alanjjohnstone wrote:Comments

April 23, 2012 at 8:16 am #86760

Keymaster

alanjjohnstone wrote:

Comments by Lyonwiss describes what you say.”When you wrote banks can create money from nothing, the more technical statement is commercial banks can create deposits from nothing if there is no reserve requirement.”

This depends on what you mean by “deposits” ! There are two types: (1) real deposits, as when someone deposits money in their account and (2) notional “deposits”, as when a bank opens a credit line for someone they are lending money to. Obviously, banks can do (2). That’s their main line of activity, but the question is can they create these (ie make loans) “from nothing”?There seem to be three points of view on this:(1) That they can’t: they have to have the funds available before they can make a loan (the position of Paul Krugman and us).(2) That they can, but they then have to find the funds, either by borrowing from the money market or by expected new deposits resulting from the loan (the position of those Krugman is arguing with).(3) That they can, and that’s that (the position of Paul Grignon and other currency cranks).