Thank you for that cogent explanation. I have an M.A. in economics, but was unfamiliar with Minsky’s work. I find it shocking yet not surprising that such a straightforward explication of growth in debt causing a debt-based economic crisis was pooh-poohed by the economic establishment.

I had already reached similar conclusions regarding debt and the economy. After all, all of the money that has been created in our economy since our (latest — third) central bank, the Federal Reserve System (‘the Fed’), was established in 1913 has been created using debt.

The extensions of credit that banks generate when they make loans are used as money, becoming income for those receiving it, getting circulated throughout the economy, even being used to repay other loans and to pay taxes. So those extensions of credit, though they are not additions to the amount of currency in the economy, are effectively ‘legal tender’. (“Legal tender” is whatever the government has decreed can be used to pay taxes and can be required by lenders for repayment of loans — so a bank can’t require you to repay a loan with anything else, like gold or silver, or your first-born.)

Actual currency (though it is now digitized) is created when the Fed has the Treasury create money for the Fed to use to buy some of the debt issued by the federal government. That money enters the economy through spending by the government and mixes with all the other ‘money’ in the economy to generate the total income that is the economy — which income is used in part to service debt. (In ‘quantitative easing’ — QE — the Fed has the Treasury create money for it to use to purchase ‘securities’ — debts — from favored entities in the financial sector.)

So in this economic system money is itself part of the structure of debt. In short, our entire economy is but a vast mosaic of relations of debt.

I have developed an alternative monetary paradigm in which money (as currency) would enter the economy as an income paid to individuals. [Banks would continue to make loans as at present, with those extensions of credit being still being used as at present (though the same process could be used to fund government without taxes or public debt, so ‘legal tender’ would be reduced to being that which could be required by lenders for repaying loans).] The outcomes for the economy — and society — would be astonishing. “How to Transform the Society of any Nation (in a ‘5 min read’)” here in Medium