Commercial bank-created money is money created by the commercial banks of a jurisdiction when advancing loans to a customer who promises to make repayment of that debt in return. Commercial bank money is destroyed by the repayment of the bank loan that created it. The practical limits to the capacity to create money in this form are:
The availability of borrowers with the ability to make repayments.
The availability of capital within banks to sustain bad debts arising on debts that default.
Regulation intended to direct credit or to limit its availability.
The biggest practical limit is the ability of the bank to attract deposits to finance that loan. Sure, that attracting might take place after the loan has been granted. But it always does happen by 4.30 pm that day. When the bank must balance its books. If this were not true then a bank run – deposits leaving a bank – would not be a problem. Also, if this were not true then a bank would not pay interest on deposits. They do.
So, Spud is wrong again – and aren’t we all surprised.
Base money acquires its value because it is used to settle tax liabilities owing, which are legally created debts intended to impart value to a currency.
That’s not true either.
Yet he wishes to tell us all how money works, does he?