Thursday, July 23, 2009

Another excellent post from UMKC economists



I said it before and I'll say it again...University of Missouri Kansas City has one of the best economics departments in the country. These professors (and even some of the students) routinely give a "schooling" to policy wonks and other academics. They are one of the few university level economic departments in this country that are "in paradigm."

Here is an excerpt below from an excellent post that appeared today...

"...Bernanke pointed out that “as the economy recovers, banks should find more opportunities to lend out their reserves.” The reasoning behind this argument is the so-called multiple deposit creation in which the simple deposit multiplier relates an increase in reserves to an increase in deposits (Bill Mitchell explains it in more details here and here). This is a misconception about banking lending."

:...in the real world, money is endogenously created. Banks do not passively await funds to issue loans. Banks extend loans to creditworthy borrowers to meet the needs of trade. In this process, loans create deposits and deposits create reserves."

Read entire post.

3 comments:

googleheim said...

Mike

Last fall you reviewed which avenues of spending had the biggest multiplication factors so far a $ spent = $$$ infused into the econonmy.

You pointed out that food stamps and other programs had the highest benefit as well as others.

What about health care and the latest efforst to reformm it ?

It is known in Texas that Methodist Hospital had an insurance program which was afloat not by the Commercial sales or the Medicare, but by the Medicaid. Now this might be a factor of subsidization by the Fed and State, but it shows what a small locally grown network can accomplish.

So what would the Norman theory of capacity extend to this debate so far as increasing assets and helping the economy, and which caveats would be necessary to backstop any reduction in quality and increase in unnecessary taxes ?

We've subsidized the deregulated investment speculators and now we can hardly help ordinary Americans ameliorate their cancers and diabeters, etc ...

Our northern tax money subsidizes southern states who neglect their constituents and bring in foreign companies who enjoy a competitive advantage as such.

50% of all healthcare market is already Medicaid ...

Mike Norman said...

Yes, it would. Health care was the only sector of the economy that kept adding jobs during this entire crisis. If that's not a sign that you'd get a lot of "bang for your buck," then nothing is. What the Administration is stupidly doing is trying to force down costs. Rather, the gov't should just pay and pay through the nose! We need all the demand we can get and high payments by gov't would spawn many ancillary industries, leading to more employment, output, etc. It would be money well spent. Instead they're doing the opposite, which will create shortages of real health care, just like the shortages we will soon see in housing (Read my report) and, ultimately in vehicles.

googleheim said...

exactly ...

I was to mention that the administration is applying "debt terrorism" anxiety and concerns towards the project.

It's like removing the water from the green shoots because they are too green ! ???

Yet just another example how the Obama administration is prostrating to the Republican't mentality by way of debt terrorism if not creative destruction.