Chapter 4 has some discussion about how money is created.
“In this model, bank loans are essential because they create the purchasing power needed by households and firms for all their economic transactions”.
Glad to see more acknowledgement that banks create the money they lend as far too much literature supports the false idea that banks are intermediaries which lend existing money.
By extension, as money is created through loans every euro has a matching debt plus interest. Is this not a huge factor in analysing the cause of the debt crisis? Also, how can we expect to run a stable economy under this system when it’s not possible for all loans to be repaid and so bankruptcies and repossessions are inevitable no matter how prudent we could have made the banking sector behave?
You could argue that this system has functioned reasonably well until now because in the last 4 decades we’ve had an explosion in the money supply as new business start ups required loans, houses required ever increasing mortgages etc.
But “bank loans are essential” and it should be clear that we cannot expect an adequate number of people to take on the debt required to have an increasing money supply in the future so, at least for an interim period, why can’t we discuss other places money could come from? (The ECB can only create central bank money which cannot leave its balance sheet and so cannot enter the real economy so that’s not a viable option as it stands.)
What am I reading here? – the Gospel according to St. Milton? Issa of Nazareth had his Beatitudes. The Homunculus of Chicago had his Washington Consensus. Be aware! Choose wisely!
” … instead, policy reforms tended to be implemented in response to a crisis or recession. That is, these policies can be, and have been, implemented by less resilient economies at times of weakness as a way to build their resilience.”
‘Building resilience through weakness’ Now, if I did not know any better, I might translate that as “Arbeit Macht Frei” Funny that!
And what pray, is a: “stabilizing financial adjustment”, and an “improved prudential regulation”.
2 replies on “Analytical Chapters of new IMF WEO”
Chapter 4 has some discussion about how money is created.
“In this model, bank loans are essential because they create the purchasing power needed by households and firms for all their economic transactions”.
Glad to see more acknowledgement that banks create the money they lend as far too much literature supports the false idea that banks are intermediaries which lend existing money.
By extension, as money is created through loans every euro has a matching debt plus interest. Is this not a huge factor in analysing the cause of the debt crisis? Also, how can we expect to run a stable economy under this system when it’s not possible for all loans to be repaid and so bankruptcies and repossessions are inevitable no matter how prudent we could have made the banking sector behave?
You could argue that this system has functioned reasonably well until now because in the last 4 decades we’ve had an explosion in the money supply as new business start ups required loans, houses required ever increasing mortgages etc.
But “bank loans are essential” and it should be clear that we cannot expect an adequate number of people to take on the debt required to have an increasing money supply in the future so, at least for an interim period, why can’t we discuss other places money could come from? (The ECB can only create central bank money which cannot leave its balance sheet and so cannot enter the real economy so that’s not a viable option as it stands.)
What am I reading here? – the Gospel according to St. Milton? Issa of Nazareth had his Beatitudes. The Homunculus of Chicago had his Washington Consensus. Be aware! Choose wisely!
” … instead, policy reforms tended to be implemented in response to a crisis or recession. That is, these policies can be, and have been, implemented by less resilient economies at times of weakness as a way to build their resilience.”
‘Building resilience through weakness’ Now, if I did not know any better, I might translate that as “Arbeit Macht Frei” Funny that!
And what pray, is a: “stabilizing financial adjustment”, and an “improved prudential regulation”.
Fancy words for what? Addressed to whom?