Season 1 · Episode 433
Banks, reserves, lending and money supply
How vast is the gap between textbook explanations of bank loans and what happens in reality?
Debunking Economics - the podcast · Steve Keen & Phil Dobbie
December 11, 202445m 14s
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Show Notes
There’s a common myth around banks. That banks are the intermediaries who collect deposits from customers, keep a bit in reserve, then lend out the rest at a higher interest rate. That argument then extends to a multiplier effect, where the money loaned out is deposited in banks, freeing up more money for further loans. The multiplier is how textbooks argue that banks create new money for the economy. This week Steve argues that the multiplier doesn’t exist. Not in that way anyway. And banks create money, not by lending out deposits, but by creating new money to lend out, which appears as deposits in the bank’s balance sheet. This week Phil brings the textbook arguments to the table for Steve to shout them down.
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