Money creation

Doug Henwood dhenwood at panix.com
Mon Apr 10 12:44:17 PDT 2000


Enrique Diaz-Alvarez wrote:


>You deposit a $1,000, the MM loans it, via Fannie Mae and, say, a home equity
>loan, to a homeowner; the homeowner deposits the money on an MM,
>maybe the same
>as yours. Now both of you think you have $1,000 in ready cash. Same as a bank,
>except without reserve requirements.The key issue is what people consider "as
>good as cash on your hand". Most people do not think that way of a T-bond or a
>CD or even a 30-day commercial bill, but they do think that way of an MM
>account.

You may think you have $1,000 in ready cash, but if you write a check on it, the MMMF has to sell some assets or draw on a fresh cash inflow. Even credit money is limited in its ability to be two places at the same time.

Doug



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