How can a bank “create money out of thin air”? We must enter the magical kingdom of “fractional-reserve banking,” where deposits are turned into loans, loans are turned into money, and so on, to find out.

Original Article: "Banks Create Money out of Thin Air. What Could Possibly Go Wrong?"

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President Barack Obama returned from the 2010 G20 Summit held in Toronto having failed to convince world leaders that more “economic stimulus” was needed to cure what ails the world’s economies. Walking a seeming tightrope between too much spending and spiraling deficits, on the one hand, and too little spending and economic recession, on the other, world leaders reluctantly agreed to err on the side of fiscal and monetary caution and to halve deficits in three years.
Economist Paul Krugman in response to this decision cautioned that this policy of deficit reduction is a mistake. In his opinion, the world suffers from too little spending, not too much spending. Without further stimulus, he opined, the world is headed for another depression.
Of course, the

They read like Civil War battlefields: Chattanooga, Tennessee; Tuscaloosa, Alabama; Greer, South Carolina; West Point, Georgia; Montgomery, Alabama; Tupelo, Mississippi; Smyrna, Tennessee. They are the towns and small cities in the Deep South where America now builds its cars and trucks.
Take Greer, for example (population of thirty-five thousand as of 2020). Located in the foothills of the bucolic Blue Ridge Mountains in the northwest corner of South Carolina, it is home to the BMW US manufacturing plant.
According to BMW, the Greer facility employs over twenty-three thousand people to produce the models X3–X7 as well as the XM crossover SUVs and has invested nearly $5 billion in the 1,150-acre, four-million-square-foot campus.
What about New York?
There was a GM

When I was a child, my mother and I would take the Long Island Railroad to Brooklyn to see relatives a few times a year. My grandfather was always outside in front of the apartment house in Park Slope, where he and my aunts and uncles lived. Upon seeing him, I would run down the sidewalk to greet him, but before I could say “Hi, Grandpa!,” he would without fail press a shiny silver dollar into my hand.
He was a quiet, dignified man with a big white mustache. Since he spoke hardly any English, and I spoke hardly any Italian, we had to make do with silent monetary exchanges like these: he gave me shiny, silver dollars, and I took and spent them. Since this was back in the ’50s, a dollar (silver or otherwise) would buy a whole afternoon of fun. I could take in a