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.