According to Milton Friedman, the Federal Reserve failed to pump enough reserves into the banking system to prevent a collapse in the money stock.
Contrary to Milton Friedman's view, the fall in the money stock took place not because of the Fed's failure to aggressively pump money.
The sharp fall in the money stock was in response to the shrinking pool of wealth brought about by the previous loose monetary policies of the central bank.
In response to this, banks curtail the expansion of lending out of "Thin air," setting in motion a decline in the money stock.
In this scenario, Tom has lent his $1,000 for three months, i.e., he has transferred the $1,000 to Mark through the mediation of Bank A. The lending is fully backed, since existent money from Tom to Mark and then back via the mediation of Bank A. Things are different when Bank A lends money out of "Thin air." For instance, let's say Tom exercises his demand for money by placing $1,000 in demand deposit with Bank A. By placing the money in demand deposit, he retains total claim to the $1,000.
If the bank continues to renew its lending out of thin air, then the stock of money will not decline.
The more lending out of "Thin air" supplied by the bank, the greater the expansion of money supply will be.
https://mises.org/wire/money-pumping-wont-fix-whats-wrong-economy
Contrary to Milton Friedman's view, the fall in the money stock took place not because of the Fed's failure to aggressively pump money.
The sharp fall in the money stock was in response to the shrinking pool of wealth brought about by the previous loose monetary policies of the central bank.
In response to this, banks curtail the expansion of lending out of "Thin air," setting in motion a decline in the money stock.
In this scenario, Tom has lent his $1,000 for three months, i.e., he has transferred the $1,000 to Mark through the mediation of Bank A. The lending is fully backed, since existent money from Tom to Mark and then back via the mediation of Bank A. Things are different when Bank A lends money out of "Thin air." For instance, let's say Tom exercises his demand for money by placing $1,000 in demand deposit with Bank A. By placing the money in demand deposit, he retains total claim to the $1,000.
If the bank continues to renew its lending out of thin air, then the stock of money will not decline.
The more lending out of "Thin air" supplied by the bank, the greater the expansion of money supply will be.
https://mises.org/wire/money-pumping-wont-fix-whats-wrong-economy
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