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Liquidity, insolvency and the state

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  • Ehnts, Dirk H.

Abstract

The importance of liquidity and insolvency for nation states and banks has been highlighted by current economic woes in the eurozone and elsewhere. The concepts are grounded in monetary theory, which determine the way they are interpreted. Connected to the discussion of autometallism and Chartalism in the early 20th century, monetary economists of today have come full circle. Discussing some modern authors, it is argued that the concepts of liquidity and insolvency are connected. However, if the central bank functions as lender of last resort the link is cut. Also, fiscal policy has the potential to remove problems of illiquidity and insolvency in the financial system. Illiquidity and insolvency are signals of stress in the real economy. Their oppression through central bank policy might lead to the (wrong) perception that all is well in the economy.

Suggested Citation

  • Ehnts, Dirk H., 2016. "Liquidity, insolvency and the state," IPE Working Papers 74/2016, Berlin School of Economics and Law, Institute for International Political Economy (IPE).
    • Handle: RePEc:zbw:ipewps:742016
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    Cited by:

    1. Quaas, Georg, 2017. "Das Nichts ist Zentralbankgeld. Anmerkungen zu Dirk Ehnts' Buch über Geld und Kredit [The Nothing is Central Bank Money. Comments on Dirk Ehnts' book on Money and Credit]," MPRA Paper 82759, University Library of Munich, Germany.

    More about this item

    Keywords

    monetary policy; fiscal policy; balance sheets; autometallism; Chartalism;
    All these keywords.

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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