Hi O-tone, Oh, I did like this interview! Richard Werner focuses on "credit creation" as opposed to "high powered money" creation.
He refers to M2, M3... M25 [!] as money not in circulation but in savings. Agreed. And I like that he is concerned about the difference between savings and circulatings.
Some people say we need money in savings in order to have money to lend. Other people say that's not correct. I don't have the technical background to know who is right. But I know that money sitting in savings is not contributing to economic activity. And I know that credit use most definitely does contribute to economic activity.
Credit use also contributes to the accumulation of debt, of course -- something Werner did not mention during the interview. Debt and credit are yin and yang: The economic benefit of credit use is met (with a lag) and matched by the economic burden created by debt. This simple idea seems to me completely overlooked by policymakers and economists.
He doesn't mention that credit use does contribute to accumulation of debt in this interview. But he does so in other interviews. He is well aware of that fact. He thinks credit creation per se isn't a bad thing. But it has to flow in productive capacity and innovation enhancing projects. This will lead to expansion of the goods and services in an economy and thus enable sustainable growth without creating inflation. If credit creation mainly flows into consumption and speculation it is detrimental. As in our system credit is almost entirely created by private banks, he avocates the central banks to mainly focus on monitoring the credit flows, e.g. window guidance, ensuring the right use of the (privately) created credit (debt).
Hi O-tone,
ReplyDeleteOh, I did like this interview! Richard Werner focuses on "credit creation" as opposed to "high powered money" creation.
He refers to M2, M3... M25 [!] as money not in circulation but in savings. Agreed. And I like that he is concerned about the difference between savings and circulatings.
Some people say we need money in savings in order to have money to lend. Other people say that's not correct. I don't have the technical background to know who is right. But I know that money sitting in savings is not contributing to economic activity. And I know that credit use most definitely does contribute to economic activity.
Credit use also contributes to the accumulation of debt, of course -- something Werner did not mention during the interview. Debt and credit are yin and yang: The economic benefit of credit use is met (with a lag) and matched by the economic burden created by debt. This simple idea seems to me completely overlooked by policymakers and economists.
Good interview. Thanks for the link.
He doesn't mention that credit use does contribute to accumulation of debt in this interview. But he does so in other interviews. He is well aware of that fact. He thinks credit creation per se isn't a bad thing. But it has to flow in productive capacity and innovation enhancing projects. This will lead to expansion of the goods and services in an economy and thus enable sustainable growth without creating inflation. If credit creation mainly flows into consumption and speculation it is detrimental. As in our system credit is almost entirely created by private banks, he avocates the central banks to mainly focus on monitoring the credit flows, e.g. window guidance, ensuring the right use of the (privately) created credit (debt).
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