Endogenous cash is maybe not really a brand new concept, however it is perhaps perhaps not well comprehended also even today.
Even many supposed money that is endogenous, such as the MMT people, misunderstand it and also as MMT has gained some popularity i will be seeing increasing misinterpretations. It took me personally a little while to have this so dive that is let’s and determine if We can’t explain this more succinctly and plainly.
Endogenous cash is the fact anybody can expand their stability sheet from absolutely absolutely absolutely nothing provided that they are able to find a counterparty that is willing accept that stability sheet expansion. For example, i will write an IOU on an item of rest room paper for $100 and so long as someone is happy to accept that rest room paper we have really developed a brand new contract that agrees to supply $100 to another person at some time over time. We now have produced brand new monetary assets from nothing. To phrase it differently, the agreement is endogenous. It does not result from current cash or perhaps the national federal government or something like that like that. It was created by us internally. Okay, that is very easy.
But we need to acknowledge another important reality of most viable monetary agreements – they include counterparties.
You simply can’t produce viable assets that are financial a counterparty or another person to make the opposite side of the agreement. Continue reading “Probably one of the most overwhelmed (and confusing) elements of endogenous cash is the basic concept of “funding”.”