The Creation of the Federal Reserve System (Part 2)

And after 100 attempts you guys are still wrong. Deposits are exactly like cash. I have even shown you definitions of what money is and why deposits are considered money.

Your guys attempt is to turn those deposits in to "claims" on money. That is incorrect, the deposit is money itself, just like cash is money itself.

When I pay for something with my account they take the numbers from my account and transfer them to the recipient account. They do not take reserves and transfer them to the recipient account, they take my deposit account (which is money) and transfer it to the recipient just like we do with cash.

If a bank becomes insolvent it has nothing to do with them losing their reserves in order for you to make payments, it has everything to do with them losing YOUR MONEY.

 

In practical terms, it's only a difference of one penny. So it is effectively the same thing.

 

That's fine. I agree that the physical location of your money is not the same if your friend has it compared to you.

But regardless of if you have it in your possession or your friend has it... you still have $5,000.

Your buddy has $5,000 in cash but it is not his money. It is in his possession but it is not his.

Your deposit is your money but it is in the hands of the bank. But your deposit is still MONEY just like your friends cash is still MONEY.

You can call it a claim if you want... but it is not a claim on reserves or a claim on cash... it is a claim on YOUR MONEY.

When you have $5,000 in the bank your claim is not on reserves/currency... your claim is on $5,000 of your money that you can use to purchase goods and services.

 

Yeah, I gotta go with Dr. R on this one.

Even though you have (finally) acknowledged that your deposit account may be worthless after a bank fails and doesn't have the cash/reserves to pay the claims, you sit there and say deposit accounts are just like cash.

You refuse to address my questions and persist in making illogical statements in front of irrefutable logical and proof.

"Nothing I say can disprove what you said because in your head you aren't open to learning. You have already made up your mind how the system works and there is absolutely nothing anyone in this world can do to change your mind."[

You've established that. I've wasted enough time.

 

Cash is only one form of money. Deposits are a different form of money. They are both considered money by the broad definition of money, but they are two completely different things.

Those numbers are claims. It is the claims that are considered money by the broad definition of money. They are not cash. They can be converted into cash if the bank is able to meet your claim when you try to liquidate all or part of the claim.

This is correct. They do not transfer reserves/cash to anyone's "account". That is because there is no cash in deposits. It's good to see that you are finally admitting that Reserves/cash and deposit claims are not the same thing other than that they are both considered money under the broad definition of "money". Either that or you're not admitting it and simply don't realize the blatant hypocrisy in your position.

Not necessarily. What if the bank is insolvent?

Completely wrong. They transfer nothing to the recipient other than part of your claim on reserves. If it's the same bank, then no reserves need to be transferred. If it's a different bank, then reserves or some other form of capital needs to be transferred.

They didn't lose any of my money. I gave them my money and in return they gave me a claim on an equal amount of money from their reserves. They lost their reserves when they failed, and my claim on their reserves has become worthless.

 

Nope, they are the same form of money other than their physical differences.

They are not claims of anything other than a claim to your money. Your deposit account is not a claim to cash, cash is no different than a deposit. Your claim is to whatever digits are in your account.

I have never admitted they weren't different. The difference is deposits are not claims on reserves, they are money just like cash is money.

Then I gave my money to someone who owes someone else money and I lose my money. I don't lose a claim on reserves, I lose my money.

Nope, they transfer little digits from my account to your account. That is a transfer of money. They do not transfer claims on reserves.

No, your claim on your money has failed, not a claim on their reserves.

 

Cash is money if you define currency and reserves as money. The deposit is money only if you define money to include deposit accounts.

Your claim contradicts MMM step 6.

The lending banks, however, do not expect to retain the deposits they create through their loan operations. Borrowers write checks that probably will be deposited in other banks. As these checks move through the collection process, the Federal Reserve Banks debit the reserve accounts of the paying banks (Stage 1 banks) and credit those of the receiving banks. See illustration 6.

Your account and their account is credited and debited if an only if the reserve accounts are credited and debited.

No cash/reserves, no deal.

What difference does it make? There reserves are your money in that you have a claim on it. If the bank doesn't have the reserves, your deposit account, your claim, is worthless (but for the FDIC). You can't get cash from it and you can't write checks.

If you had cash, whether in your pocket or in a safe deposit box, you would not have lost it when the bank failed. Because you had cash. Not just a claim.

 

I never acknowledged it wasn't. Your deposit account doesn't exist after a bank fails... you no longer have a deposit account because you no longer have money.

And as much time as you've wasted you are still incredibly wrong.

 

Not true at all.

Cash is currency. You can take it to McDonald's and buy a burger. Reserves are deposits at the Fed that are freely exchangeable for cash.

A deposit account is not cash. You cannot take your deposit account to McDonald's to buy a burger. You must convert your interest in cash your deposit account represents to cash before you can buy the burger.

Banks multiple deposit accounts when they loan, but they don't create more cash/reserves. When banks make loans, the amount of cash/reserves stay they same. Only the Fed can create cash/reserves.

 

Cash in the hands of the public and deposits are the same type of money. Cash in bank vaults and reserves are the same type of money.

Yes, banks do need reserves to settle requirements with the Fed. My claims do not contradict this.

If a bank doesn't have cash/reserves it means they lost your deposit.

No, I have a claim on my money not their reserves. I can't get their reserves.

Just like if you have cash in your pocket when your friend loses your $5,000 you still have cash in your pocket but you lost $5,000. What a novel concept.

 

So if you have no deposit account or claim, how do you get paid by the FDIC?

I'm not the one making irrational statements and taking unfounded positions.

 

Sure you can. When I bring my debit card to McDonalds it transfers my money in the form of little tiny bytes to McDonald's bank account in the form of little tiny bytes. McDonald's does not get any reserves what so ever.

Just like when your friend takes your $5,000 and goes and buys an iPad for you.

Of course not, they create more deposits which are money just like cash in the hands of the public.

 

They carry your account over to whatever bank takes over the seized bank.

I'm taking the actual position that exists. I'm not making things up about "claims" on money that isn't mine. Reserves are banks money not my money. My money is in my bank account.

 

Not true at all. You don't lose cash in your hands when your bank fails. You do lose your deposit account.

Cash can always be freely exchanged with reserves, regardless of where it is.

Requirements equal checks you write directing the bank to pay the payee, and withdrawals of cash from your account.

Glad we agreed on that.

How did they lose your deposit account? Accidently misplace your account information?

What "money" do you have when your bank fails? You have an account balance. Can you spend it? No. Can you write a check on it? No. Can you get cash? No.

So how is your account equal to cash when you cannot spend it or convert it to cash?

But you didn't lose the cash in your pocket, did you?

Your "money" - your interest in your cash you gave to your friend may be worthless. Worthless does not equal cash. Your "money" - your interest in your bank account may be worthless when your bank fails. Worthless does not equal cash.

But the money in cash in your pocket is still worth the same. It's cash. It's not an interest in cash someone else has. It is cash you have.

That's the difference between "money" which is interest in cash someone else has and "money" which is cash.

And the difference between "money" the banks create via loans, and the "money" the fed creates. Banks create the former type of money. The Fed creates the latter.

 

Without any equity the banking system basically looks like this.

A | L
Reserves | Deposits
Loans
Securities

And since banks can't lose reserves with out losing deposits... the only way we lose deposits is if loans or securities default.

Every single deposit though is money just like cash is money. If a bank loses your deposit it means the bank lost your money just like if your friend loses your $5,000.

 

I never said you did. Just like you don't lose cash in your hands when your friend loses your other money.

Unless they do not have reserves because they do not have any capital.

Requirements meaning that the bank can "acquire" reserves to back the transfer of deposits.

By spending your money, just like your friend losing your $5,000.

No, you don't have an account balance. You have nothing unless the FDIC carries your account balance over. But your account at the bank is gone. It does not exist with any balance in it.

If you can not spend or convert it to cash it means the bank doesn't have any capital, which means it is insolvent and your money is gone.

Of course not just like you don't lose the money in your pocket when your friend loses your $5,000.

Of course, if you physically have cash than no one has your money. If you give you cash to someone than you physically don't have cash. If they lose that cash than they lost your money.

The accounts banks create by making loans is no different than a bank printing tons of cash.

 

Wait. You've claimed the account disappears, that it doesn't exist, that you no longer have a deposit account.

How could they carry over your account if it disappeared, no longer exists, and you don't have it? ?

I thought you said nothing was in your bank account, that is how they create it out of thin air.

What kind of "money" is in your bank account? It's not cash or reserves.

So which version are you making up today?

 

It's a different account (as in it's NEW money)

Nothing is in your bank account just like nothing is in cash.

Little tiny bytes

 

But completely different than if you have cash.

You claim that cash is just like deposit account.

Please explain to me how having $5000 in cash is just the same as having a $5000 account balance in a failed bank.

 

How can you transfer an account that doesn't exist and is lost and you don't have it?

"Nothing is in cash"? If you have $5000 cash you have nothing?

Is that your position? Don't you see how ludicrous that sounds?

Cash is not little tiny bytes, is it?

 

Maybe the bank can.

So how does that make you lose your deposit account? A deposit account is like an IOU the bank or your friend gives you. When your friend spends your money, you still have the IOU. The IOU doesn't disappear.

If you don't have an account balance, if it doesn't even exist, what does the FDIC carry over or pay you for? How can they carry over an account that doesn't exist.

You're not even making sense.

That's basically right. Unlike the cash you have. Which is still money.

So again, how can "money" in an account that is worthless be "just like" $5000 cash you have in your pocket?

So can money you have in account at a failed bank, or money you gave to your friend who gambled it, be "just like" cash you have?

Of course not.

So now that we've gotten that cleared up, quit saying that a deposit account is "just like" cash.

Of course. So when you give someone else your cash, it's not money "just like" having cash, is it?

Wow. After all this you still make a fundamentally ignorant statement like that.

 

Of course the IOU disappears if the bank fails. Once they fail they no longer have your money and no longer have your deposit as a liability. That's why the FDIC has to insure your deposit so that you don't lose your money.

The account is like cash itself. They are little bytes. The FDIC takes those little bytes and then puts them in to a new account. But those new bytes represent NEW money.

There is no money in an account that is worthless.

Deposits are just like cash. Just because you can't physically carry around little bytes in your pocket doesn't mean deposits don't behave entirely like cash.

If you and I went to Best Buy and bought an iPad for $600. You used cash, I used my debit card. Best Buy would take your cash, deposit it in to their bank and increase their deposit at the bank by $600. When I use my debit card the bank would take $600 in tiny little bytes from my account and credit Best Buys account with $600 in tiny little bytes.

There is absolutely no difference in the transactions.

 

I think we are wasting time talking semantics. Your IOU doesn't "disappear", nor does your account. It may be worthless, but it doesn't "disappear".

Sorry. Cash is not "little bytes."

Also, the FDIC doesn't take the little bytes and put them in a new account. Quit making stuff up. It wastes time. If another bank purchases the failed bank, it might takes some or all the accounts it had in addition to its assets. Or the FDIC might pay you for the loss. It's not new money. It's money transferred from the FDIC to you or the assuming bank.

Yet according to you, a worthless account is "just the same" as cash.

Great argument.

Please explain to me how having $5000 in cash is "just the same" as having a $5000 account balance in a failed bank.

 

Your theory is pre-20th century when they didn't have electronic transactions.

In our current system Cash = Deposits.

If depositors try to take out too much cash than the Fed pumps more cash in to the system.

So instead of people using their accounts to purchase goods and services they are using cash to purchase goods and services.

If people want to stop holding on to cash they exchange it for an account.

The Fed creates reserves to prevent your theories faults. Banks fail because they lost money not because they didn't have enough "reserve money".

When you use your debit card you are transferring little tiny bytes no different than transferring physical currency.

 

Sure it does

I never said cash was. I said it was no different than the tiny little bytes in our accounts.

Of course the FDIC doesn't physically take the bytes and move them in to an account. They simply plug them in to a new account essentially creating new money. This then has to either be covered by taxes or by deficit spending so that there isn't any deposits out there that are not backed by an asset.

You are making stuff up

I can sit right here at my computer and purchase anything I want with my account. All they do is take bytes out of my account and put bytes in another account. No different than me going to the bank taking out cash and purchasing an item.