Monday, March 13, 2017

Mises blog hammers money multiplier myth

ConclusionWe can thus conclude that it is irrelevant for the multiplier process whether the central bank targets the quantity of money or the interest rate. What matters here that the central bank is always ready to accommodate commercial banks’ expansion of credit out of thin air.Without the central bank’s support the likelihood of a sustained multiplier process taking place is close to nil – hence the notion that the money multiplier is not applicable in a truly free market economy.
The loan and deposit paths will be different, and queue up differently.  When loan demand surges, depositors respond faster tha  the banks can multiply.  That is the hold purpose of currency banking, everyone gets an equal observation of deposit and loan balances.  So there will be no 'multiplier waves' in the pits.

For example, if we were to continue multiplying, then the banking system would offer something like 100 year loans because 100 years is how long we need to resolve the current imbalance.  That won;t happen,. instead will will have bond defaults, the only way to create real money.

In normal currency banking, like we do in the sandbox, currency is lost or gained within the uncertainty bounds, adiabatically, by which I mean, no sudden currency blunders. This is a result of fair looks and auto trade, everyone with a hardware wallet gets an equal look and sudden changes on money aggregates, the deposit and loan trees.  When you have that, and no double spending, then multipliers tend to be close to one and currency risk flows with pricing risk.  There is no other way. If you want your currency risk insured, then you will be a slave to the wealthy.

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