Myths in Macroeconomics

R. David Johnson, MBAShawnee State UniversityECON2202 51

The Government Prints Money

FALSE!

The Government Prints Money

The Government doesn't really print money. Most of Money in our monetary system exists because

banks created it through the loan creation process. Creates money only through the loan creation process. - Exists only to facilitate the use of bank accounts. Does print Treasury bonds but these are securities and

not money Concept of Government printing money is portrayed by

mainstream media.

Banks Lend Reserves

FALSE!

Banks Lend Reserves

FALSE! Derives from the concept of the Money Multiplier. Implies that banks who have $100 in reserves will then multiply

this money 10X or whatever. Resulting cause of the 2009 hyperinflation predictions when

reserve balances at banks exploded due to the Fed's balance sheet expansion.

Banks don't make lending decisions based on the quantity of reserves they hold.

Reserves don't leave the banking system so the entire concept of the money multiplier and banks lending reserves is misleading.

The United States Is Running Out of Money and We Must Pay Back The National Debt.

FALSE!

The United States Is Running Out of Money and We Must Pay Back The National Debt.

FALSE! Strange belief that the nation with a printing press whose

debt is denominated in the currency that it can print can become insolvent.

The United States can theoretically print as much money as it wants.

Since banks create most of the money it doesn't mean that the government is at risk of running out of money.

The United States is a contingent currency issuer and could always create the money it needed to fund its own operations.

The National Debt is a Burden That Will Ruin Our Children's Futures.

FALSE!

The National Debt is a Burden That Will Ruin Our Children's Futures.

FALSE! The National Debt is often portrayed as something that we

must pay back. There is really no such thing as paying back the national

debt unless you think that the government should be eliminated entirely.

This doesn't mean that the national debt is all good. At a macro level debt doesn't get paid back. In a credit based monetary system, debt is likely to expand

and contract, but generally expand as the economy expands and balance sheets grow.

The Federal Reserves Was Created by a Secret Cabal of Bankers to Wreck the U.S. Economy.

FALSE!

The Federal Reserves Was Created by a Secret Cabal of Bankers to Wreck the U.S. Economy.

FALSE! The Federal Reserves is a very confusing and

sophisticated entity. Created to help stabilize the United States payments

system and provide a clearinghouse where banks could meet to help settle interbank payments.

Modeled after the New York Clearinghouse. Its design and structure is actually logical and its

creation is not as conspiratorial and malicious as many make it out to be.

Economics is a Science.

FALSE!

Economics is a Science.

FALSE! Economics is often thought of as a science. In reality, it is mostly political masquerading becoming operational

facts. Keynesians Monetarists Austrians Schools of Economics that derives many of their understandings by

constructing a political perspective and adhering a world view around these biased perspectives.

It is at best a social science, but nothing resembling a hard science.