Why Money Disappears When Loans Are Repaid
13 July, 2012Much to my frustration, 99% of the discussion of, and public information about, fractional reserve banking concerns the moneycreation process. Videos on the subject will often have scary music accompanying animated graphs of the money supply growing exponentially. The viewers will often be led to the conclusion that fractional reserve banking is a one way process [...]
Contagion?… Armageddon?… Why?
24 January, 2012Big companies go bust every now and then, and in the process some of their smaller suppliers may go bust too. But the cascade/wave of bankruptcies is usually pretty limited. In the run up to the company failure, you never hear politicians desperately trying to prop-up the company on the grounds that contagion is going [...]
How Debt Free Money Can Help the Unemployment Problem
5 December, 2011There are some economists who believe that total demand in an economy must equal its total supply. The argument goes something like this: When people sell their produce, they must, almost by definition, receive enough money to buy the equivalent value of other peoples goods. Or to put it another way, the sum total [...]
Birth and Death of Money
10 November, 2011The lifecycle of money: [...]
How Fractional Reserve Banking Leads to Booms and Busts
20 September, 2011The seeds of an asset bubble The seed of a boom is very often a clear and sustained rise in the price of some asset class (typically shares or houses), usually for a genuine fundamental reason to do with supply and demand. For the sake of argument, in the coming parts of this discussion we [...]
It's Not a Credit Crunch; It's a Money Crunch
12 August, 2011The phrase credit crunch is being used again by the media to describe the freeze in lending that can occur at the tipping point of economic bubbles. This is however misleading, because it perpetuates the myth that “credit” is somehow fundamentally different from money. Using this phrase allows the public to carry on believing the [...]
Visualising Money Circulation
26 July, 2011Many economics textbooks include diagrams to show how money flows within an economy. The diagrams almost invariably show the different groups (banks, industry, government etc.) in fixed locations with the money flowing from one group to another. While these diagrams may be useful in some senses, they usually fail to convey some important characteristics of [...]
What Exactly is Full Reserve Banking?
21 July, 2011The definition of full reserve banking can be a source of much confusion and consternation. The confusion revolves around the definition of "reserve ratio". Normally, the reserve ratio is defined approximately as follows: Reserve ratio = The money held by the bank The money deposited in the bank by its customers It is easy to [...]