Release of the kraken: a novel money multiplier equation's debut in 21st century banking
AbstractUse of a promise to pay by a bank to insure an outstanding loan in order to return the value of the insured amount into capital for use in writing a new loan is an invention in banking with calculably greater potential economic impact than the original invention of reserve banking. The consequence of this lending invention is to render the existing money multiplier equations of reserve banking obsolete whenever it is used. The equations describing this multiplier do not converge. Each set of parameters for reserve percentage, nesting depth, etc. creates a unique logarithmic curve rather than approaching a limit. Thus it is necessary to show behavior of this new equation by numerical methods. It is shown that remarkable multipliers occur and early nesting iterations can raise the multiplier into the thousands. This money creation innovation has the demonstrated capacity to impact nations. Understanding this new multiplier is necessary for economic analyses of the GFC. --
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Bibliographic InfoPaper provided by Kiel Institute for the World Economy in its series Economics Discussion Papers with number 2011-8.
Date of creation: 2011
Date of revision:
GFC; CDS; AIG; money multiplier; banking multiplier;
Find related papers by JEL classification:
- E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
- E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
- E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications
- H56 - Public Economics - - National Government Expenditures and Related Policies - - - National Security and War
- H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-05-07 (All new papers)
- NEP-CBA-2011-05-07 (Central Banking)
- NEP-CMP-2011-05-07 (Computational Economics)
- NEP-MAC-2011-05-07 (Macroeconomics)
- NEP-MON-2011-05-07 (Monetary Economics)
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- Steve Keen, 2009. "Bailing out the Titanic with a Thimble," Economic Analysis and Policy (EAP), Queensland University of Technology (QUT), School of Economics and Finance, Queensland University of Technology (QUT), School of Economics and Finance, vol. 39(1), pages 3-24, March.
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