Quote from: o_e_l_e_o on July 26, 2019, 10:02:34 AM

Quote from: deisik on July 26, 2019, 06:54:55 AM

It is still a collaterized form of money, i.e. money backed up by tangible assets

How is it, though? If I apply for a loan of $1,000, the bank simultaneously gives me a credit of $1,000 and a debit of $1,000. I get $1,000 of new money in my account to spend, whilst also having an outstanding bill for $1,000. Nobody gives the bank any assets to back up that $1,000 they have just created. No money or assets are added to their reserves. The only thing backing up my new $1,000 is a promise that I'll pay it back in the future

No bank will give you anything on an empty promise

But I think you know that better than myself (though I know that too). The word collateral is there for a reason, and all banks will require you to secure the loan by providing liquid collateral for it. If you fail to return the money borrowed, the bank will take the collateral and sell it. Indeed, its price can drop in the process, but that's why loans are typically overcollateralized. Sometimes it doesn't help, but it is a completely different story

Quote from: o_e_l_e_o on July 26, 2019, 10:02:34 AM

Quote from: deisik on July 26, 2019, 06:54:55 AM

So the second form of credit money is better for the economy because money gets created (and destroyed, for that matter) according to the needs of that economy.

Creating money out of thin air simply because there is a demand for individuals and businesses to have more money is neither good for the economy nor sustainable long term

As long as the money thus created is properly collateralized, this is a non-issue and technically not much different from a hard currency backed up by gold