Collateral flows lie at the heart of any proper understanding of market liquidity, and hence of financial stability. No other market is so critical to the functioning of the financial system, and yet so poorly understood. In addition, though, as policymakers begin to acknowledge the inadequacies of traditional theories of money and lending, collateral flows are increasingly recognized to be just as important a driver of credit creation as money itself. Despite this, a true appreciation of the importance of collateral flows is hampered by the inadequacy of the way in which they are accounted for.
"However, through the repledging and rehypothecation of collateral, and the resultant creation of “collateral chains,” additional purchasing power is created in the financial economy without a need for the creation of any additional bank deposits, bank reserves, government debt, private debt, or anything else for the matter. "
I cannot understand this paragraph. How can I purchase a piece of machinery without writing a check or giving cash to the seller? In my mind, purchasing power is always related to a bank accout or to cash in my pocket...
"However, through the repledging and rehypothecation of collateral, and the resultant creation of “collateral chains,” additional purchasing power is created in the financial economy without a need for the creation of any additional bank deposits, bank reserves, government debt, private debt, or anything else for the matter. "
I cannot understand this paragraph. How can I purchase a piece of machinery without writing a check or giving cash to the seller? In my mind, purchasing power is always related to a bank accout or to cash in my pocket...
buen articulo!! saludos desde argentina.
Thanks! Right up my alley!