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Banks don’t “lend out” your deposits, they create money when they lend.

In this video, Steve Keen dissects the classcial economist's fractional-reserve story, responds to critics, and uses Ravel to show why the classic money-multiplier only “works” if loans are made in cash. Once you enforce real double-entry bookkeeping, the narrative collapses — and the real mechanics of bank-originated money and debt come into focus.

What you’ll learn

• Why the textbook money-multiplier breaks under proper accounting

• How bank lending creates deposits (new money) on both sides of the ledger

• Why reserves ≠ “loanable funds” and why deposits aren’t lent out

• Where popular explanations violate assets = liabilities + equity

• Why getting money creation right matters for debates on deficits, QE/QT, and “can we afford it?”

• How Ravel exposes hidden assumptions in neat verbal stories — step by step

Key takeaways

• If a model can’t balance the T-accounts, it’s wrong, regardless of how often it’s taught.

• Loans create deposits; deposits aren’t a stockpile that gets parcelled out.

• Cash is the only way to make the textbook multiplier arithmetic “work”, which tells you the model is not how modern banking operates.

• Misunderstanding bank money leads to bad policy: deficit panic, confused takes on QE/QT, and misguided bank rules.

About Steve Keen

Steve Keen is an economist known for accounting-consistent, data-driven models of money, debt, and instability. Creator of the Minsky and Ravel tools, he replaces classroom myths with operational mechanics you can simulate and test.

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