Money creation

Enrique Diaz-Alvarez enrique at
Sun Apr 9 09:51:12 PDT 2000

Michael Pollak wrote:

> On Sat, 8 Apr 2000, Enrique Diaz-Alvarez wrote:
> > 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.
> I dunno, Enrique, maybe I just have a crappy money market fund, but the
> checks I write on it are only good over $250. Since I don't buy many
> things that cost that much (and when I do, I use a card), these checks are
> checks in name only. They are actually just a means of transferring funds
> from my money market fund to my checking account. So the money market
> fund seem to be functioning just like a classical bond in the Hicks/Keynes
> set-up.

The minimum limit is well noted, but it seems to me that there is still an enormous difference between a checking account with a minimum withdrawal limit and a bond, no matter how short term. Of course, the entire argument depends on what people regard as money. You may not think of your MM account as ready money, but it seems to me people overwhelmingly do. Nobody I know even considers the possibility that the value of their MM shares may go below the magical $1 level. Brokerages are actually encouraging people to have their paychecks deposited with them and use the MM account for their everyday expenses.

In any case, it seems to me that the difference between creating money and creating money in $250 increments only is a fairly minor detail, don't you think?


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