“Econometrically and by accounting, savings do not drive deposits — deposits drive savings.”

A careful examination of both balance-sheet identities and formal econometric tests leads to an unambiguous conclusion: household savings are not the source of bank deposits, and therefore cannot constrain bank lending. @GeorgeSelgin @CascadiaEric @robox1234 @edwin_teejay Instead, the sequence runs the other way: bank credit creation expands deposits, and households subsequently hold a portion of those deposits as ‘savings’.

“It is difficult to maintain that profits are determined by marginal products when a purely accounting-based, sector-balance identity can replicate them so precisely.”

~95% confidence that marginal-product theories cannot explain profit levels, and that sector-balance mechanics do explain them. @RelearningEcon Empirical Consistency Between the Kalecki Profit Identity and Measured Corporate Profits

This remarkable correspondence indicates that the macro-accounting identity captures the dominant forces governing the evolution of corporate profits over the long run.

The 30–180 Day Nominal Refinancing Loop in Modern Banking

In aggregate, credit expansion is not constrained by prior saving.
It is sustained by the nominal GDP growth (including inflation) that credit itself creates. Short-term, nominal funding is the structural reality of banking

Thus the average bank is constantly refinancing a large portion of its balance sheet in nominal terms, every 1–6 months.

@GeorgeSelgin Savings Driving Credit Test Results:

"There is no empirical support for the claim that saving drives or funds lending.
Constrained-lending theory fails its core prediction."

Overall Confidence:
P ≈ 0.99999 (99.999% confidence) @GeorgeSelgin To evaluate the core claim of constrained lending or Loanable-Funds Intermediationism—namely, that saving must rise before banks can expand credit—we ran a full set of VAR and Granger-causality tests using U.S. quarterly data.
The results are unambiguous:

Why Kalecki, Godley, and Minsky Are Unified Kalecki provides the Income–Distribution Structure

Kalecki = Godley: The Unified Income–Financing Identity

A central result of this paper is that Kalecki’s profit identity and Godley’s sectoral balances identity are not separate theoretical constructions but two expressions of the same underlying mechanism, viewed from different sides of the national accounts. Kalecki presents the income side; Godley presents the financing side.
Once placed within a stock–flow consistent (SFC) framework, the equivalence becomes exact.

Stock–Flow Consistent Formulation of
Kalecki–Young Sectoral Inflation Decomposition (KYSID)

"Recasting KYSID within a stock–flow consistent (SFC) framework clarifies that the inflation process is a balance-sheet outcome." Core flow-of-funds identity

Kalecki–Young Sectoral Inflation Decomposition (KYSID)

"It lets you both model inflation and attribute it sectorally—to wages, productivity, domestic debt saturation, and the external / tradables channel—within a consistent stock–flow, income‑distribution perspective." Kalecki–Young Sectoral Inflation Decomposition (KYSID)

Empirically, U.S. Inflation Follows the Kalecki Distributional Equation

Inflation in the United States is primarily profit-led in structure, wage-amplified in the short run, and productivity-limited in scope. This relation implies that inflation arises from the distribution of income between labor and capital, not from expectations.

The Constant-Rate Interest Burden as the Hidden Driver of Capital Share: Evidence from Balance-Sheet Saturation

This balance-sheet mechanism explains the secular rise in the capital share and the decline in labor share observed since the 1980s without appealing to exogenous technology shocks. Conceptually, it represents the interest-service load that would prevail if monetary policy had not reduced nominal rates in response to debt expansion. While the actual burden rtL/Y fluctuates with policy cycles, the constant-rate version isolates the structural leverage component, reflecting the underlying stock of liabilities relative to income.

Ergodicity vs expected-utility assumes the return distribution is exogenous.
But in a credit economy, returns are endogenously driven by balance-sheet expansion (A≈L).
Investors maximize share of system claims subject to leverage guardrails — not abstract utility or stationary distributions.
Kelly works within a balance-sheet regime, not instead of one. @farmerrf

https://x.com/JamesYo43532848/status/1951921086452670816

The Labor Channel Is Not a Causal Driver of Inflation: VAR Evidence from the United States Thus, inflation and wages are not driven by labor conditions; they respond to the credit cycle and the associated demand and price dynamics. The NK causal chain is reversed.

@ojblanchard1 @FrancoisGeerolf The canonical New-Keynesian three-equation model (NK Phillips–Euler–Taylor system) is not empirically salvageable because its core causal mechanism — slack-induced inflation — is reversed in the data. @ojblanchard1 @FrancoisGeerolf Reversal of the New-Keynesian Inflation Mechanism: Evidence from Credit, Services Inflation, and Labor-Market Tightness

The Fed Tightened Into an Energy Shock: A Policy Error Explanation of the Global Financial Crisis

This interpretation challenges the standard NK narrative that the GFC was the result of exogenous financial frictions or regulatory failure alone (Bernanke, Gertler & Gilchrist 1999). Instead, it suggests that monetary policy itself was a causal amplifier of crisis dynamics. ....by tightening into a negative real-income shock, the Fed mechanically reduced household liquidity, which led to rising delinquency and default rates—first in adjustable-rate subprime mortgages and later system-wide as refinancing options collapsed (Gorton 2008).

Appendix C. Triangulation and Hierarchy of Evidence: Debt, Assets, and the Monetary Function of the Balance Sheet

"Across all tests, posterior belief that financial assets perform the monetary function exceeds 99.5 %, satisfying the “decisive evidence” threshold." The Three Axes of Empirical Proof

This establishes the creation mechanism of effective money.
Nominal purchasing power arises not from central-bank base money but from private and public credit issuance.

The GDP-FX Triangle as Evidence that Financial Assets Function as Effective Money

"This implies that currencies are equity-linked claims, and therefore that financial assets function as money at the macroeconomic level." Theoretical Framing

This proportionality arises because equity and debt jointly define the monetary value of domestic claims:

Empirical Evidence that Equity Serves as Money’s Structural Equivalent

In this sense, equity is money’s structural twin — the endogenous counterpart through which the financial system preserves nominal consistency. Empirical Structure of the U.S. Macro Balance Sheet

This parity implies that macro equilibrium is achieved through joint adjustment of equity and debt values, not through the regulation of narrow money.

Assets Are Effective Money: Empirical and Theoretical Evidence from Balance-Sheet Dynamics

This paper argues and demonstrates empirically that financial assets are effective money: their expansion drives aggregate demand, profits, and inflation with measurable lags and with statistical precision that far exceeds the explanatory capacity of conventional monetary aggregates (M1, M2, or base money). @GeorgeSelgin @SamHLevey Theoretical Framework

@russellwadey Inflation as the Price-Level Representation of Claim Dilution

"If equity exists on the macro balance sheet, then inflation is the logical and empirical representation of claim dilution — i.e., the price-level adjustment that reconciles expanding nominal claims with real output." @russellwadey When the total stock of nominal claims expands more rapidly than real output, the purchasing power of each existing claim declines.

@russellwadey From Ex-Post Income Identity to Ex-Ante Balance-Sheet Dynamics

The income-expenditure identity is descriptive; it records how GDP is distributed.
The balance-sheet identity is causal; it explains how GDP is created. @russellwadey The identity therefore tells us how income was spent, not why it changed.

Policy Regimes Are Balance-Sheet States, Not Discretionary Switches

“Using a Markov-switching reaction function and logit bridge, we show that the probability of an ‘active’ Fed regime rises systematically with total-debt-to-GDP (Ω). Policy regime is not independent; it’s a balance-sheet state.” Logic (what we tested)