Jayson Funke <[email protected]> wrote: > With regards to the issue of the awareness of how banks actually create > money, to my understanding that topic is still widely under debate by > economists, let alone the general public, no?
There isn't really a debate that I know, except about semantics. Banks can't create commodity money (a province of nature, as it were) or fiat money (a province of the state). They create bookkeeping money, i.e., liquid assets that are entries in a bank's books, that corresponds to debt. My checking account balance counts as part of the official money supplies and is almost as liquid as cash. But it corresponds to a debt that the bank owes to me, one that isn't completely backed by (liquid) reserves. Instead, it is backed by other assets, such as the bank's holdings of T-bills and loans. "money creation" might better be called "deposit creation" since it's the bookkeeping entries that are created -- or "credit creation" because the creation of new bookkeeping money corresponds to new loaning by the banks. The official money supply (either M1 or M2) is endogenous because a lot of the money is created by banks. In "normal" times this is no big deal, since the central bank can counteract its effects (on the attainment of the CB's goals) using open-market operations, etc. In a period like now, it's a big deal, since banks are refusing to lend in many cases. -- Jim Devine / "In an ugly and unhappy world the richest man can purchase nothing but ugliness and unhappiness." -- George Bernard Shaw _______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l
