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What do people get out of this paper? That banks can create as much money as they want, without limit? Or that, even if the bank has a hard limit to how much
by MrPatan 4y ago
What do people get out of this paper?
That banks can create as much money as they want, without limit?
Or that, even if the bank has a hard limit to how much they can loan out to the amount they hold in reserves in the central bank, what counts as money being created into the wider economy is the act of making a new loan for a customer?
One is way more boring, technical and unsurprising than the other.
- imtringued 4y agoMoney creation is limited by the productive investments that the banks can find and if it is overly pessimistic it will not lend even to productive investments. Sound money advocates think that money for loans should be limited by the availability of "prudent savers".
- lottin 4y agoBanks can create deposits but creating deposits that aren't backed with reserves entails a risk of insolvency. Thus the amount of deposits banks can create is ultimately limited by the reserves that they hold. The demand for credit also affects the amount of deposits that are created in practice.
- throw0101c 4y ago> Or that, even if the bank has a hard limit to how much they can loan out to the amount they hold in reserves in the central bank Reserves haven't been a limit for a while: * https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1905625 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1905625 * https://rationalreminder.ca/podcast/132 https://rationalreminder.ca/podcast/132 Some countries haven't had reserve limits for decades: * https://en.wikipedia.org/wiki/Reserve_requirement#Canada https://en.wikipedia.org/wiki/Reserve_requirement#Canada
- danielmarkbruce 4y agoThey all have capital requirements.
- ryloric 4y agoNot really, what limits credit is the price of money i.e. interest. Reserve ratios have gone out of usage for some time now.