>On Thu, 6 Apr 2000 18:59:53 -0400 Doug Henwood <dhenwood at panix.com> wrote:
>
>> A loan is like that only in the very short term (though I should
>>say this is
>a topic of theological dispute among economists).
>
>What do you mean a matter of dispute?!? You can't be serious... Is it really
>that bad, that no one has any clue about how the economy works? No wonder I'm
>in religion - at least we can claim to study theologians when
>studying theology
>becomes to weird.
Yeah, there are some (post)Keynesians who think that credit is almost infinitely elastic - that loans make deposits ad infinitum, essentially. That's distinctly a minority view. The majority view is that savings/deposits have to precede investment/loans. My own view is that they have to move in tandem: new investment has to produce the profits to pay off the loans that they financed - the real sector has to produce the surpluses to cover the extensions of credit in the unreal sector.
> > A bank makes a loan - then it needs to find the funds (either by taking
>deposits or selling short-term notes or bonds) to cover the loan.
>
>I thought these limits (deps and sells) had been eliminated (I'm
>almost certain
>their gone in Canada).
What, you mean there are no savings accounts or certificates of deposit or commercial paper in Canada? Hard to believe. When a bank makes a loan, it has to get the money from somewhere. The COMER people go nuts about the absence of reserve requirements (reserves that aren't lent out, but are kept in the vault or with the central bank as a cushion in case of a run), but that still doesn't eliminate the need for banks to fund their lending somehow.
>Without price controls (which is what happened after WWII [or was it WWI]).
>The price of diamonds can inflate forever for all I care - but price controls
>on food, shelter, education, health care and a few other material things seems
>to make good sense to me. Maybe not. Again, if someone can fix my point of
>view I'd appreciate it.
I hate to sound old fashioned, but you can't control prices forever, especially if credit is growing like crazy: you're going to have shortages and hoarding. If prices are fixed, then the adjustment has to be in volume.
Doug