by Good summary with a few exceptions, the following quotation being the worst. The Federal Reserve is in charge of adjusting interest rates and private banks’ “reserves,” which theoretically determines how much money they can carry. Then the banks lend that money out to their customers, often by adjusting their customers’ bank balance. In this case, the private bank has just conjured money out of thin air. But over all the author seems to have gotten what Stephanie Kelton explains for popular consumption in The Deficit Myth.The quotation shows, however, that money & banking is a bit complex for popular consumption on the first hearing.Actually, banks creating money "out of thin air" in the process of extending credit. Loans create a bank asset and a bank liability, which is a customer
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Good summary with a few exceptions, the following quotation being the worst.
The Federal Reserve is in charge of adjusting interest rates and private banks’ “reserves,” which theoretically determines how much money they can carry. Then the banks lend that money out to their customers, often by adjusting their customers’ bank balance. In this case, the private bank has just conjured money out of thin air.But over all the author seems to have gotten what Stephanie Kelton explains for popular consumption in The Deficit Myth.
The quotation shows, however, that money & banking is a bit complex for popular consumption on the first hearing.
Actually, banks creating money "out of thin air" in the process of extending credit. Loans create a bank asset and a bank liability, which is a customer asset (deposit account add) and a customer liability (loan repayment. The bank's books and the customer's books both balance and the borrower has spending funds on account at the bank. This adds to M1 money supply. As the loan is paid off (and interest paid on it, too), M1 decreases.
Reserves in the payments system operated by the central bank are only needed for final settlement after netting and to meet the reserve requirement, if the central bank chooses to impose one. The amount of reserves in the banks' reserve accounts doesn’t limit lending, since the central bank is the lender of last resort and will always clear the accounts of member banks as long as they are in good standing.
Even textbooks on money & banking are mostly inadequate in explaining matter like this. MMT economists have explained it in some detail in their work, and MMT economist Eric Tymoigne has written a book on money & banking as viewed through the MMT lens of institutional analysis and accounting. It was serialized as a draft at New Economic Perspectives, and is available through the navigation menu, along with a serialized draft of Randy Wray's MMT primer. The latest draft of The Financial System and the Economy: Principle of Money and Banking (second draft, 2018) is available at Scribd.
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The Government Can Afford Anything It Wants