[Pen-l] How Finance Capital Cripples Industrial Capital

["Charles Brown" <charlesb@xxxxxxxxxxxxxxxxxxxxx>]

How Finance Capital Cripples Industrial Capital: The Role of Fractional Reserve Banking



 

[Published in Briefing Notes in Economics, Vol. 4, Issue No. 26 (January 1997).]

Huge amounts of debt have plagued the economies of the United States and many less-developed countries during the last two decades. Despite the heavy toll that the debt burden is taking on these economies, mainstream economic theories have been pitifully inept in explaining the causes or developments that led to the proliferation of the debts thus accumulated. According to these theories, whether Keynesian or monetarist, the supply of credit is determined by two factors: (a) the savings by households and businesses, and (b) the Federal Reserve policies that determine reserve requirements and the money supply-the so-called fractional reserve banking (FRB), which will be discussed later in this essay. 

But the huge sums of credit that financial intermediaries extended to a variety of borrowers during the last two decades went far beyond the boundaries set by the amount of savings or Federal Reserve money supply regulations. For example, in the United States alone the amount of domestic lending during the 1982-90 period exceeded the amount of household and corporate savings by 23% (Citicorp Economics Database, as cited in Pollin, 1992:22). 


Full: http://www.cbpa.drake.edu/hossein-zadeh/papers/HowFinanceCapital.htm 




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