Commentary by Roger Erickson
Saw this today on twitter.
INET Economics @INETeconomics6h
"Banks simultaneously create new private credit and new money – this is a fundamental macroeconomic variable." INET Sr. Fellow Adair Turner.
Ostensibly, banks should primarily denominate real credit extenstion with fiat currency bookkeeping, thereby allowing dynamic, diverse liquidity. When bankers do that, they are really acting as market-makers between suppliers & receivers of dynamic- & static-value credits.
Even then, the range of useful credits that banks selectively "liquify" has to be actively regulated ... or else a foolish population and it's options are soon parted.
Any bank that's using it's own imagination to "create" credit de novo (without underwriting standards), is
a) either putting it's own capital at risk (market maker for it's own, extended credit; covered by static asset capital requirements), or
b) is in the business of making liars loans?
2 comments:
Which part of "out of thin air" is confusing? Wasn't it on this site that we just saw the "How banking really works" two part post just a few days ago?
Yes, but what proportion of the electorate ever reads those posts?
Turner's comments are way too vague to help, and will be interpreted every which way by a confused electorate.
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