Sunday, February 15, 2009

"Credit is not a flow" 

Galbraith in a very good short book review at TPM:

...banks are not moneylenders! They do not need money, in order to lend! Banks create money. And they do it, when they want to. They lend, in other words, when there is a reason to lend. And not otherwise. The testimony of the bank chiefs yesterday made this very clear.

Or to put it another way, credit is not a flow. It is a contract. It requires a borrower as well as a lender. And the borrower must be both optimistic and solvent. These are the conditions that are not met today, and that cannot be met by stuffing money into the banks.


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