Café

Last night I got a rare recommendation in my YouTube on one of my old subscription to Prof Steve Keen, am Australian economics professor. Not very well known because he is pushing a more niche view on the already unconventional idea of Modern Monetary Theory (MMT).

To put simply what this is all about: CREDIT (LOAN) CREATION IS MONEY CREATION

I am not an econ major, and I am oversimplifying as hell here, but, its like this. With modern accounting practice, when you take out a RM1k loan from your neighbourhood bank branch, the branch is not giving you the loan by withdrawing from its reserves of savings deposits. They will simply add RM1k to their liabilities and credit RM1K into your account. Number flipping only. Easy peasy like roti canai.

Even so, the funds that you get can then be spent just like regular cash. No shops are going to differentiate between it and your paid-in-cash salary.

It is essentially fresh money, added to the economy, simply at the discretion of your local branch manager. No involvement from Bank Negara or the state whatsoever.

And consider the amount of loans we Malaysians took over the decades, people buying multiple cars and houses. How much of of the Ringgit in circulation today is from the gov issue, and how many are generated from credit? How far has the Ringgit been watered down by this?

What Prof Steve Keen, based on Hyman Minsky's work, is working on are what effect this phenomenon can have on the wider system. He cautioned that economies with too much credit circulating will get very fragile by being very sensitive to interest rate fluctuations.

MMT get a lot of flak in mainstream media for being "crazy", but as a theory, it's a powerful concept. On one hand it allows government to create money without indiscriminately printing cash through "quantitative easing", a power which can easily be abused. But it also reveals the extent of power individual banks actually have on the national economy. Scary stuff.