Money creation

Enrique Diaz-Alvarez enrique at
Sat Apr 8 15:38:20 PDT 2000

Doug Noland makes a good argument that money market funds have become money creators not subject to reserve requirements. The crux of the argument is that people regard money market investments as both stores of value and media of exchange, just like checking accounts. Deposits on money markets can then be re-lent without keeping reserves, and as long as borrowers deposit them on other money market accounts, the multiplier is, in principle, infinite.

A counter argument by Paul Kasriel

If Noland is right, and his argument does sound more persuasive, the Fed has effectively lost control over the US financial system. The Bubblemeister could not keep consumers from going into hock to buy SUVs and internet stocks even if he wanted to. This may explain his bizarre refusal to comment on debt levels. Comments?


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