Do Auto Loans increase the money supply, I cant seem to find a source for it. Its not a question on a test or anything, I was just curious, I’d always figured it was only business loans and mortgages that did so.
You must log in or register to comment.
Yes, virtually all auto loans are bank loans. When banks write loans, they create that money out of thin air. When you make a loan payment, the principal portion disappears from existence, and the bank pockets the interest portion. So that new money only exists for as long as and to the extent that the principal has not yet been paid.
Banks don’t really create it out of thin air. Banks are letting you borrow money they otherwise hold, meaning they can’t lend indefinitely. This is the exact same way say a library works, they can only lend you books they have, and while you are using that book they cannot lend it to others. Paying back the principal on your loan doesn’t make the money disappear, it’s you giving back the amount you borrowed, plus extra to compensate the bank for lending you the money. This all matters a bit more in non-fiat currencies since those are backed by something intrinsically valued (such as gold), but even in fiat currencies banks that lend more money than they have access too are over extended and generally need to borrow themselves from either other institutions or the Fed in the US. This is why the Fed interest rate impacts loan rates.
Banks don’t really create it out of thin air.
They really do.
- The Myth of the Money Multiplier - How Banking Really Works (3 mins)
- How Commercial Banks Really Create Money (the Money Multiplier is a Myth). (13 mins)
- The Myth of the Money Multiplier (29 mins)
.
Paying back the principal on your loan doesn’t make the money disappear
It really does. You know what else makes money disappear? Paying federal taxes.
Fractional reserve banking. Look it up
US banks don’t even have banking deposit fractional reserve requirements. They do have capital reserve requirements, but those don’t necessarily have to come from customer deposits. And “money multiplier” isn’t how really things work these days, either: https://en.wikipedia.org/wiki/Money_multiplier#Current_monetary_policy
There used to be a reserve requirement where this was partially true on a fractional basis, but they got rid of it if I’m not mistaken.
https://www.youtube.com/watch?v=0yMMTDYFlLc
Also central bank interest rates do not have any effect on a loan you take out. Interest rates were near 0 for ages did you get any free loans? In Japan they were negative, do you think that Japanese consumers were getting paid to take loans? During the inflationary period were you suddenly getting paid to save more? Even though central bank interest rates went up?
That’s a great four minute explainer.
All money is debt. There’s nothing else.
It’s true. Even US government created money is debt. When we pay our federal taxes, that money is destroyed, just like when we pay down the principal on our bank loans.
Yes I find his channel pretty useful for basic economics stuff, I’m a dumbass and didn’t go to university so I love channels like that.
It seems he’s Wikipedia famous: https://en.wikipedia.org/wiki/Richard_Murphy_(tax_campaigner)
And a Quaker as well. I have a soft spot for them.
I don’t know how good you are at maths but I also found this guy to be interesting but I don’t have the technical expertise to verify or debunk his claims
Keen is amazing. Eventually I plan to try out his Ravel application. I’m a software developer, and only recently became interested in economics through Marxist economists like Michael Hudson, Radikha Desai, and Yanis Varoufakis. They all subscribe to the fundamental tenets of MMT.
