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Loanable funds is a valid idea in the sense that if one person is going to borrow and spend some money, then someone else has save and abstain from spending money assuming constant GDP. I.e. the latter saver supplies the borrower with funds.
In contrast, assuming GDP is expanding, that will almost certainly be accompanied by an increase in the total lending. To that extent, there is no need for the expansion in the total amount loaned to “come from anywhere”. That is, banks can just credit freshly created money to the accounts of borrowers A, B & C.That money will end up in the accounts of X, Y & Z. Some of the latter will simply save the new money so that won’t contribute the GDP expansion. And some will spend it, so that WILL CONTRIBUTE to GDP expansion.
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Loanable funds is a valid idea in the sense that if one person is going to borrow and spend some money, then someone else has save and abstain from spending money assuming constant GDP. I.e. the latter saver supplies the borrower with funds.
In contrast, assuming GDP is expanding, that will almost certainly be accompanied by an increase in the total lending. To that extent, there is no need for the expansion in the total amount loaned to “come from anywhere”. That is, banks can just credit freshly created money to the accounts of borrowers A, B & C.That money will end up in the accounts of X, Y & Z. Some of the latter will simply save the new money so that won’t contribute the GDP expansion. And some will spend it, so that WILL CONTRIBUTE to GDP expansion.
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