JP Hochbaum
DP Veteran
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- Feb 7, 2012
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"Banks do not “use” reserves as the raw material for loan-making. Rather, they lend out their own deposits, which are created by keystrokes. Post Keynesians have been saying this since a seminal piece by Basil Moore was published in 1979 (and it is easy to find early precursors all the way back to the dawn of time–as I demonstrated in my 1990 book, Money and Credit in Capitalist Economies).
S&P’s top economist, Paul Sheard, has written an excellent piece, Repeat After Me: Banks Cannot And Do Not “Lend Out” Reserves published here:
http://www.standardandpoors.com/spf/upload/Ratings_US/Repeat_After_Me_8_14_13.pdf
- See more at: EconoMonitor : Great Leap Forward » Banks Don’t Lend Reserves! Who Knew? MMT, That’s Who!
And why is this important? Because money is endogenous, it is created when there is demand for it:
"Theory that money exists just as it's needed by the economy, because bank system reserves are increased or decreased to accommodate for demand. Under the endogenous money theory, if banks can borrow money at the Federal Reserve discount rate and still lend money profitably, then the money available for banks to borrow will become available as necessary to support the level of consumer lending individual banks require."
Read more: What is endogenous money? definition and meaning
S&P’s top economist, Paul Sheard, has written an excellent piece, Repeat After Me: Banks Cannot And Do Not “Lend Out” Reserves published here:
http://www.standardandpoors.com/spf/upload/Ratings_US/Repeat_After_Me_8_14_13.pdf
- See more at: EconoMonitor : Great Leap Forward » Banks Don’t Lend Reserves! Who Knew? MMT, That’s Who!
And why is this important? Because money is endogenous, it is created when there is demand for it:
"Theory that money exists just as it's needed by the economy, because bank system reserves are increased or decreased to accommodate for demand. Under the endogenous money theory, if banks can borrow money at the Federal Reserve discount rate and still lend money profitably, then the money available for banks to borrow will become available as necessary to support the level of consumer lending individual banks require."
Read more: What is endogenous money? definition and meaning