Archivo mensual: febrero 2013

Banking School/Currency School

Unlearning Economics

Paul Krugman and Steve Keen have been debating endogenous versus exogenous money – as well as some other issues – for the past few days. The debate appears to have drawn to close, so here I offer a summary for those who can’t see the wood for the trees.

1. Krugman reads Steve Keen’s paper and rejects it; specifically, he rejects endogenous money, asserting that banks need deposits before they can lend.

2. Keen responds, noting that banks do not require savings before they make a loan, as they can create loans and deposits simultaneously through double entry bookkeeping. The CB has to provide the reserves required for whichever loans they do make in the short term, else the economy will grind to a halt.

3. Nick Rowe weighs in, with a comment thread well worth reading. He sides with Krugman overall but appears to agree with at…

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