What’s the Difference Between Money and the Cash in Your Wallet? Holy Cross Professor Explains for NBC News

NBC News
October 30th, 2018 by 

Robert Baumann, professor of economics. Photo by Austin Bosworth
Robert Baumann, professor of economics. Photo by Austin Bosworth

With the economy expanding stably, unemployment numbers going down and inflation steady, the Federal Reserve has been gradually raising rates to guard against the risk of unsustainable growth. While some critics say higher interest rates add to the debt and would act as a drag on economic growth, many economists argue the opposite.

Helping to break down this complex debate is Robert Baumann, professor and chair of economics at the College of the Holy Cross. In an article for NBC News, Baumann offers an explainer of the monetary system, how it works, and the difference between currency and money.

“If they’ve got $100, they’re probably lending out about $90 of it,” said Baumann. “And then the $90 ends up in other banks, which lend out another $81, keeping $9 in reserve. The $81 then gets deposited in yet a third set of banks, and so on. The result is far more money lent than on deposit. Banks don’t have the cash to satisfy everyone who has deposited their currency — and that can become a problem.”

Ultimately, economists like Baumann and others argue that although lower interest rates, in theory, would help speed the nation’s economic growth, higher interest rates would help retire long-term national debt.

You can read the full article at NBCNews.com.

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