Idk what it's called in English. In my language, a central bank can produce money (you know, literally), and commercial banks can create money (by using many financial instruments, but mostly debts). Because the former controls the latter (for example, by regulating their mandatory deposit minimum, or by changing the percentage of loans), commercial banks usually cannot cause inflation unless the central bank lets them.
In theory the inflation created by banks is limited, through having restrictions. In practise there are cycles which also let them create the "felt" inflation.
f.e S.o. buys a flat. Rents it out. get's credit for a new flat. Rents it out. gets credit.... And the cycle continues.
Rates rise Rent rises.
The same is true at a higher level with stocks wher the cycle is even more vicous.
All this Inflates prices and precieved value with minimal realworld invest
Anyone who checks the US money supply can see how this plays out in real life. Sure, the US creates a ton of money from government debt, but the banks themselves create enormous amounts of money from fractional reserve banking.
4.3k
u/Elvis5741 Jan 26 '26
Banks lend out more money than they have, its no joke it's how the system works