- 06 Nov 2015 21:41
#14616852
Here is a paper published by the Bank of England, Money creation in the modern economy.
"...the majority of money in the modern economy is created by commercial banks making loans..."
"...banks do not act simply as intermediaries, lending out deposits that savers place with them..."
"...QE initially increases the amount of bank deposits those companies hold (in place of the assets they sell). Those companies will then wish to rebalance their portfolios of assets by buying higher-yielding assets, raising the price of those assets and stimulating spending in the economy..."
"... households and companies who receive the money created by new lending may take actions that affect the stock of money — they could quickly ‘destroy’ money by using it to repay their existing debt, for instance..."
The same observations hold for the US, and you can read similar papers from the Fed.
The neutral language of the paper might lull you a bit, but they are quite explicitly saying that banks do not lend out money they receive from depositors. It is also saying that bank lending creates money, period ('ex nihilo', as has been noted by others). The whole fractional reserve debate is mostly a red herring, since banks don't lend from their reserves in the first place.
The main restraints on bank money creation are the necessity of having a profitable portfolio, and government regulation of the banking system.
"...the majority of money in the modern economy is created by commercial banks making loans..."
"...banks do not act simply as intermediaries, lending out deposits that savers place with them..."
"...QE initially increases the amount of bank deposits those companies hold (in place of the assets they sell). Those companies will then wish to rebalance their portfolios of assets by buying higher-yielding assets, raising the price of those assets and stimulating spending in the economy..."
"... households and companies who receive the money created by new lending may take actions that affect the stock of money — they could quickly ‘destroy’ money by using it to repay their existing debt, for instance..."
The same observations hold for the US, and you can read similar papers from the Fed.
The neutral language of the paper might lull you a bit, but they are quite explicitly saying that banks do not lend out money they receive from depositors. It is also saying that bank lending creates money, period ('ex nihilo', as has been noted by others). The whole fractional reserve debate is mostly a red herring, since banks don't lend from their reserves in the first place.
The main restraints on bank money creation are the necessity of having a profitable portfolio, and government regulation of the banking system.
The old world is dying, and the new world struggles to be born: now is the time of monsters. -Antonio Gramsci