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How do banks create money out of thin air? What is bank credit? What is inflation? What is deflation? Banks create money out of thin air when we borrow. Borrowing creates money in the form of bank credit. Most of our money supply is bank credit. It is checkbook money. When we borrow, bank credit is inflated. When we pay back debt, bank credit (money supply) deflates. This causes boom and bust cycles such as kondratieff wave. 2008 financial crisis is the result of excessive web of debt. |
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