For those who think that Joseph Stiglitz doesn't know that banks actually create credit….
Fictional Reserve Barking
Stiglitz on credit creation by bankscircuit
For those who think that Joseph Stiglitz doesn't know that banks actually create credit….
5 comments:
No sorry no cigar...
Stiglitz: "We are not in a corn economy where banks serve as an intermediary between farmers who have excess seed and farmers who want more seed. We are in an economy where banks actually create credit. And that makes a very big difference. "
Then he would say: "and banks do this by functioning as intermediaries between money savers and money investors...."
He likely follows the fractional reserve theory of banking, according to which banks can collectively create money (via the multiplier) but individual banks can't.
At least that's how Stiglitz puts it in his macroeconomics textbook.
However, the credit creation theory of banking is different: it holds that each individual bank can create money "out of nothing" by the simple act of extending credit.
A great (and very recent) paper on banking is Richard Werner's "A lost century in economics: Three theories of banking and the conclusive evidence" here:
http://www.sciencedirect.com/science/article/pii/S1057521915001477
Yes, I read they paper and banks can create money out of nothing, no fractional or deposits required. The research took about three months and a bank volunteered for the research. It was really hard work to keep on top of everything because as well as the counter service there was 24 hour internet and 'hole in the wall' cash machine banking too.
Werner gets Keynes wrong, though, in that paper.
Sure, in a fiat currency regime, banks are licensed to denominate proposed credits & debits based on linked (or at least proposed) transactions, but they have to report their actions.
So allowed currency creation boils down to regulation. By this currency-creation argument, unwarrented credit creation by banks reduces to attempts at currency counterfeiting (by any other name).
Credit, currency and criminology are NOT separable in any sovereign currency regime.
What's the Desired Outcome of this whole discussion?
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