When the bank loans out 900 dollars to me and places it in a checkable deposit, then on my balance sheet it would be +900 under assets. And now this created money. But if I now wish to withdraw the money from the checkable deposit, then it would be -900 under assets. The sum of +900 and -900 is 0. so how was 900 dollars of money created if it then was withdrawn and that resulted in 0?

Expert Answers

An illustration of the letter 'A' in a speech bubbles

Once you take the money out of the bank, it comes out to zero on their accounts, but you have $900 in cash in your hands.  So money has been created.

The reason that money has been created is that the $900 you borrowed was not just taken from someone else's account and given to you.  The $900 that you have in your hands now was just money that the bank "made."  It was able to create that money because someone else had deposited money in the bank.

So, the fact that the bank's books come out to zero on this loan does not mean money has not been created.  Money has been created because the money in your hands did not exist before the loan was made.

See eNotes Ad-Free

Start your 48-hour free trial to get access to more than 30,000 additional guides and more than 350,000 Homework Help questions answered by our experts.

Get 48 Hours Free Access
Approved by eNotes Editorial Team