Friday, March 21, 2014

BoE document making waves

Money creation in modern economy and Money creation in modern economy: an introduction
A commentary by Raul Ilargi Meijer with links to commentaries by Steve Keen and David Graeber:
The Bank of England lights a fuse under the field of economics
I am still reading the documents which are not too long, but the interest seems to from the opening statementfrom the first document :

"• This article explains how the majority of money in the modern economy is created by commercial banks making loans.

• Money creation in practice differs from some popular misconceptions — banks do not act simply as intermediaries, lending out deposits that savers place with them, and nor do they ‘multiply up’ central bank money to create new loans and deposits.

• The amount of money created in the economy ultimately depends on the monetary policy of the central bank. In normal times, this is carried out by setting interest rates. The central bank can also affect the amount of money directly through purchasing assets or ‘quantitative easing’."
whereas as Keen quotes from Krugman 
“Banks are just another kind of financial intermediary, and the size of the banking sector — and hence the quantity of outside money — is determined by the same kinds of considerations that determine the size of, say, the mutual fund industry.”
I hope to read these documents more closely and see how they relate to 
P.S. I have not read the documents yet (busy with Piketty) but this point has been botherin me "Thus, in the theortetical framework described by the authors, QE cannot possibly have any effect on any macroeconomic variable. Now that’s a problem." from

No comments: