``It’s a common misconception that the banking system needs willing borrowers in order to expand the supply of money. We hear it every day, from one deflationist after another. It’s not true. It’s not willing borrowers we require but willing banks, for while it is true that even a willing bank can not create money by making loans without willing borrowers, it can always create money by buying securities. The fact is even in the depths of a recession a banking system flush with excess reserves is always in a position to pyramid up its deposit liabilities, to create Uncovered Money Substitutes, regardless of the demand for loans. And since the pyramiding up those reserves is one of the primary ways banks make money, sooner or later, they’ll do it, especially in a system where the Federal Reserve stands ready to bail them out of their mistakes. Guess what banks are doing right now with their excess reserves? That’s right, they are creating money by buying securities.''

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