Release of the Kraken: A Novel Money Multiplier Equation's Debut in 21st Century Banking
Historically, the banking multiplier has been in a range of 4 to 100, with 25% to 1% reserve ratios at most layers of the banking system encompassing the majority of its range in recent centuries. Here it is shown that multipliers over 1 000 can occur from a new mechanism in banking. This new multiplier uses a default insurance note to insure an outstanding loan in order to return the value of the insured amount into capital. The economic impact of this invention is calculably greater 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 where it occurs. The equations describing this new 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 the behavior of this new equation by numerical methods. Understanding this new multiplier and associated issues is necessary for economic analyses of the Global Financial Crisis.
|Date of creation:||Jan 2014|
|Date of revision:|
|Publication status:||Published in Economics: The Open-Access, Open-Assessment E-Journal, Vol. 6, 2012-3|
|Contact details of provider:|| Web page: http://arxiv.org/ |
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Robert L. Hetzel, 1991. "Too big to fail : origins, consequences, and outlook," Economic Review, Federal Reserve Bank of Richmond, issue Nov, pages 3-15.
- repec:eap:articl:v39:y:2009:i:1:p:3-24 is not listed on IDEAS
When requesting a correction, please mention this item's handle: RePEc:arx:papers:1401.7344. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (arXiv administrators)
If references are entirely missing, you can add them using this form.