| "Banks create the money supply (~97% of it). " They create all of it. God knows where the 97% comes from. We don't have silver coins any more, and even they were tokens for a promise. It was empirically proven by Keynes by in the 1930s. Werner was way behind the curve. It's not new knowledge. Reginald McKenna published a book on it in the 1920s.[0] "What happens when this behavior is aggregated in the whole system is essentially wealthy people jumping over each other to secure an amount of loans approaching infinity " Wrong. The entire system is a liquidity provision for existing stuff. It is systemically limited by physical collateral and risk limits within banks. If a bank takes on too much risk then it goes bust and the shareholder capital is wiped out. There is no asset bubble. Artificially intervening in the market for money (which is what interest rate setting is) suppresses the price of assets, which means insufficient are produced. We're seeing that now as the house builders go into hibernation - another round of stop start in the construction industry - which is one of the reasons why they tend to use subcontractors rather than hire and train employees. Channelling the stability process via the banks, and thereby making them 'special' means we can't let the standard process of capitalism, bankruptcy and loss of capital, control the risk limits in banks. [0]: https://new-wayland.com/blog/post-war-banking-policy/ |