O'Reilly logo

The Complete Idiot's Guide to Economics, 2nd Edition by Tom Gorman

Stay ahead with the world's most comprehensive technology and business learning platform.

With Safari, you learn the way you learn best. Get unlimited access to videos, live online training, learning paths, books, tutorials, and more.

Start Free Trial

No credit card required

How Money Is Created

Here’s the part of the book I know you’ve been waiting for: how money is created. It’s a beautiful thing to see. Unfortunately, banks are the only outfits legally allowed to create money, and they do it under the auspices of the Federal Reserve.
By money, I mean deposits, not currency. Most money—most of M-1—exists in the form of deposits. When banks have reserves above the amount required by the Fed—excess reserves—they are allowed to create new deposits. These new deposits are created in the form of loans. So actually the term money creation in our economy means expansion of credit and debt.
No single bank can create money. Some people believe that one bank can take in new deposits and somehow lend out a multiple of ...

With Safari, you learn the way you learn best. Get unlimited access to videos, live online training, learning paths, books, interactive tutorials, and more.

Start Free Trial

No credit card required