Discussing “Money from Thin Air” on the Attitude

By Dan Kervick

I appeared today on The Attitude with Arnie Arnesen to talk about my recent post “Do Banks Create Money from Thin Air?” But we ultimately veered into discussion of financial stability, where I tried to make the point at the end of the segment that – in my view – the problem of financial instability is not due so much to bank “money creation”, but is a much broader problem of the leveraging of debt with debt that is built into the nature of capitalist finance, and is a persistent danger that can only be met with a permanently vigilant, clean and independent regulatory apparatus – unlike the one we have!  Lot’s of good MMT and Bill Black themes in this discussion.

Dan Kervick on The Attitude

The Attitude is broadcast by WNHN 94.7 in Concord, New Hampshire.

7 responses to “Discussing “Money from Thin Air” on the Attitude

  1. Thank you for the insight, my question is Canada has no reserve requirements, so why is there a link between deposits and loans via reservers in the sense that banks provide a pledge to increase reserves by 10% within x week? If Canada has no reserve requirements, so Canadian banks have no link between reserve and deposits from loans? The only link is Capital ratios?

    • I’m going to write about that soon, so stay tuned.

      • ” where I tried to make the point at the end of the segment that – in my view – the problem of financial instability is not due so much to bank “money creation”, ”

        I believe it is about bank and bank-like “money” creation, specifically demand deposits and the capital requirement.

  2. Pingback: Discussing “Money from Thin Air” on the Attitude | Fifth Estate

  3. Dan,

    it might be worth posting Scott Fullwiler’s article:

    “An endogenous money perspective on the post-crisis monetary policy debate”

    http://rokeonline.com/roke/DOWNLOAD_FREE_ARTICLES.html

    “Unlike non-financial corporations, banks (and other financial institutions) have a business
    model driven by leverage.”

  4. Matt Franko

    Great job Dan… observation:

    Regulating the ratios between those different account balances within the bank’s regulatory accounts is similar to turning the knobs on the old analog equipment Arnie indicated she used to operate back in the good old days…

    Somewhat revealing that in the intro she gets on herself to make a personal commitment to finally muster up the effort to “go digital” in the radio room, while at the same time that seems to also be what she is doing wrt her understanding of modern banking, ie “going from analog to digital” so to speak.

    Even for banking it’s “all on computers now” too, modern information systems are indeed highly abstract and perhaps to Dan’s overall point “money” often seems to come “from thin air”, but what we are doing is now keeping track of account balances and regulating the ratios of certain of a bank’s account balances via these computer systems like everything else is going these days… it’s abstract and harder to understand/visualize for many.

    rsp,

  5. As a side note and a process that is often overlooked, it is routine with 501C3 non-profits that receive particularly smaller scale donations to have the donor list the donations and then leave the value of that donation blank after delivering the donation. I rediscovered this practice in dropping off surplus building materials at a Habitat For Humanity “Re-Use It” location. in essence what is routine is that the donor is creating currency units which in turn can serve to replace currency credits that would be used in the payment of taxes. By substitution this creates currency units which are released from a levied tax. This seems like one more brick in demonstrating the nature of modern money. This along with the deleting of currency units paid toward taxes, the substitution in a sense creates units that are deleted and, and puts units back into circulation.

    This process seems similar to the Georgist analysis of the transfer of value to commercial real estate based upon the value that the surrounding community contributes in value of a privately held commercial property. Infrastructure provided to a municipal area on the basis of financed bonds, creates property value that is rarely recaptured particularly relative to corporate level real estate development. Usually it is the residential non-commercial use of real estate which is expected to pay off the bonds. Of course the various forms of tax abatements which are used to “attract” jobs on the assumption that that the same community imparted value does not exist or or insufficient to draw land use that would support local job creation.