Release of the Kraken: A novel money multiplier equation's debut in 21st century banking

Artikel

Historically, the banking multiplier has been in a range of 4 to 100, with 25% to 1% reserve ratios at most layers of the banking system encompassing the majority of its range in recent centuries. Here it is shown that multipliers over 1 000 can occur from a new mechanism in banking. This new multiplier uses a default insurance note to insure an outstanding loan in order to return the value of the insured amount into capital. The economic impact of this invention is calculably greater than the original invention of reserve banking. The consequence of this lending invention is to render the existing money multiplier equations of reserve banking obsolete where it occurs. The equations describing this new multiplier do not converge. Each set of parameters for reserve percentage, nesting depth, etc. creates a unique logarithmic curve rather than approaching a limit. Thus it is necessary to show the behavior of this new equation by numerical methods. Understanding this new multiplier and associated issues is necessary for economic analyses of the Global Financial Crisis.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Journal: Economics: The Open-Access, Open-Assessment E-Journal ; ISSN: 1864-6042 ; Volume: 6 ; Year: 2012 ; Issue: 2012-3 ; Pages: 1-25 ; Kiel: Kiel Institute for the World Economy (IfW)

Classification and Topics

• Classification: Wirtschaft ; General Aggregative Models: Forecasting and Simulation: Models and Applications ; Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy: General (includes Measurement and Data) ; Money Supply; Credit; Money Multipliers ; National Security and War ; National Debt; Debt Management; Sovereign Debt
• Subject: GFC ; global financial crisis ; CDS ; credit default swaps ; AIG ; money multiplier ; banking multiplier ; synthetic capital ; loan insurance ; Geldschöpfung ; Bankenliquidität ; Basel II ; Credit Default Swap

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Hanley, Brian P.
• Event: Veröffentlichung
• (who): Kiel Institute for the World Economy (IfW)
• (where): Kiel
• (when): 2012

Further information

• DOI: doi:10.5018/economics-ejournal.ja.2012-3
• Handle: http://hdl.handle.net/10419/55264
• Last update: 10.03.2025, 11:44 AM CET