It's 2022 and yet top universities still run around with this hilarious idea that banks ''multiply'' reserves into loans
Between 1999 and 2006, Japan doubled (!) its monetary base (red) and yet bank loans (blue) fell by 25%
The amount of reserves is irrelevant for bank lending pic.twitter.com/WzxI5UPFKE
— Alf (@MacroAlf) November 6, 2022
…banks don't lend or multiply reserves.
When there is lending activity, the banking system expands its balance sheet by creating new loans and new deposits.
They also create new money for the private sector.
Understanding how money works will give you a great edge in macro. pic.twitter.com/r1HpGgtv6o
— Alf (@MacroAlf) November 6, 2022