Loans create deposits” is a confusing slogan and is a falsehood. Your example proves the point. Loans create assets that are most commonly deposits only temporarily. The loan created a shovel not a deposit. If the loan was paid in the form of a check or cash then the loan would never have created a deposit. Why would anyone take out a loan to keep it as a deposit. Surely the interest on the loan is more than the interest on the deposit. You might argue that the purchase of the shovel created a deposit some place else. You can't know that. The payment for the shovel might have been consumed in many ways that never lead to a deposit. Also you don't depreciate the shovel and carry the full value as an asset. That is something that is not properly done. That is just a way to cook the books to make them balance. We should value assets at present value not at cost or even cost minus depreciation. We do a lot of stupid things to make CPA's life easier. Want to talk about "Goodwill."

TEK