"...banks don’t keep the cash we lend to them in a vault; they invest the money by making their own loans or buying securities."
Ack! That crap again!
Yes, they do use deposits to <b>back</b> lending, or <b>money they create out of thin air</b>; meaning a depositor run can drop the bank below its fractional reserve requirements and close the bank.
It doesn't mean, as he states, though, that "…deposits are… used as money…." They back created money.
In hewing to the neoliberal denial of our banking system's actual function, this guy just misses the point, which skews how well I can consider his conclusions. Seriously, if he got this part so wrong, what else did he miss (or fail to understand)?
If I understand correctly, I don't think he's saying that banks directly lend out their reserves--the financial intermediation hypothesis. Rather, the money we have in our bank account is not sequestered from their total funds--banks do regularly buy and sell financial instruments like securities which is what he's referring to. They don't keep it in cash. Perhaps I'm wrong, but I think that's what he's saying.
Demand deposits do represent money (part of M1): this is actually evidence for the credit creation theory of money, not against it. Of course, when you get money out of the bank, you're not receiving *your* money, you are receiving a portion of your claim on the bank's reserves. Depositing money is different than extending credit (which creates new money). Unless I'm misunderstanding something (which I might be).
"...banks don’t keep the cash we lend to them in a vault; they invest the money by making their own loans or buying securities."
Ack! That crap again!
Yes, they do use deposits to <b>back</b> lending, or <b>money they create out of thin air</b>; meaning a depositor run can drop the bank below its fractional reserve requirements and close the bank.
It doesn't mean, as he states, though, that "…deposits are… used as money…." They back created money.
In hewing to the neoliberal denial of our banking system's actual function, this guy just misses the point, which skews how well I can consider his conclusions. Seriously, if he got this part so wrong, what else did he miss (or fail to understand)?
(Sorry to rant.)
—Perry
If I understand correctly, I don't think he's saying that banks directly lend out their reserves--the financial intermediation hypothesis. Rather, the money we have in our bank account is not sequestered from their total funds--banks do regularly buy and sell financial instruments like securities which is what he's referring to. They don't keep it in cash. Perhaps I'm wrong, but I think that's what he's saying.
Demand deposits do represent money (part of M1): this is actually evidence for the credit creation theory of money, not against it. Of course, when you get money out of the bank, you're not receiving *your* money, you are receiving a portion of your claim on the bank's reserves. Depositing money is different than extending credit (which creates new money). Unless I'm misunderstanding something (which I might be).