It's not. I've been entertaining a lengthy debate over at mises.org here [1]. Knowing that you also read this site, I'll respond to this statement as pertaining to the Austrian position.
If you read Mises, you will find that credit expansion always seems to be a government policy to him [2]. This suggests that he is ignorant of the actual financial mechanisms that go into loans. When a bank extends a loan, it always does so on the basis that the borrower has some valuable asset to place as security against the potential for non-performance.
It is true that money is created when a loan is extended. Suppose that you take out a mortgage for $100K to build a home. The bank places your loan as an asset on its balance sheet. The total of deposits in the banking system also increase by a total of $100K. These deposits are held by the people you pay to build your home.
Was this money created out of thin air? In one sense, yes. It was created by a book entry. However, it also corresponded with productive work - the building of your home. I argue that the circulation of credit is not necessarily to create money 'out of thin air'. Those who argue so look only at the total of demand deposits to cash reserves. Seeing fewer cash reserves than deposits, they deem this a "fractional bank reserve" and usually charge it is fraudulent. It is very hard to get them to acknowledge the loan portion of a bank's balance sheet let alone admit that it is relevant backing for the deposits.
I will admit though that some money creation truly does appear more 'out of thin air'. Some lending practices (mostly encouraged by the government with implicit and often explicit promises of backing bad loans) act to give loans to anyone with a pulse regardless of actual ability to pay. Recent credit practices do seem to have popped money out of thin air, so to speak. The market is displaying the need to make that money evaporate since many of those debts are unpayable. But of course, the government is making every effort to avoid that outcome. Too many people are duped into thinking that it's for the benefit of the little guy and keeping his home. But it's all about protecting banks that would (and should!) be insolvent. But I digress.
It is also an act of creation out of thin air when an institution creates a bond (which is really just the same thing as charging up your credit card). When the federal government does this, it often uses the bonds to attempt to avoid the consequences of bad credit practices. On one side, the market is trying to destroy money (which would damage some wealthy, influential interests). On the other, the government is pumping new money (mostly via the monetization of Treasury bonds at the federal reserve) to keep the banks solvent.
Austrians point to fractional reserves as the culprit for the business cycle. I do think that the business cycle is partially caused by monetary policy and is largely connected to inflation. But it is mostly pointed at the interventions of government to avoid prior bad policies (plus some consideration for some natural cyclical societal trends). Wealth is redistributed when the little guy is foreclosed upon while the bank (which should have shared in the outcome of the bad debt) is protected.
A gold standard would do nothing to correct malinvestment if bad credit practices were still protected. Malinvestment would simply be manifest in another way. Austrians are mistaken on these points though I still find the general framework of Austrian thinking to be way above any other economic school of which I'm aware.
ADDITION: By the way, here [3] is an interesting time series from the Federal Reserve. The only difference between the system that we have and a gold standard is in regard to what is base money. In a gold standard, metal had to be mined from the ground. It was then minted into coins, bullion or other forms of convention (often - usually or always? - stipulated by a governmental entity).
The majority of money creation, under our current system that is convertible only into Federal Reserve notes AND under a gold standard, is in the form of credit. It's worth noting that the printing of paper currency (and coining in non-precious metal) has been at a relatively stable pace. [The rate is revealed to be even more stable on a logarithmic scale - an optional setting at the stlouisfed site.] I think that this observation should take the wind out of the sails of the hard money folks if they understand anything about credit creation.
One last note: it is interesting that the rate of currency printing drastically picked up over the last year. I don't think that this is coincidental. Here, I part strongly with the opinion of our PhD economist friend. Far from inflationary, I believe that the Treasury and the Federal Reserve are fighting strong deflationary headwinds. A great deal of debt in our system is at the verge of being unpayable at current rates and would be entirely out of the question if rates rise. I don't have a ready source for this, but I recall reading that the Treasury is issuing bonds at increasingly short durations. People won't buy them longer. Therefore, even our federal government is facing potential refinancing problems.
When debts are written off, they first reduce excess bank reserves. Shareholders are next in line and then further down the list until, in theory, depositors lose a portion of their funds. In reality, of course, the FDIC system steps in to make the depositors whole and to wind all other debts up in an orderly fashion. If you pay attention to recent bank closings [4], banks are often revealing assets worth only half of what they claimed on their balance sheets. This is revealing huge asset deflation. So far, the system has managed to avoid deflation on a general level. But the cost has been to strain the balance sheets of the Federal Reserve and of the U.S. Treasury.
Some people don't realize that the Fed and the Treasury can go insolvent and default on their debts. They can. And if they do, poof goes the US dollar. The Federal Reserve has been monetizing Treasury bond issuance. Those bonds must be serviced mostly out of tax receipts. And when an increasing part of your population is out of work [5], it's hard to raise tax revenues - raising the tax rate on zero is still zero!
To draw this back to the point on hand, money is not exactly created out of thin air in the fundamental workings of lending. But when you are issuing credit to people with no prospects of repaying (even if, in our case, you are shoving a great deal of it up to the federal government), you have to write it off eventually. Money so created could be said to have been created out of thin air to the extent that the wealth does not currently exist to back it, nor is it conceivable that it can be created during the duration of the loan. It is not a fundamental element of credit creation, only of the unimaginably bad credit practices we have entered upon and refuse to recognize.
We are headed to massive deflation. The accelerated rate of BASE MONEY printing by the Treasury suggests to me that the monetary authorities know it. They are fighting it, but they will fail. They will fail because they are responding to a debt crisis with MORE DEBT.
They're either stupid or desperate.