W4 - Lecture prep
September 23, 2022 2:11 PM
Title:
Bezemer, 2019: Ch. 2: 'Functioning of financial markets and savings'
Do markets create
money? • Markets allocate existing money, but they do not create money
WR securities? • Securities: collective term for bonds, stocks and similar liabilities
• Offer greater choice of risk and return combinations than cash
WR the roles of banks • Roles in the econ. System:
on the economic
system? And of • Banks: provide new purchasing power (money creators)
financial markets? • Financial markets: offer investment vehicles (money shifters)
WR savings? • Savings: what is left over from income (wages or profit) after consumption
• Business savings: left over from sales after capital owners and employees have
been paid and the entrepreneur spent on consumption
• Household savings: what is left over when wages have been received and the
household members have spent on consumption
WD options do the • When savings take place, asset markets are used to channel the financial balance into
financial markets financial assets (i.e.: stock or bonds) or real assets (i.e.: land, buildings, art, gold,
offer to savings? jewels, bottles of quality wine, tulip bulbs, etc…)
• Money representing income becomes money representing wealth
• Usually, the seller of the financial asset uses the money received for some other
financial investment
• The existence of financial markets create a potential 'leak' in the circular flow of
How can financial
markets hinder money
growth? • Money might flow into financial assets instead of real assets and not contribute
to economic development
• Not all saving is productive, if it is just channelled into the financial asset market
and is not used for production
Does lending require • Lending does not require prior saving
prior savings? Why? • Banks first lend, thereby creating money, and only later is the money saved and
invested.
Does more saving • More saving does not help with economic growth.
means more economic ○ Banks can create the money to set in motion the circular flow of economic
growth?
growth
▪ Once income rise, savings will also increase unless additional income
is consumed (e.g.: Chinese development since 1978 reforms are
attributable to a strong domestic banking system)
○ Not all money can be created. For example in micro-finance seed money is
needed to facilitate the programme's expansion. However, in the last
stage the micro-finance bank enters the money creation phase and no
longer depends on prior savings by a third party.
• Summary:
Why are savings • With savings on a large scale, we have moved to a new kind of economic system:
important in financial capitalism.
financial capitalism?
○ Once there is a large pool of savings, and enough people who earn more
than they spend, the conditions are right for securities markets to
develop.
○ Deep securities market make it easier to obtain and dispense securities
Banking Page 21
September 23, 2022 2:11 PM
Title:
Bezemer, 2019: Ch. 2: 'Functioning of financial markets and savings'
Do markets create
money? • Markets allocate existing money, but they do not create money
WR securities? • Securities: collective term for bonds, stocks and similar liabilities
• Offer greater choice of risk and return combinations than cash
WR the roles of banks • Roles in the econ. System:
on the economic
system? And of • Banks: provide new purchasing power (money creators)
financial markets? • Financial markets: offer investment vehicles (money shifters)
WR savings? • Savings: what is left over from income (wages or profit) after consumption
• Business savings: left over from sales after capital owners and employees have
been paid and the entrepreneur spent on consumption
• Household savings: what is left over when wages have been received and the
household members have spent on consumption
WD options do the • When savings take place, asset markets are used to channel the financial balance into
financial markets financial assets (i.e.: stock or bonds) or real assets (i.e.: land, buildings, art, gold,
offer to savings? jewels, bottles of quality wine, tulip bulbs, etc…)
• Money representing income becomes money representing wealth
• Usually, the seller of the financial asset uses the money received for some other
financial investment
• The existence of financial markets create a potential 'leak' in the circular flow of
How can financial
markets hinder money
growth? • Money might flow into financial assets instead of real assets and not contribute
to economic development
• Not all saving is productive, if it is just channelled into the financial asset market
and is not used for production
Does lending require • Lending does not require prior saving
prior savings? Why? • Banks first lend, thereby creating money, and only later is the money saved and
invested.
Does more saving • More saving does not help with economic growth.
means more economic ○ Banks can create the money to set in motion the circular flow of economic
growth?
growth
▪ Once income rise, savings will also increase unless additional income
is consumed (e.g.: Chinese development since 1978 reforms are
attributable to a strong domestic banking system)
○ Not all money can be created. For example in micro-finance seed money is
needed to facilitate the programme's expansion. However, in the last
stage the micro-finance bank enters the money creation phase and no
longer depends on prior savings by a third party.
• Summary:
Why are savings • With savings on a large scale, we have moved to a new kind of economic system:
important in financial capitalism.
financial capitalism?
○ Once there is a large pool of savings, and enough people who earn more
than they spend, the conditions are right for securities markets to
develop.
○ Deep securities market make it easier to obtain and dispense securities
Banking Page 21
