by Summary:
In terms of the the general case concerning contemporary banking, the basic constraint on lending, by which banks create "money"* by crediting deposit accounts (bank liability) and debiting loan accounts (bank asset), is the availability of creditworthy borrowers. This population is flexible based on, financial and economic conditions, bank credit standards, and government policy and regulation. All of these may change over the cycle. Price of assets rise to the degree that banks are willing to lend against them as collateral, and goods prices will be affected by changes in bank credit policy. Since bank credit generates much more highly liquid purchasing power (M1) by volume in an economy than government net spending (which also adds to M1), "bank money" is a primary driver of asset
Topics:
Mike Norman considers the following as important: economic profession, money and banking
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In terms of the the general case concerning contemporary banking, the basic constraint on lending, by which banks create "money"* by crediting deposit accounts (bank liability) and debiting loan accounts (bank asset), is the availability of creditworthy borrowers. This population is flexible based on, financial and economic conditions, bank credit standards, and government policy and regulation. All of these may change over the cycle. Price of assets rise to the degree that banks are willing to lend against them as collateral, and goods prices will be affected by changes in bank credit policy. Since bank credit generates much more highly liquid purchasing power (M1) by volume in an economy than government net spending (which also adds to M1), "bank money" is a primary driver of asset
Topics:
Mike Norman considers the following as important: economic profession, money and banking
This could be interesting, too:
Mike Norman writes Lars P. Syll — Does it–really–take a model to beat a model?
Mike Norman writes Greg Mankiw’ — Sad News from China
Mike Norman writes Revisiting Education of Economics – Dr. Omer Javed
Mike Norman writes Lars P. Syll — The weird absence of money and finance in economic theory
Price of assets rise to the degree that banks are willing to lend against them as collateral, and goods prices will be affected by changes in bank credit policy. Since bank credit generates much more highly liquid purchasing power (M1) by volume in an economy than government net spending (which also adds to M1), "bank money" is a primary driver of asset values and goods prices.
Since banks, even though privately owned, are part of the government-regulated banking system, they submit to government regulation and oversight, for which they receive access to the central bank as lender of last resort and also deposit insurance.
Yet, much of what we still hear is about gub'ment, crowding out, interest rate explosion, and other idiocies based on the erroneous loanable funds theory.
Thankfully, many economists are finally throwing off the heavy yoke of monetarism, but even many of these are still affected by the cognitive biases resulting from monetarism's deep impressions on the psyche. However, a majority of posts that mention MMT are still rants about the dire effects of "fiat currency"and fiscal depravity as opposed to Libertarianism and "sound money."
* I put money in quotes because "money" is an ambiguous term that should be banned from economics, as Brian notes. "Money" is one of those weasel words that everyone thinks they understand; yet, no one does owing to the extremely high level of abstraction that makes it a wild card. Better to say exactly what you mean, ideally in accounting terms with dealing with a unit of account.
Unfortunately, there are many other terms in economics like this. See, for example, the Cambridge capital controversy that pitted Samuelson and oSlow against Robinson and Sraffa.