Where Does Your Money Come From (cont'd)

Why do you believe a multiplier effect is a myth?

 

I'm here to have a meltdown. By agreement currency is evidence that you have done something worthwhile for the world.
<Merchant>: Would you like food? Show me proof you deserve it.
<person a> (pulls out wallet and removes a receipt for service)
*note plastic cards are not stamped legal tender they operate only by agreement of participating merchants

Play more farmville - it should explain everything.

 

Bernanke has kept interest rate near zero since 2008 to encourage more lending/borrowing.

Have you seen banks are lending more? No
Have you seen consumers are borrowing more? No

Keep in mind that low interest rate comes at a cost, Ben's ZIRP has effectively wiped out billions of interest incomes for fixed income grandpas and grandmas, thus depresses disposable income further.

His long term interest rate policy does not work either. Since banks have tightening lending standard, not many homeowners are qualified for refi. As of Dec 24% of outstanding mortgages - approx $750 billions are underwater. Those folks can't refi their mortgages due to negative home equity, they can't come up with enough down payment, their credit scores take a hit,...etc. Also, low interest rate does not give banks incentive to refi mortgages. Banks profit has been squeezed by super low long term interest rate.

Ultimately, the Federal Reserve dual mandates, keep inflation in check and reducing unemployment rate, they fall flat on both goals.

 

We should be glad the Fed has no authority to resort to the coercive use of force of the State. A central bank needs some inflation to have tools to work with. There is much less incentive with very low or no interest to be gained or arbitraged.

If there were more confidence in our economy, our tax rates and low interest would be ideal to manufacture better products at lower prices from new facilities.

 

You missed the point completely. The point is Federal Reserve can no longer manipulate money supply. They can extend zero interest rate to infinity, however, they can lead the horse to the water, but they can't make him to drink.

The money supply ultimately depends on loan demand, and right now consumers are deepening in debts, they simply have no desire to take out new loans. Thus prolong near zero interest rate has more negative than positive effects on the economy.

 

I am not sure that is a good thing with any unemployment above zero percent; it could be argued that North Dakota has low unemployment simply because that several and sovereign State has its own central bank helping better ensure full employment and a stable economy for that State.

In my opinion, not being able to make a horse drink from the fountain of Capitalism only denies and disparages faith in Capitalism in favor of Socialism as a better means of production for promoting and providing for the general welfare.

 

Exactly, if banks aren't going to lend, then the Govt is going to have to spend. It's funny how people complain about how bad the economy is doing and how much unemployment we have than at the same time complain about this country having too much money, lol. So their solution to high unemployment and low aggregate demand is to suck more money and jobs out of the economy.

Sounds intelligent if you ask me!!

 

Because banks do not make loans like that any more. Banks simply loan to whomever meets their criteria. They than acquire reserves/collateral afterward. The myth is that banks wait for our deposit (to get reserves). Once they get it then they start lending.

http://www.federalreserve.gov/pubs/feds/2010/201041/201041pap.pdf

 

Fractional reserve banking did. You still have reading comprehension problems?

False
http://www.federalreserve.gov/pubs/feds/2010/201041/201041pap.pdf

False
The reserves can be lent to another bank or leveraged in to securities like Govt debt. It is not the "base" for new loans. And you do not own the reserves. When you put cash in a bank the deposit account is your money not the reserves.

http://www.federalreserve.gov/pubs/feds/2010/201041/201041pap.pdf

Good, because you are doing a horrible job addressing the rest

 

Who cares? It was a totally different monetary system with different technology. Totally irrelevent to this discussion. We are not "thinking about the system as it was 200 years ago". We have repetetively brought up the FDIC and electronic transfer, both of which have only existed for a few decades. You're just trolling.

I'm not reading through 58 pages to look for a statement that disproves my claim. You're going to have to point it out to me. My guess is that it doesn't actually exist and you've just randomly posted a Fed publication because you're trolling.

Banks do not "leverage reserves" or "lend reserves", they leverage and lend capital/assets.

Sure. I never claimed otherwise.

Considering you ignored my last few major posts, I can conclude that you, the troll, have admitted defeat.

 

If you are limiting your view of a multiplier effect to only the banking sector, it could be viewed as a form of special pleading which is usually considered a fallacy.

How does your point of view account for the concept of derivatives being a natural right for artificial persons?

 

Can you explain your last question?

And I'm simply demonstrating the fallacy that banks need your deposits in order to make loans. Banks make loans regardless of how many reserves they have. Snoop and Dr Righteous have this old school theory of banking where they believe a bank needs to wait for a deposit in order to expand loans. The paper demonstrates that there is no correlation between reserves and loans.

 

What does FDIC have to do with it? They insure deposits.

Your claim is that a bank needs reserves to lend.

For perspective, M2 averaged about $7¼ trillion in 2007. In contrast, reservable deposits were about $600 billion, or about 8 percent of M2. Moreover, bank loans for 2007 were about $6¼ trillion. This simple comparison suggests that reservable deposits are in no way sufficient to fund bank lending.

They most certainly leverage reserves and they most certainly lend reserves. LOL!!!

You aren't saying anything anymore. I don't even know what your point is. You are all over the place just trying to argue to argue. Get a point and try to explain it like a grown up.

 

Shouldn't a bank have enough reserves to accommodate daily withdrawals of cash? If it loans out all of its money, how can it meet its obligations to its customers wanting cash?

 

That's all a bank needs reserves for. To convert deposits to cash and settle payments between banks. And this is the fallacy that Dr. Righteous is perpetuating. Banks don't "loan out all its money". They make loans to whomever meets their qualifications then they borrow reserves in the Fed Funds market. A bank that has capital can attain reserves at the Fed Funds rate whenever they want.

 

How are all those economic stimulus measurements working out so far?

Bush began economy stimulus rampant by the end of his second term, Obama has double down on every Bush failure stimulus plan, all short term measurements are proved to be ....well just short term. That's another fatal flaw of Keynesian econ. It focuses entirely on short term run with no regard to long term sustainability. The economy falls flat on its back despite trillion of dollars spending like drunken sailors.

US economy is driven by 2/3 of consumer spending, consumers are saturated in debts, they have more "desire" to pay down debts rathern spending right now. More government spending is simply a process of transfer individual debts to public debts, ultimately, it's everyone's debts.

 

In this paper, we tested the existence of a bank lending channel by checking whether or not bank loans are a function of reservable deposits. Our empirical evidence suggested that this is not the case. We argued therefore that a contraction in reservable deposits has no negative impact on bank loans. Instead, bank loans are primarily driven by demand factors. If there is an increase in demand for loans, banks increase their supply of loans (despite a decline in reservable deposits) and obtain the funding by issuing uninsured deposits.

 

Since 1970, on average, 14% increase in public debt is equivalent to only 1% increase in GDP, no country can sustain that massive disproportion debt to GDP growth yet somehow Keynesian huggers would argue that's good for the country long term fiscal sustainability and responsibiltity.

Classic example of talking about intelligence of a dirt.

 

Why do checking/saving deposits have to be insured by FDIC? If banks simply sitting on the funds, why your and my money has to be insured? Where are the risks?

 

Banks have enough reserve to meet fund withdrawal demands. Beside the mandate reserve ratio requirement, most banks set their reserve target based on 30 day average fund withdrawals. Banks that short in reserves due to unsual withdrawals can borrow reserves, likewise, banks that have excess reserves can lend, both activities are accommodated through Fed funds.

 

More textbook garbage.

If banks do not need reserve/deposit to make loans, then how does the Fed figure out what reserve ratio requirement to begin with? A reserve ratio requirement fo non-reserve banking? How does that make any sense to you?

 

I don't deal with mumbo jumbo conceptualized textbook theory like you.

I'm dealing with real reserves/deposits/money daily. On average, 1/2 of million dollars came through my desk daily. If I say something as stupid as ".....look fellas, we don't need reserves to make loans to our clients".....to my colleages, my boss would show me the door immediately.

The problem you're having is you read one or two handbooks about banking here and there, without any verification, you simply assume that how it works in real life.

It does not work like that in real life kid.

 

bump up your lying for a laugh

 

Here's a nice article on how banks are not constrained by reserves at all these days except for having enough cash in the vaults to handle daily withdrawals. Unfortunately I am the only one who actually reads, so I'm pretty sure no one will read this and will continue on with their ignorance.

http://www.marketskeptics.com/2009/03/us-banks-operate-without-reserve.html

http://www.federalreserve.gov/monetarypolicy/0693lead.pdf