> On Tue, 11 Apr 2000, Enrique Diaz-Alvarez wrote:
>
> > Michael, Doug, Kasriel sort of appears to concede Noland's point.
>
> Okay, Enrique, just one thing to clarify. Let's say I accept that MMF's
> operate just like banks, and that they multiply money just like banks,
> because every asset purchased puts money in another MMF and supports
> another asset purchase. So let's say I accept that this is a parallel
> banking system that is unsupervised and uninsured. I still have trouble
> with this idea of infinite money creation. Even if the MMF's are not
> required to have reserves of a certain level, aren't reserves of some size
> still required by the exigencies of business? To cover the daily
> withdrawals on a slow day of deposits? Maybe they won't be as high, maybe
> they'll be criminally low, but still. If they're only 2%, the money
> multiplier would be 50, not infinity. No? And that would be in a world
> that didn't have any banks. The real world would be a blend of the bank
> multiplier and this the MMF multiplier.
Absolutely. The main difference is that the multiplier would not be limited by law, but rather by those exigencies of business. Even in the actual banking system, the multiplier is rarely 1/(reserve requirements) - people like to keep cash on their pockets, etc.
I think that the lack of insurance in the MMMF banking system is far more important, though - though I have no doubt that in a crunch Bailout Al could not extend it fast enough.
-- Enrique Diaz-Alvarez Office # (607) 255 5034 Electrical Engineering Home # (607) 272 4808 112 Phillips Hall Fax # (607) 255 4565 Cornell University mailto:enrique at ee.cornell.edu Ithaca, NY 14853 http://peta.ee.cornell.edu/~enrique