An MMT site bringing you dogma-free economics without the pleadings of self interest
No.This has been another addition of simple answers to simple questions.
P, told you your brain is wired for math vice language ;) rsp
sad, he still lost
translation: I believe in the money multiplier but I can't prove it exists or what it is, and it is useless anyhow but I believe in it anyway.
Sumner is changing the subject.The actual money multiplier is just the actual ratio M/R of commercial bank deposits to bank reserves. Such a ratio always exists as a matter of pure accounting.The controversy comes in when policy makers and mainstream economists make assumptions about what the money multiplier will be in the future, assumptions based on conventional reserve-first views about the relationship between bank reserves and lending behavior. The assumption generations of economics student were taught is that one can generally expect the money multiplier to be 1/r, the reciprocal of the reserve ratio. They are then taught a simple "fractional reserve" model of banking mechanics and an associated geometrical progression that leads them to the conclusion that a central bank decision to boost reserves will cause a corresponding increase in bank deposits.There is a fundamental disagreement between this tradition and the endogenous mony, circuitist and post-Keynesian traditions over which quantities are causes and which quantities are effects.
Everyone agrees that with a 10% RR and no IOR, then a ratio will follow. The question is what follows from that. Heterodox economists say that the ration is just the indication of an accounting residual and nothing follows from it. Monetarists insist that if the cb sets the amount of reserves then the banking system will extend credit in line with the ratio, so the cb can adjust the money supply through the monetary base. Investigation of actual banking ops shows there is no transmission mechanism, and that the amount of reserves is determined endogenously rather than exogenously as monetarists erroneously presume. Monetarists respond that the opponents' analysis is based on micro considerations and is guilty of the fallacy of composition, since things are different at the macro level, as their theory purportedly shows.This is going nowhere.
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