313:. If, conversely, all demand for credit money is being met, either because banks do not wish to lend (finding it too risky or unprofitable) or borrowers do not wish to borrow (having no use for added debt, such as due to lack of business opportunities), then the string is slack, the reserve constraint is not binding, and monetary policy is ineffective: monetary policy allows reining in a horse, but does not allow whipping it on.
328:: in the midst of a crisis, banks will be more cautious about lending money due to higher risk of default, and borrowers will be more cautious about borrowing money because of lack of investment and speculation opportunities: if demand is dropping, new investment is unlikely to be profitable, and if asset prices are dropping (following the bursting of a
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For in the middle of a deep depression just when we want
Reserve policy to be most effective, the Member Banks are likely to be timid about buying new investments or making loans. If the Reserve authorities buy government bonds in the open market and thereby swell bank reserves, the banks will not
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Governor Eccles: That is a very good way to put it, one cannot push on a string. We are in the depths of a depression and... beyond creating an easy money situation through reduction of discount rates, there is very little, if anything, that the reserve organization can do to bring about
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If banks maintain low levels of excess reserves, as they did in the US from 1959 to August 2008, then central banks can finely control broad (commercial bank) money supply by controlling central bank money creation, as the multiplier gives a direct and fixed connection between these.
284:
By increasing the volume of their government securities and loans and by lowering Member Bank legal reserve requirements, the
Reserve Banks can encourage an increase in the supply of money and bank deposits. They can encourage but, without taking drastic action, they cannot
32:
If something is connected to someone by a string, they can move it toward themselves by pulling on the string, but they cannot move it away from themselves by pushing on the string. It is often used in the context of economic policy, specifically the view that
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loans must be precisely backed by reserves and the money multiplier is 1. The distinction between fractional-reserve and full-reserve is not significant in this context – the important point is that in both systems, loans must be backed by reserves.
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and monetary policy can be effective, by being more or less restrictive, just as if a dog or horse is pulling on a leash or bridle its speed can be regulated by reining it in or letting it loose – one says that the reserve requirement constraint is
232:– this is a legal requirement, otherwise banks could print unlimited quantities of money – and banks are allowed to extend as loans some multiple of reserves: in a fractional-reserve banking system banks are allowed to extend
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Commercial banks extend loans, and borrowers take out loans, for commercial reasons – because they expect to benefit from them: banks profit by charging interest on the loan higher than they must pay on
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debts (the "spread"), while borrowers may for instance invest the money (hire workers, build a factory), speculate with it, or use it for consumption. These loans must in turn be backed by
220:, in that money supply is not determined by an exogenous (external) force (central bank policy), but rather a combination of central bank policy and endogenous (internal) business reasons.
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put these funds to work but will simply hold reserves. Result: no 5 for 1, "no nothing," simply a substitution on the bank's balance sheet of idle cash for old government bonds.
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Alternatively, the process can be seen as borrowers demanding credit from commercial banks, who then borrow base money to provide reserves to back the new
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If the arm muscles have been thus taxed the arm drops as if paralyzed and can no more be forced to do work in chronic fatigue than we can push on a string.
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from central banks to commercial banks, and then to borrowers. This is the crux of the "pushing on a string" metaphor – that money cannot be
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The phrase is also used in regard to asymmetrical influence in other contexts; for example, in 1976 a labor statistician, writing in
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of base money extended, thus denying reserves and preventing commercial banks from extending further loans, or by raising the
76:: "As Keynes pointed out, it's like pushing on a string...", "This is what Keynes meant by the phrase 'Pushing on a string.'"
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from or lending money to financial institutions. Second, the new money introduced by the central bank is multiplied by
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The appearance of the phrase in a 1910 medical book suggests that it was proverbial at the time
Goldsborough used it:
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in today's economy, reducing unemployment by stimulating employment has become more and more like pushing on a string.
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of base money extended by increasing interest rates and thus making loans less profitable for the bank (raising the
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is a figure of speech for influence that is more effective in moving things in one direction than another – you can
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base money from central banks. This presentation is particularly associated with, and seen as support for,
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According to Roger G. Sandilans and John Harold Wood the phrase was introduced by
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Governor Eccles: Under present circumstances, there is very little, if any, that can be done.
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America, in
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The breakdown in monetary policy is particularly damaging because it often occurs in
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asymmetric; it being easier to stop an expansion than to end a severe contraction."
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193:) of the amount originally created by the central bank. Money is in essence
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Economist with a Public
Purpose: Essays in Honour of John Kenneth Galbraith
119:"Pushing on a string" is particularly used to illustrate limitations of
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to be lent out – it may instead result in a growth of unlent reserves (
332:), speculation on rising asset prices is unlikely to prove profitable.
435:; it cites U. S. Congress House Banking Currency Committee, Hearings,
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Moore, Geoffrey H. (1976), "The
Employment-Unemployment Trade-Off",
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A History of
Central Banking in Great Britain and the United States
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from the central bank to borrowers if they do not wish to borrow.
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may not result in commercial bank money because the money is not
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If there is unmet demand for credit money, then credit money is
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Congressman
Goldsborough: You mean you cannot push on a string.
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High
Frequency Electric Currents in Medicine and Dentistry
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commercial banks to extend credit – monetary policy can
189:) in the economy so that it is a multiple (known as the
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loans than they have reserves (the ratio is called the
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in Congressional hearings on the Banking Act of 1935:
383:John Kenneth Galbraith and Michael Keaney (2001).
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49:in 1935, supporting Federal Reserve chairman
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264:), and while relaxing these constraints can
72:The phrase is, however, often attributed to
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557:– "pushing on a string" is on page 377.
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165:into the economy (termed 'expansionary
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252:money creation by either limiting the
157:follows a two-stage process. First, a
268:money creation, central banks cannot
240:, and is greater than 1), while in a
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516:A Study in Monetary Macroeconomics
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449:Joseph Stiglitz (April 8, 2008).
437:Hearings, Banking Act of 1935,
419:. Cambridge University Press.
83:about then US President elect
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555:Hearings, Banking Act of 1935
493:Samuel Howard Monell (1910).
326:Financial crisis of 2007–2010
248:Crucially, central banks can
181:; this expands the amount of
519:, Oxford University Press,
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179:fractional reserve banking
151:fractional-reserve banking
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451:"A deficit of leadership"
415:John Harold Wood (2006).
149:In modern economies with
537:Samuelson, Paul (1948),
499:. W. R. Jenkins company.
483:December 9, 1976, p. 47.
457:. London. Archived from
123:, particularly that the
439:March 18, 1935, p. 377.
346:Restated, increases in
218:monetary circuit theory
514:Stefan Homburg (2017)
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340:Further information:
113:Further information:
87:policies, wrote that
242:full-reserve banking
208:: demand for credit
47:T. Alan Goldsborough
481:The New York Times,
74:John Maynard Keynes
20:Pushing on a string
348:central bank money
330:speculative bubble
81:The New York Times
525:978-0-19-880753-7
426:978-0-521-85013-1
394:978-0-415-21292-2
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185:(i.e. cash plus
175:commercial banks
171:financial assets
125:money multiplier
16:Figure of speech
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161:introduces new
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540:Economics
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266:encourage
142:, not an
68:recovery.
565:Category
352:required
324:and the
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276:but not
230:reserves
177:through
144:equality
26:but not
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311:binding
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41:History
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254:amount
199:pushed
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127:is an
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250:limit
226:their
210:pulls
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28:push.
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521:ISBN
467:2008
421:ISBN
389:ISBN
278:push
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234:more
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