it.

The money that is lent to B is new money.  It is money that never existed before.  That is why we say that banks are creating money.

So, the money doesn't really come from anywhere.  It is created new out of thin air.

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