Saturday, 23 August 2014

What do UK politicians know about money?

Congratulations to Positive Money for their survey to find out whether UK politicians know where money comes from.

Incidentally there might seem to be a clash between my above agreement that loans create money, and item 3 in the left hand column which suggests that loans do not create money. The explanation is that loans certainly create money AT THE INSTANT that loans are made. However, when borrowers spend the money they’ve borrowed, there is a tendency for RECIPIENTS of that money to put their newly acquired pile of cash into term or deposit accounts, and so called money in such accounts is often not counted as money. To that extent, the above INITIAL money creation is nullified.
This is a complicated area, but there’s more on this point in sections 1.12 and 3.1 of the MPRA paper on the left.

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