Akvod said:
Bah, fucking fucked up. I didn't mean to say banks loan from their reserves, the reserves are what they have to keep as a minimum.
But now you're confusing me O.o banks aren't allowed to loan from their reserves. All you're describing is illegal action.
It shouldn't be infinite, but it should be approaching a limit.
http://en.wikipedia.org/wiki/Money_multiplier#Formula
So... I'm also confused why you're mixing money demand (and supply) with the logic of the money multiplier, they should be seperate, although they are closely related.
And maybe it's because I haven't taken economics for long, but according to the model, it denies inflation as a result of demand shock, and subsequently inflationary policy. I do see an inflating of interest rates in the long run, in conjunction with the increasing of national debt.
If there is lowered investment, then there will simply be a recesionary gap, which is deflation. If the government properly cuts back on spending, it shouldn't "keep going up"
What does the gold standard have to do with anything? In fact, it's a shot in the foot for a monetarist to want to go back to the gold standard... unless you're denouncing any discretionary policy, fiscal or monetary.
But the gold standard has nothing to do with government... the government doesn't engage in a large ammount of seniorage. It finances its defecit spending by borrowing, not printing.
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