Where does the money of a loan really come from?

Well, good question. In September I wrote an article on the solution to the international financial crisis A Word on Finance and while the article was well, received I have been receiving many questions on a specific point: Where does the money of a loan really come from? Readers seem to not get that point fully.

Let me lay it out here, one more time, really clearly:

When you get approved for a loan by a commercial bank, the money you get given did not previously exist. Period. This is really hard to get your wits around sometimes. But the fact is that the second the banker approves your loan the money appears in your account. That’s it, nothing more. The money is not transferred into you account out of some reserves or you are given the money an old lady gave the bank to look after.

The simple fact is that in our world today, money is simply created whenever a loan is approved. That’s it. From now on there is more money in the world because of it.