Monthly Archives: March 2016

Positive Money : A Fallacy Built on a Little Known Truth. (Part 4)

The proponents of a theory called Positive Money often get their knickers in something of a twist over the ways the banks , as they see it, create money. As the well known economist Minsky said “Anyone can create money. The problem is getting it accepted”.

If I ( or a bank or anyone else)  issue a loan in $ ( or £ ) I’m creating assets for someone denominated in $. But I also have a liability in $ which I have to be able to guarantee by providing $ on demand. Or lose my credibility. So am I (or the bank or anyone else) really creating $ ? In a way yes.

If I (or a bank or anyone else) issue a loan in ounces of gold, I’m creating assets for someone denominated in ounces of gold. But I also have a liability in ounces of gold which I have to be able to guarantee by providing ounces of gold on demand. Or lose my credibility.So am I (or the bank or anyone else) really creating ounces of gold ? In a way yes.

But we wouldn’t have discovered the secret of alchemy any more than we’d discovered a way to create dollars in the way Positive Money suggest is possible!

Advertisements