Policy Implications
If Loanable Funds is Correct:
- Government deficits crowd out private investment
- Debt accumulation is unsustainable
- Austerity is necessary to avoid crisis
- Government must “live within its means”
If BOMD is Correct:
- Government deficits add to private sector wealth
- Debt/GDP ratio stabilizes naturally
- Austerity reduces private sector equity
- Government cannot “run out of money” (for fiat currency issuer)
The Evidence
Central bank endorsements: - Bank of England (2014): “Bank lending creates deposits” - Bundesbank (2017): “A bank can grant loans without any prior inflows”
Empirical observation: - Banks create loans and deposits simultaneously - Government spending precedes taxation operationally - Countries with sovereign currencies never “run out of money”
Conclusion: Evidence strongly supports BOMD model.
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