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Open market operations only change the "portfolio" makeup of the private sector on the margin. New new assets(new money) are added to the private sector. There
by bubbleRefuge 10y ago
Open market operations only change the "portfolio" makeup of the private sector on the margin. New new assets(new money) are added to the private sector. There is no money multiplier due to open market operations itself. Banks will lend as long as they can make a profit and since banks can create deposits out of thin air, what you are saying is inapplicable to modern monetary/banking systems. Banks can always create deposits to meet loan demand.
- jganetsk 10y agoExcept for reserve requirements https://en.wikipedia.org/wiki/Reserve_requirement#United_States https://en.wikipedia.org/wiki/Reserve_requirement#United_Sta... And once the reserve requirement is maxed out, the only thing that can permit more private money creation is central bank money creation
- bubbleRefuge 10y agoRight. Banks can borrow reserves to meet requirements. It doesn't prevent them from meeting loan demand. Money creation is congruent to loan demand. Also, reserve requirements are accounted for in the next accounting period not in real time.