What is the Money Multiplier?

The money multiplier is generally referring to a formula used in macroeconomics and stemming from the Keynesian school of economic thought. It is typically aligned with the concept of fractional reserve banking and how the overall money supply can be increased. When commercial banks are only required to hold a “fraction” of the deposits of their customers in central bank reserve accounts, and then lend money to captive borrowers. Without deposits, Banks cannot lend. This lending creates a cash flow stream of payments for the commercial banking sector. These payments can then further multiply or expand the system.

At the individual “you and me” level, with a fundamental understanding of the Austiran School of economic thought, we can create a modified multiplier effect within a personal economy. By putting our deposits to work inside of a participating dividend paying whole life insurance contract (or a system of contracts), your money continues growing daily and earning interest on an uninterrupted basis, in a tax advantaged environment. And, as the contract owner, you have a guaranteed loan provision which enables you to use your own cash as collateral, and put the Life Insurance companie’s money to work on all the things that you need throughout your lifetime. With this process, the potential of your money is multiplied as it continues growing while you’re achieving all of your financial objectives. A key advantage of this is that you, the policy owner, receive the benefits of the insurance contract and its protections while also having total and absolute control (liquidity) to realize other opportunities that will track you down.

Money Multiplier Formula – During Recession

Austrian Economist Robert P. Murphy (Bob P. Murphy) has written prolifically about the money supply system. Recently he was commissioned by the Mises Institute President, Jeff Deist, to prepare a series of articles in relation to money supply and its manipulation by central banks. Central banks include entities like The Federal Reserve in the USA and the Bank of Canada.

The series is in several chapters called Understanding Money Mechanics. The Austrian School of Economics has a different fundamental understanding than the Keynesian Economic models that much of the world operates under today. The relationship between M1 and M2 Capital as it relates to money supply is key to the Money Multiplier Effect. This manipulation of the amount of money created via the fractional reserve lending model and pumped into the money supply (M1 and M2 measurements) globally has created great concern. Many in the Austrian School recognize that this increase to the money supply or “funny money” as it is often called, is one of the leading causes of inflation in our world.

Money multiplier calculator

To learn more about how the Money Multiplier is calculated it would first be important to understand how fractional reserve banking works. Robert P. Murphy and Carlos Lara wrote a book in 2010 that clearly described this system. Their most recent book, The Case for IBC 2nd Version, is available here https://www.ascendantfinancial.ca/shop/ . Their book titled How Privatized Banking Really Works Integrating Austrian Economics With The Infinite Banking Concept is also a great read.

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What is the deposit multiplier formula?

Although the deposit multiplier formula is based on the economic models noted above, it has very little direct impact on a day to day basis with someone's personal and business economy. On an aggregate level this multiplier effect impacts us all by increasing the amount of potential money in the supply system. Money is a medium of exchange and when the medium of that exchange is manipulated (debasing the currency) it can erode trust in the system. The failure of the currency is one of many factors that led to the fall of the Roman Empire. However, the ability to secede from this financial environment exists at the personal level.

Life Insurance Companies are the most solvent financial institutions on the planet and they cannot inflate the money supply.

The method of removing oneself or business from the fractional reserve system happens by changing where your deposits are stored. Over time deposits can be shifted to reside inside of Mutual Whole Life Insurance Company participating accounts. Insurance companies' capital reserves are not fractionalized like the commercial banking sector. As more Canadians adopt this location for their savings deposits they reduce their dependence on the commercial banks. If we start moving all of the lending requirements we have in life to an entity that cannot inflate then we become part of the solution versus part of the problem. The best way to achieve personal financial liberty and create your own multiplier effect on capital is to begin the process of Becoming Your Own Banker as described by R. Nelson Nash.

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Contents

What is the Money Multiplier?

What is the Money Multiplier?

Money Multiplier Formula – During Recession

Money multiplier calculator

What is the deposit multiplier formula?

Money multiplier method Expert

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