Mathew Forstater writes: "In terms of bank finance and credit, etc., I should probably just say that if it was not obvious I had in mind the literature on endogenous money and finance, which views private banks and the Central Bank in a fractional reserve banking system as having the ability, through various institutional mechanisms at its disposal and financial innovations induced by profit opportunities, to accomodate the demand for credit.(see, e.g. Wray's book _Money and Credit in Capitalist Economies_) So, crudely put: the demand for credit by investors leads banks to extend credit as long as there are profits to be made. Investment takes place which increases incomes in the economy. Some of the new higher income is spent on consumption, some is saved. The savings are deposited in bank accounts, replenishing depleted accounts and creating new ones." This invokes the incredible fairy tale we (some economists) tell our students, but which is not true. I already suggested in my response to Anne that she check the impossibility of banks creating credit literally from thin air with the bank balance sheet. But Mathew avoids doing this, and comes back repeating one of the "lies my teachers told me," to borrow a phrase from Larry Boland's recent book. Also talk to someone versed in the field of finance or accounting, and you'll find that few besides some economists believe the fairy tale. So here it is again: Banks as INTERMEDIARIES transfer purchasing power deposited with them by savers to borrowers. And they do NOT, repeat NOT, lend more than they have received from savers. In fact, because they have to keep legal reserves in most countries, and also their own economic reserves (aka excess reserves) for their day-to-day operations, they lend a lesser amount than they receive in deposits. A good textbook in money and banking will also show this. I believe a careful reading of Adam Smith's Wealth of Nations on the role of banks will also confirm the point. James Ahiakpor CSUH, Hayward [log in to unmask]