What do “money multiplier” fabulists say when companies have trillions in store?



the of the Wall Street Journal Anna Hirtenstein reported last week that US companies are “sitting on a record amount of cash”. According to diary Reporter, the figure is $ 6.84 trillion.

For Keynesians, such a number is a little unsettling. Keynesians believe that unspent wealth signals a lack of spending, which is why they appear to be so anxious that governments steer wealth away. Imagine that politicians exist to spend money. Keynesians worship at the altar of consumption. Their economic theories are confused, while their alarmism is exaggerated.

Savings or “supplies” of cash in no way detract from demand. Corporations don’t hide their unspent money in a safe; rather, they invest it against an interest rate. Banks don’t store money either. This would quickly plunge them into bankruptcy. Banks pay deposits precisely because they can lend the funds borrowed at a higher interest rate than the depositor.

The encouraging thing about unspent wealth is that while some of it is being shifted to those willing to pay an interest rate in order to receive goods and services now (we borrow money for what it can be exchanged for), for others, however, the unspent wealth serves as the capital. The thrifty, whether individuals or corporations, are economic growth personified. Unless they are spending all of their money, the latter exists as capital for entrepreneurs and corporations seeking the means to bring their commercial visions to life. Without saving beforehand, there is simply no innovation, no growth and the associated creation of jobs. The Keynesians have it backwards.

At the same time, they’re not the only ones who are a little confused about money; Above all, “empty” money. You see, there are people who believe that banks play the role of counterfeiters in lending money. Such belief fails to understand what money is. The erroneous believe that by lending out the money they “rent” from savers, banks are falsely “multiplying” money.

In their illustration, a bank takes $ 1 million from Company A just for the bank to borrow $ 900,000 to Company B, which it then collects just for another bank to pass 90% of Company B’s funds on to Company C. . Soon enough $ 1 million is just over $ 2.7 million, by which time nefarious banks have multiplied the value of the dollar. Apart from the fact that such reasoning does not stand up to fundamental scrutiny. What calls for a digression; albeit a well-known one to those who read this column regularly.

The simple truth is that no one buys and sells with money or borrows it or borrows it. Flows of money represent flows of goods and services. Money is just the referee. It is a value agreement that enables the exchange between the actual producers. We all work for money, but we really work for what money can be exchanged for. When there is broad agreement (or trust) about the exchange value of money, actual exchange is abundant. In other words, the successful Microsoft salesman is able to use the cash proceeds from software sales to buy a house on Mercer Island, precisely because the owner of the house on Mercer Island is confident that those dollars will be used to buy marketable goods.

The same goes for savings and loans. Nobody would wait long – say – $ 1 million in cash would deposit it in a bank when the $ 1 million deposit could soon turn into millions upon millions of cruelly depreciated dollars sloshing around the US and the world. If money were really “multiplied”, as some mistakenly assume, there would be no significant savings. Which means that there is no multiplication in the first place.

If someone doubts this, all he needs to do is conduct his own experiment along the lines of corporations A, B and C, only he could do it with friends at a kitchen or restaurant table. Better still, run the experiment with no reserve requirements unnecessarily imposed on banks. Friend A becomes a “bank” just to steal $ 100. Friend A lends friend B the $ 100 just for friend B to loan it to friend C. Voila! $ 300 created out of nothing, according to the multiplier theorists. In fact, it would still only be $ 100. If we lend money, we lose it. The multiplier theory implies that we can borrow $ 100 while still having $ 100. No, such a view is not serious. Undoubtedly, we could potentially borrow $ 100 from someone else by showing them our $ 100 loan, but then that person would have $ 100 less. Multiplication is a myth.

However, some wise people think that the savings that terrify Keynesians because they represent unspent wealth are in truth terrifying because they signal an inflated wealth. Banks should “store” money rather than lend it, seems to be the mantra of the “money multiplier” theorists. Only if banks were warehouses would savers become Pay them an interest rate.

More precisely, markets work. Markets are informed. The money multiplier theory literally suggests that savers are giving banks the means to literally inflate the value of the dollar rather than stimulate capital formation in return for an interest rate. Along with their own savings.

All of that brings us back to the corporations. Reportedly, they currently have $ 6.84 trillion in cash, which means they are currently lending trillions. If the multiplier theory had even a grain of truth, corporate cash holdings would be a signal that the world’s most valuable, best-run corporations are literally sitting back and watching their precious fortunes wiped away by “fake” bankers.

No not true. If money were in a constant evisceration state because of savings, no one would use it at all. And there would certainly be no savings. When anyone really needs the truth that the “money multiplier” theory is giving new meaning to conspiracy-minded nonsense, just steer it into the trillions of dollars in corporate cash holdings.



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