dms wrote:Under the PM model

That's easy. It's just double entry book-keeping when the bank makes a loan. It's irrelevant as far as the question of where the money loaned comes from.Incidentally, not all "deposits" are liabilities as there are the two different kinds of "deposit".The original, more normal definition is where someone from outside the bank deposits a sum of money. In this case, the money in the deposit is the bank's asset and the bank's IOU to repay the money its liability.Then there are "deposits" the PM model above is talking about where the bank agrees to lend someone money and opens a deposit in their name with a credit of the amount of the loan. In this case, it is the deposit that is the liability and the lender's IOU to repay it that is the asset. In other words, the opposite to the more normal sense.So some "deposits" are assets and some are liabilities. No wonder there's confusion but I'd have thought it was obvious that the money a bank lends comes its real, non-paper assets, the money deposited with it and what it itself has borrowsed.If Positive Money really think that a bank could operate without outside funding why don't they practise what they preach and start their own bank (suggested name: The Bank of Thin Air).  In fact, why has nobody ever done this, not even Ponzi?