I have one bone to pick with [Will] Hutton, who argues that excessive credit is created by banks lending out money based on existing deposits, which in turn is based on “the truth that not all depositors will want their money back simultaneously.” The latter may be true but Hutton gets the order wrong: it’s bank credit that creates deposits, not the collection of deposits that serve as the basis for the expansion of credit.Occasional Links & Commentary
A gathering storm?
David F. Ruccio | Professor of Economics ,University of Notre Dame
4 comments:
Only the one bone? No economist sang New Labour's praises more than Will Hutton. While New Labour turned the UK into a debt fuelled, casino banking, property inflated economy, Hutton was out there denouncing anyone who said so. His dimwittedness knows no bounds. Even now, he's arguing for the UK to join the euro! This man has zero credibility, yet people take him seriously. Amazing, truly amazing.
They all get the order wrong. Real assets, goods and services are created. Loans are made against the real collateral. The loans create deposits. The deposits are used to pay taxes and buy treasury securities to give the government fiscal space in the economy. If the prices of the collateral on the loans falls, that means the government either is not regulating the banking system properly or that the government is not spending enough for the fiscal space they have created with taxes and bond issuance.
spot on Ryan, the real goods and services are created FIRST...
the real goods and services are created FIRST...
How were the initial real goods for collateral funded?
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