How the magic money tree works
This is essential background reading for ALL students taking a unit in basic financial economics!
Nearly four fifths of MPs do not know how money is created with the majority holding the mistaken belief that money is created by the government.
Zoe Williams explains in this Guardian article that new money is created whenever a commercial bank extends a loan, and they don't have to attract deposits first in order to do this!
"Banks do not work to a money-multiplier model, where they extend loans as a multiple of the deposits they already hold."
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