How financial bubbles are fueled by money creation a.k.a. bank lending: An explanation for public education
by Ib Ravn - published in Real-World Economics Review, no. 97, October 2021, pp. 143-154
It is widely acknowledged that the build-up of a financial bubble coincides with and may even be caused by excessive bank credit or lending. Equally well understood, at least to the readers of this journal, is the fact that commercial bank lending involves money creation.
Somewhat less frequently discussed is the possible causality implied by the conjunction of these two facts: If bank lending really is a process of money creation, and bank lending precedes the bursting of financial bubbles, then money creation by banks may be hypothesized to be a main driver underlying the rise and bursting of financial bubbles.
