Category: Banks
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Finance
The textbook explanation of how economic activity is financed is based on a simplified conception of the function of banks and the stock market. Banks theoretically use their depositors’ money to make loans to businesses, and the stock market enables businesses to raise money by selling “shares” to individual investors. Each of these ideas glosses…
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Credit
The term “credit” is derived from the Latin term for belief or trust. Perhaps the most common understanding of credit is “buy now, pay later.” It means that you can walk out of the store with something simply because you have given your word that you will pay for it when the bill arrives. This…
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How Is Money Created
While there is a lot of talk about “printing money” as though money is created by government printing presses, money is primarily created by bookkeeping entries. About 10% of the money circulating in the US economy is paper currency or coins. The rest is essentially a host of bookkeeping entries in a vast infrastructure of…
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Banks
In classical economic theory banks have two functions. They facilitate economic transactions by “clearing” or settling through checking accounts, and they make loans to individuals or businesses. In mainstream economic theory when banks make loans they are lending money deposited by customers in their accounts. The idea is that depositors do not need all the…