“Most money in the modern economy is in the form of bank deposits, which are created by commercial banks themselves… When a bank makes a loan to one of its customers it simply credits the customer’s account with a higher deposit balance. At that instant, new money is created…”
the relationship between reserves and loans typically operates in the reverse way to that described in some economics textbooks. Banks first decide how much to lend depending on the profitable lending opportunities available to them…It is these lending decisions that determine how many bank deposits are created by the banking system. The amount of bank deposits in turn influences how much central bank money banks want to hold in reserve (to meet withdrawals by the public, make payments to other banks, or meet regulatory liquidity requirements), which is then, in normal times, supplied on demand by the Bank of England
Tweet Despite a surge in growth in 2014, a number of issues still threaten the sustainability of the UK’s economic recovery: Global growth has been at its lowest since the 2008 financial crash. Low productivity is puzzling UK policymakers.
Tweet A recent blog by Clint Ballinger highlights some of the similarities and differences between Positive Money’s proposals and those of Modern Monetary Theory (MMT) and other Post-Keynesian types of analysis.
Yesterday we explained (to our own satisfaction, if no one else’s) that there can be no such thing as a finite amount of capital with which to finance new capital formation or acquisition. To recap, “money” is a measure, not a commodity.
**Must-Read:** Badly-intentioned or incompetent policymakers can mess up any system of macroeconomic regulation. And we now have two centuries of history of demand-driven business cycles in industrial and post-industrial economies to teach us that there is no perfect, automatic self-regulating way to organize the economy at the macroeconomic level. Over and over again, the grifters, charlatans, and cranks ask: "Why doesn't the central bank simply adopt the rule of setting a "neutral" monetary policy? In fact, why not replace the central bank completely with an automatic system that would do the job?" Over the decades many have promised easy definitions of "neutrality", along with rules-of-thumb for maintaining it. All had their day: * advocates of the gold standard, * believers in a stable monetary base, * devotees of a constant growth rate for the (narrowly defined) supply of money; * believers in a constant growth rate for broad money and credit aggregates; * various "Taylor rules". And the answer, of course, is that by now centuries of painful experience have taught central bankers one thing: All advocates, wittingly or unwittingly, were simply selling snake oil. All such "automatic" rules and systems have been tried and found wanting. It i
As some of you may have noticed, we put the blog on “autopilot” for two days last week to attend the annual ESOP Association conference in Washington, DC . . . which was really handy, since we’re in Arlington.
We plan to show a Stephanie Kelton video for our May 25th SLP Kiwanis Club meeting. Stephanie Kelton is Chair of the Department of Economics at the University of Missouri, Kansas City. She is a leading proponent of Modern Monetary Theory.
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