Whether I borrow money from my bank to have Donald Trump's likeness tattooed on my right buttocks or to buy stock in an IPO of the tattoo corporation makes no difference. Both increase the money stock as defined as currency plus bank deposits. However, if it involves a tattoo on my left buttocks of Bernie Sanders, I think that might be different. Jim Peach might agree but I am not sure. Perhaps Randy Wray could help out on this fine point of high theory.
Smile, friends. It's good medicine for these troubled times.
William M. Dugger
Professor of Economics
What about these two related thoughts - It might be that the fact of the IPO leads to some people acquiring bank credit so as to buy the shares, so that, all things considered the result is an increase in the quantity of deposits. Isn’t there also the thought
that in the aggregate a privately held company has become a publicly listed one, so that the same real assets are made generally more saleable. So on the whole, assets have become more liquid and for that reason more ‘money like’. I suppose, now that I think
of it, if the proceeds of the IPO are partly used to repay bank loans, as they may well be, all-in there might be a reduction in the quantity of money.
I think it is fundamentally different in the sense that loans are credit creation and an IPO is not new credit or debt, but the selling of ownership in the firm.
On Wednesday, July 13, 2016, Wunder, Tim <[log in to unmask]
So banks create money through loan creation, that is now commonly agreed upon by at least most people on this list. My question is this; does the stock market create money through IPO's? So for example I am a company looking to make heavy investments in plant
and equipment, and I fund that through an IPO, is the process of money creation the same as the process of loan money creation done in a bank system?
I understand the premise that anything can be money based upon how acceptable it is in exchange, but is there a fundamental difference between and IPO and bank created loans?
Also are there papers on this out there?
Thanks in advance to all who will pipe in.
Timothy A Wunder PhD
Clinical Associate Professor
Graduate Student Advisor
Department of Economics University of Texas at Arlington
Scott McConnell, PhD.
Assistant Professor of Economics
College of Business
210 Zabel Hall
Eastern Oregon University
One University Boulevard
La Grande, OR 97850
Tel.: (541) 962-3340