Credit expansion

Credit expansion is an increase in the quantity of monetary units created by an increase in bank loans over and above the number of monetary units that savers have released to the banks for lending to third parties. In short, monetary loans in excess of monetary savings available for lending. Credit expansion is only possible with a fractional reserve banking system. Other things remaining the same, every credit expansion must create a boom or upswing in economic activity. This boom can only be sustained by a continued credit expansion at an ever accelerated rate sufficient to induce a repetition of the same activities at the increased prices resulting from the previous credit expansions.