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The loanable funds theory

When it’s being formally discussed by MMTers it’s called the loanable funds theory. Banks do not lend out depoists.

When it’s His Tuberosity it’s banks just don’t need deposits at all.

Reality then offers us this:

Savings rates have reached a 13-year high after banks passed on higher rates to customers.

Savers can now secure a rate of 4.31pc on their money, following the launch of a new best-buy one-year fixed bond from Charter Savings Bank.

If banks don’t need deposits, if they don’t, in fact, have to back up their loans with deposits, then why the fuck are banks paying people who deposit with them?

You willing to pay 4.31% for money you don’t need or use? So why are the greedy capitalists doing so?

9 thoughts on “The loanable funds theory”

  1. Do banks need deposits to absorb all the assets they create out of thin air?

    Aren’t banks buying inflation-protected bonds that pay much much higher than 4%?

  2. If banks don’t need deposits you have to wonder why he doesn’t ask himself why they don’t cut out the fat and the bankers just give money straight to themselves.

    No fussing around with deposits or lending, ‘create money out of thin air’ and then go spend it directly.

  3. Aren’t banks buying inflation-protected bonds that pay much much higher than 4%?

    Current TIPS (US Treasury inflation-adjusted bonds) have real rates of 0.125% (20- and 30-year), which is the minimum allowed, and 0.625% on the 10-year.

    Tim – have you put your spam filter on steroids? It was aggressive about not allowing an URL – or does it just not like me?

  4. It didn’t even get to the spam filter, as far as I can tell. I got a page announcing that I had attempted a “dangerous operation” (IIRC) and stating that the action had not been permitted. I tied parsing back the URL a few times, thinking that it would just look like a text string, but then gave up and just pasted without a link. I thought maybe you had just turned off all linking, but that’s obviously not the case.
    I’ll let you know if it comes up again.

  5. I think that may be a Cloudfareism, rather than Tim’s spam trap.

    I used to get the “you’re posting too fast” thing but not seen that for quite a while. I’ve posted links without a problem but I don’t post many.

  6. Banks do not seek to attract deposits. Banks seek to retain the deposits they create in the act of lending. It’s a distinction with a difference.

    Banks are Capital Constrained, Not Reserve Constrained

    This from the Bank of England no less:

    A 2015 Bank of England paper expresses the matter this way:

    In the deposit multiplier model, the creation of additional broad monetary aggregates requires a prior injection of high-powered money, because private banks can only create such aggregates by repeated re-lending of the initial injection. This view is fundamentally mistaken. First, it ignores the fact that central bank reserves cannot be lent to non-banks (and that cash is never lent directly but only withdrawn against deposits that have first been created through lending). Second, and more importantly, it does not recognise that modern central banks target interest rates, and are committed to supplying as many reserves (and cash) as banks demand at that rate, in order to safeguard financial stability. The quantity of reserves is therefore a consequence, not a cause, of lending and money creation.
    [end quote]


  7. [quote]
    As many of you know, I have spent much of the last seven years explaining to anyone who will listen that banks do not “lend out” deposits or reserves. Rather, they create both loan assets and matching deposit liabilities “from nothing” by means of double entry accounting entries. Creating money with a stroke of the pen (or a few taps on a computer keyboard) is what banks do. —Frances Coppola
    [end quote]


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