"Before I show why he fails, I want to clarify what it means to say that banks create money “out of nothing” (Schumpeter 1934, p. 73). It definitely does not mean that banks create money via magic. What it means instead is that there is no other account from which a bank loan is financed, whereas there is such an account for a non-bank loan."
So if we take the bank created version of money as correct, or at least approximately correct, then the question is what drives the limits of bank created money especially now that reserve requirements have been set to 0 since 2020. It seems to be:
The willingness of The Fed to approve your balance sheets through their "stress test" procedure.
The willingness of The Fed to invent some bullshit reason to create new reserves for you
Right, it's the operation of law and some cabal of bankers we call the federal reserve board... and if you fuck it up badly enough the fed will just invent reserves to keep the system going (ie. this is exactly what happened between 2008 and 2015 or whatever.
As long as banks have at least one bond with a par value of $1, The Fed can technically agree to buy it for literally any amount it wants poofing into the reserve account...
In reality it tends to be less crazy than that, but it still invents reserves out of nothing in response to credit panics created by banks ability to manufacture funds run amok.
Oh maybe, but he's talking about a thing he calls a "Moore Table" which is a matrix with diagonal and off-diagonal entries... so I think there's just something missing... I don't see the matrix.
"When a bank makes a loan, however, its assets and its liabilities rise simultaneously by the same amount: the loan does not come out of another account. This is what is meant by “out of nothing”: not that banks create money by magic—creating something “out of nothing”—but that money is created by bank assets and liabilities rising simultaneously. "
"I noted earlier that there was not a single double-entry bookkeeping table in Selgin’s paper—and nor is there any empirical data, or mathematics. I will use all three to show that his critique fails."
"The people who have warned of such crises before they happened, and warned that financial crises are an innate property of capitalism, are almost without exception supporters of the Endogenous Money/BOMD approach, while ..."
".. most Neoclassicals and Austrians treat banking—and almost everything else in capitalism, apart from trade unions and governments—as forces that maintain stability rather than instability (though Austrians also rail against "fractional reserve banking"--which is another myth)."
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