Money multiplier is really about credit out of “thin air”

Source: Cobden Centre
by Dr. Frank Shostak

“According to traditional economics textbooks, the current monetary system amplifies the initial monetary injections of money. The popular story goes as follows: if the central bank injects $1 billion into the economy and banks have to hold 10% in reserve against their deposits the initial injection of $1 billion will become $10 billion i.e. money supply will expand by a multiple of 10. Note that in this example the central bank has actively initiated monetary pumping of $1 billion, which in turn banks have amplified to $10 billion. Economists from the post-Keynesian school of economics (PK) have expressed doubt about the validity of this popular framework of thinking.” (09/13/17)