Isn’t this just gargantuanly lovely?

The sectoral balances are based on an accounting equation. The equation is quite a simple one. It says that for every borrower there must be a lender. That, of course, has to be true.

That also means that for every lender there must also be a borrower.

At which point the idea that banks just invent the money they lend out falls apart. Because there has to be a lender backing that advance.

It also means that the contention that folks just save and nothing happens to the savings must be wrong. Because there has to be a borrower on the other side of the bank account being saved into.

By insisting upon sectoral balances Ritchie is refuting his own two pet theories.

5 thoughts on “Isn’t this just gargantuanly lovely?”

  1. The deposit is created by the lending. The asset on the other side of the spread sheet is the borrowers bond. The deposit is in the account of the person who is the recipient of the borrowers spending.

  2. And what if…. just saying… the lender is also a borrower?

    which doesn’t happen n the Real World at all, of course..

  3. ” for every lender there must also be a borrower.”
    So for every borrower there must be a lender?
    Good luck with those Green Bonds…

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