“However, given a particular monetary policy regime and barring any increase in reserves, the only way commercial banks can increase their lending capacity is to secure new deposits. Again, deposits create loans, and, consequently, banks need your money in order to make new loans.”

So in the final analysis, as often as not the deposits precede the loans but it does depend on the rules and changing regulation.

The key phrase is “given a particular monetary regime barring any increase in reserves”. That is not the condition that exists in any developed economy, and especially not the US. Banks are absolutely flush with reserves; so much so that the bank rate and IOER rate are effectively identical. Banks don’t need deposits to extend credit. Deposits are just one cheap way to obtain reserves, as the article states. This is 100% consistent with MMT. In no case is it necessary that deposits ‘precede’ loans, and, in the modern economy, reserves are almost always a secondary concern after credit extension since the bank rate is so low anyway.

Corporate accountant and former auditor with degrees in philosophy and accounting.

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