Credit Expansion is not synonymous with growth of all money or every interest-rate change. Statistical debt growth and Mises’s account of credit expansion use different definitions. A bank loan can create a deposit, but the accounting entry itself does not create machinery, labour or savings of real goods.
BIS distinguishes total credit from all sources from domestic bank credit to the private non-financial sector. It includes debt securities and separates households, non-financial firms and government. A number without these boundaries does not identify which part of financing actually expanded. [BIS — Credit to the non-financial sector]
Bank of England describes the simultaneous creation of a loan and matching deposit. Our simplified example: the bank credits 100; the customer has a deposit of 100 and debt of 100, while the bank has a claim and liability. This is not a gift of net wealth to the customer or merely a transfer of another saver’s existing deposit. [Bank of England — Money creation in the modern economy]
Bank of England also explains the destruction of deposit money through bank-debt repayment. Our example with no other changes: new loans of 100 and principal repayments of 80 give a net increase of 20. Transferring money between customers is not itself repayment; distinguish payment counts, new contract volumes and debt stocks. [Bank of England — Money creation in the modern economy]
Bank of England stresses profitability, prudential regulation, customer behaviour and monetary policy. An individual bank must also handle outgoing payments and funding. Being able to book a liability therefore does not mean it can lend any amount to anyone at no cost. [Bank of England — Money creation in the modern economy]
Mises analyses additional circulation credit entering the loan market first. In his account, altered calculations can make projects seem feasible without a corresponding increase in capital goods. This is a theoretical mechanism of conflicting plans, not a simple equivalence between growth in any debt statistic and malinvestment. [Mises — Human Action, XX.6]
Mises allows financing to expand even at an unchanged nominal rate if loans previously rejected because of their risk component are now made. Study access to credit and borrower assessment as well as rates. Comparing two interest rates alone does not describe the whole change. [Mises — Human Action, XX.6]
BIS publishes outstanding debt and its ratio to GDP. Our example: debt of 100 and GDP of 200 give 50%; if GDP falls to 160 while debt is unchanged, the ratio rises to 62.5%. That is not 12.5 of new credit. Keep units, sector, valuation and period consistent in comparisons. [BIS — Credit to the non-financial sector]
Nakamoto’s mechanism verifies transfers and prevents double spending; it does not compile all credit statistics. Our application: a loan of 100 USD secured by BTC is debt in USD, not Bitcoin issuance. Distinguish the debt denomination, collateral and any claim against a service; on-chain transfer counts alone do not measure credit volume. [Nakamoto — Bitcoin: A Peer-to-Peer Electronic Cash System] [BIS — Credit to the non-financial sector]
For the clearest picture, read this entry together with Fiduciary Media, Forced Saving, Austrian Business Cycle Theory, Malinvestment, Credit risk. The reverse links also lead from Cantillon Effect, Malinvestment, Austrian Business Cycle Theory, Forced Saving.