Bill Still's Money Masters

[DSGE]

Actually, I think you're concentrating on currency because that's all you can understand. It seems to me that the concept that the banking system can turn $100 of honestly earned labor into $1000, collecting interest at each step is beyond your understanding, because I think the the fact that bankers can create money and earn interest from the privilege would piss off most normal people who understand the system. Not to mention, but the act of creating the money also devalues the labor put into earning the initial $100, because those extra $900 were created without any productive labor, which is inflationary.

Money created by the banking system, what's called "inside money", isn't actually inflationary. What happens when a bank issues bank money (say, a demand deposit)? It ends up in a different bank. I go to the store and buy groceries with my demand deposit; the bank the store uses is usually different from mine. If not, the bank takes the deposit and issues it again. It ends up at some point in a different bank.

Now what does that bank do with it? Does it want to hold some other bank's liability? No. It cashes in that demand deposit for reserves, because it wants to use those reserves to back its own issue of money. Now that the original bank doesn't have the reserves anymore, it has to contract its issues of money which those reserves were backing, else they'll face solvency problems.

So when a bank creates money, is it inflationary? No, precisely because of this competition for reserves. A bank is only able to issue money in excess of its reserves because the public's demand for money allows it to not be spent and immediately redeemed for reserves. Moreover, when the publics demand for money increases, the amount of money banks can safely issue increases; and vice versa. So the quantity of inside money increases or decreases endogenously to the publics demand for money. It automatically preserves equilibrium in the money market. So it's not inflationary.

What's inflationary is when banks can issue money in excess of the public's demand for money; and that only happens when the total quantity of bank reserves, that is, "outside money", increases.

 

[DSGE]

If you want a handle on what is happening to the macroeconomy, reading books or listening to videos by Nassim Taleb is a pretty good start.

It's not, because he's not a macroeconomist. Finance is his gig.

The 2007-2008 meltdown was entirely the fault of the banksters and the governments they control, folks.

What makes you think that has anything to do with the state of the economy now?

 

[joewp]

In case you didn't know, you don't have "money in the bank", you have an 'account' which simply means the bank owes you that amount.

Yes! Which is why your whining about the bank lending out "your money" is so silly.

Er, I'm not the one claiming they're loaning out depositor's money, you are.
Are you agreeing that banks create the money when they make a loan?

Actually, I think you're concentrating on currency because that's all you can understand.

Funny, coming from the guy who thinks currency comes with "interest attached".

Um, of course it does. You obviously have no idea how those pieces of paper enter the system and and become currency.

It seems to me that the concept that the banking system can turn $100 of honestly earned labor into $1000, collecting interest at each step

It's awful that banks can turn $1000 of deposits into $900 in loans. Why is that awful?

No, dude, they can turn $1000 of deposits into $10,000 at 10% reserve ratio. Of course it's silly talk about 10% reserve ratios, since the real reserve ratio is 10% only on $79 million and above for transaction accounts, but 0% for all other accounts.
FRB: Reserve Requirements

I think the the fact that bankers can create money and earn interest from the privilege would piss off most normal people who understand the system.

Loaning less than they accept in deposits pisses you off?

See the Fed's reserve requirements linked above. It's mostly not less, it's all of it. And actually they loan out far more than than that, based on the initial deposit.

Maybe you don't care what Edison said,

Why would I care about what an inventor said about banking?

I see your point. You don't care about what anybody says about anything since you already know it all.

I'm not really sure that people aren't all that pleased about having to pay more interest than the price of their house on their mortgage.

I don't know about you, but I'm pleased I have a house to live in.
If paying interest displeases you so much, you should stay in your Mom's basement.

Sorry, my mother is long dead, but thanks for the suggestion.

Or else, how about this? I keep working to bring the American public's knowledge of monetary matters and the faults of fractional reserve banking to a point where one day they rise up against the banks and take bank the country.

Yeah, I like that one better. Mom's basement was always a little damp.

 

[EdwardBaiamonte]

the faults of fractional reserve banking to

what is the biggest fault????????????

 

[Toddsterpatriot]

In case you didn't know, you don't have "money in the bank", you have an 'account' which simply means the bank owes you that amount.

Yes! Which is why your whining about the bank lending out "your money" is so silly.

Er, I'm not the one claiming they're loaning out depositor's money, you are.
Are you agreeing that banks create the money when they make a loan?

Actually, I think you're concentrating on currency because that's all you can understand.

Funny, coming from the guy who thinks currency comes with "interest attached".

Um, of course it does. You obviously have no idea how those pieces of paper enter the system and and become currency.



No, dude, they can turn $1000 of deposits into $10,000 at 10% reserve ratio. Of course it's silly talk about 10% reserve ratios, since the real reserve ratio is 10% only on $79 million and above for transaction accounts, but 0% for all other accounts.
FRB: Reserve Requirements



See the Fed's reserve requirements linked above. It's mostly not less, it's all of it. And actually they loan out far more than than that, based on the initial deposit.

Maybe you don't care what Edison said,

Why would I care about what an inventor said about banking?

I see your point. You don't care about what anybody says about anything since you already know it all.

I'm not really sure that people aren't all that pleased about having to pay more interest than the price of their house on their mortgage.

I don't know about you, but I'm pleased I have a house to live in.
If paying interest displeases you so much, you should stay in your Mom's basement.

Sorry, my mother is long dead, but thanks for the suggestion.

Or else, how about this? I keep working to bring the American public's knowledge of monetary matters and the faults of fractional reserve banking to a point where one day they rise up against the banks and take bank the country.

Yeah, I like that one better. Mom's basement was always a little damp.

Er, I'm not the one claiming they're loaning out depositor's money, you are.


Of course they lend out money deposited by customers.
You're the only one whining about it.

Are you agreeing that banks create the money when they make a loan?

We've already discussed the money multiplier, did you forget already?

Funny, coming from the guy who thinks currency comes with "interest attached".


Um, of course it does.

Um, of course it doesn't. I have $20s in my hand and I neither pay nor collect interest on them.
How is interest attached to your $20s? How much do you pay? Where do you mail the check?

You obviously have no idea how those pieces of paper enter the system and and become currency.

Sure I do. The Fed orders them from the Treasury. The Bureau of Engraving and Printing prints them. The Fed sells them to banks.
Please explain at which step the interest is attached.

No, dude, they can turn $1000 of deposits into $10,000 at 10% reserve ratio.

No, dude, a bank with $1000 in deposits can loan $900, if it's a demand deposit, $1000 if it's a time deposit.
If you think a bank with only $1000 in deposits can magically lend $10000, you're bad at reading and math.

See the Fed's reserve requirements linked above. It's mostly not less, it's all of it. And actually they loan out far more than than that, based on the initial deposit.


Show the steps to prove your claim. I'll explain the real world.
1)A customer deposits $1000 in a brand new bank.
2)The bank reserves $100 as vault cash, or in an account at the Fed, and
3)lends out the remaining $900.

Now please show me the steps in your imaginary world.
1)A customer deposits $1000 in a brand new bank.

I see your point. You don't care about what anybody says about anything since you already know it all.

Almost. I don't care what idiots who don't understand the topic say about banking.

I keep working to bring the American public's knowledge of monetary matters and the faults of fractional reserve banking to a point

To a point where they're as clueless as you? Sadly, most have as little knowledge as you.

 

[joewp]

the faults of fractional reserve banking to

what is the biggest fault????????????

Um, probably that it's based on fraud. The fraud is that the bank promises every depositor immediate access to his money, but if every depositor tried to withdraw his money, the bank would have to close because they don't have it.

 

[Toro]

the faults of fractional reserve banking to

what is the biggest fault????????????

Um, probably that it's based on fraud. The fraud is that the bank promises every depositor immediate access to his money, but if every depositor tried to withdraw his money, the bank would have to close because they don't have it.

Please answer this post.

http://www.usmessageboard.com/economy/270377-bill-still-s-money-masters-7.html#post6778972

Thanks.

 

[DSGE]

the faults of fractional reserve banking to

what is the biggest fault????????????

Um, probably that it's based on fraud. The fraud is that the bank promises every depositor immediate access to his money, but if every depositor tried to withdraw his money, the bank would have to close because they don't have it.

Thank God for the Law of Large Numbers.

Also it's not technically fraud since if you read your contract with your bank, they tell you there's the risk that they might be liquidity constrained.

Even if it were fraud, as you suggest, the solution wouldn't be the abolition of fractional reserve. The solution would be that banks have to make it clear to customers exactly what they do with your money. The problem of fraud isn't fractional reserve, it's transparency. Yet you seem to be anti-fractional reserve, rather than pro-transparency.

 

[Toddsterpatriot]

the faults of fractional reserve banking to

what is the biggest fault????????????

Um, probably that it's based on fraud. The fraud is that the bank promises every depositor immediate access to his money, but if every depositor tried to withdraw his money, the bank would have to close because they don't have it.

Here's a simple explanation. Hopefully simple enough for even you to understand.

Although restrictions placed on access depend upon the terms and conditions of the account and the provider, the account holder retains rights to have their funds repaid on demand. The customer may or may not be able to pay the funds in the account by cheque, internet banking, EFTPOS or other channels depending on those provided by the bank and offered or activated in respect of the account.

The banking terms "deposit" and "withdrawal" tend to obscure the economic substance and legal essence of transactions in a deposit account. From a legal and financial accounting standpoint, the term "deposit" is used by the banking industry in financial statements to describe the liability owed by the bank to its depositor, and not the funds that the bank holds as a result of the deposit, which are shown as assets of the bank.

For example, a depositor opening a checking account at a bank in the United States with $100 in cash surrenders legal title to the $100 in cash, which becomes an asset of the bank. On the bank's books, the bank debits its currency and coin on hand account for the $100 in cash, and credits a liability account (called a demand deposit account, checking account, etc.) for an equal amount. (See double-entry bookkeeping system.)

Deposit account - Wikipedia, the free encyclopedia

Please explain where the fraud is involved.
After you explain where "attached interest" is involved with FRNs.

 

[editec]

If you want a handle on what is happening to the macroeconomy, reading books or listening to videos by Nassim Taleb is a pretty good start.

It's not, because he's not a macroeconomist. Finance is his gig.

The 2007-2008 meltdown was entirely the fault of the banksters and the governments they control, folks.

What makes you think that has anything to do with the state of the economy now?

Well the leading macroeconomist didn't predict the meltdown, but Taleb did.

How do you suppose that happened?

As to your second question?

That's evidence of such confused thinking I don't even know where to begin.

Let me try with something fundamental about the concept of going concerns, shall I?

Did we start over the economy and I missed it, or are the economic circumstances of yesterday playing a role in the economic circumstances of today?

 

[DSGE]

Well the leading macroeconomist didn't predict the meltdown, but Taleb did.


How do you suppose that happened?

Economists can't predict asset price movements. That's not just the nature of economics, it's one of the fundamental propositions. Nassim Taleb managed to "predict" "something" since he's been predicting a tail event for the last 20 years. If you read carefully his books, he's not predicting financial collapse, he's predicting that tail risk is underestimated; and hence there's an arbitrage opportunity foregone by the markets.

As to your second question?

That's evidence of such confused thinking I don't even know where to begin.

Let me try with something fundamental about the concept of going concerns, shall I?

Did we start over the economy and I missed it, or are the economic circumstances of yesterday playing a role in the economic circumstances of today?

The economic circumstances of yesterday play a role in the circumstances of today, but the economic circumstances of fifty years ago play no role in the circumstances of today. Why do the economic circumstances of 2007 play a role in the circumstances of today, 2013?

 

[Toro]

Economists can't predict asset price movements.

They can't predict recessions either.

It's also my impression that most economists are clueless about the effect of valuations on markets. I can't predict where markets will go in the near-term but I can predict with a high degree of accuracy where they will go in the long-term when valuations are distorted. Economics as a profession failed enormously understanding the past two bubbles because they didn't understand the role of valuation on future asset prices and what it would mean for the economy.

The economic circumstances of yesterday play a role in the circumstances of today, but the economic circumstances of fifty years ago play no role in the circumstances of today. Why do the economic circumstances of 2007 play a role in the circumstances of today, 2013?

What do you mean by this?

 

[EdwardBaiamonte]

Well the leading macroeconomist didn't predict the meltdown, but Taleb did.


How do you suppose that happened?

Economists can't predict asset price movements. That's not just the nature of economics, it's one of the fundamental propositions. Nassim Taleb managed to "predict" "something" since he's been predicting a tail event for the last 20 years. If you read carefully his books, he's not predicting financial collapse, he's predicting that tail risk is underestimated; and hence there's an arbitrage opportunity foregone by the markets.

As to your second question?

That's evidence of such confused thinking I don't even know where to begin.

Let me try with something fundamental about the concept of going concerns, shall I?

Did we start over the economy and I missed it, or are the economic circumstances of yesterday playing a role in the economic circumstances of today?

The economic circumstances of yesterday play a role in the circumstances of today, but the economic circumstances of fifty years ago play no role in the circumstances of today. Why do the economic circumstances of 2007 play a role in the circumstances of today, 2013?

we live in a new age of economics. The housing crisis bubble provided a great new lesson for us as does China's centralized capitalist economy.

Assuming both countries continue to function reasonably well it may signal a new age in economic understanding that leaves our major economic problems behind.

 

[DSGE]

Economists can't predict asset price movements.

They can't predict recessions either.

It's also my impression that most economists are clueless about the effect of valuations on markets. I can't predict where markets will go in the near-term but I can predict with a high degree of accuracy where they will go in the long-term when valuations are distorted. Economics as a profession failed enormously understanding the past two bubbles because they didn't understand the role of valuation on future asset prices and what it would mean for the economy.

The economic circumstances of yesterday play a role in the circumstances of today, but the economic circumstances of fifty years ago play no role in the circumstances of today. Why do the economic circumstances of 2007 play a role in the circumstances of today, 2013?

What do you mean by this?

I mean why would anybody think that the financial crisis in 2008 has anything at all to do with the current state of the economy?

 

[EdwardBaiamonte]

Economists can't predict asset price movements.

They can't predict recessions either.

It's also my impression that most economists are clueless about the effect of valuations on markets. I can't predict where markets will go in the near-term but I can predict with a high degree of accuracy where they will go in the long-term when valuations are distorted. Economics as a profession failed enormously understanding the past two bubbles because they didn't understand the role of valuation on future asset prices and what it would mean for the economy.

The economic circumstances of yesterday play a role in the circumstances of today, but the economic circumstances of fifty years ago play no role in the circumstances of today. Why do the economic circumstances of 2007 play a role in the circumstances of today, 2013?

What do you mean by this?

I mean why would anybody think that the financial crisis in 2008 has anything at all to do with the current state of the economy?

oh come on! Much of what Barry and Ben are doing today is a direct response to their botched response to the crisis.

 

[EdwardBaiamonte]

what is the biggest fault????????????

probably that it's based on fraud. The fraud is that the bank promises every depositor immediate access to his money,

if this is true I'll pay you $10,000. Bet???

but if every depositor tried to withdraw his money, the bank would have to close because they don't have it.

Dear the government would that bank over and make good on the deposits. THey do it 100's of times a year!!

Seems like you just ran out of steam. Sorry about that!!

 

[DSGE]

They can't predict recessions either.

It's also my impression that most economists are clueless about the effect of valuations on markets. I can't predict where markets will go in the near-term but I can predict with a high degree of accuracy where they will go in the long-term when valuations are distorted. Economics as a profession failed enormously understanding the past two bubbles because they didn't understand the role of valuation on future asset prices and what it would mean for the economy.



What do you mean by this?

I mean why would anybody think that the financial crisis in 2008 has anything at all to do with the current state of the economy?

oh come on! Much of what Barry and Ben are doing today is a direct response to their botched response to the crisis.

So you agree that the crisis isn't the causal factor holding back the economy, it's dumb policies.

 

[EdwardBaiamonte]

what is the biggest fault????????????

Um, probably that it's based on fraud. The fraud is that the bank promises every depositor immediate access to his money,

10,000 say that is not true?? Bet?????

but if every depositor tried to withdraw his money, the bank would have to close because they don't have it.

the feds would close the bank in an orderly way and make good on the deposits. THey do it 100's of times a year!! Sorry

 

[EdwardBaiamonte]

I mean why would anybody think that the financial crisis in 2008 has anything at all to do with the current state of the economy?

oh come on! Much of what Barry and Ben are doing today is a direct response to their botched response to the crisis.

So you agree that the crisis isn't the causal factor holding back the economy, it's dumb policies.

yes of course I agree!!

 

[Toro]

Economists can't predict asset price movements.

They can't predict recessions either.

It's also my impression that most economists are clueless about the effect of valuations on markets. I can't predict where markets will go in the near-term but I can predict with a high degree of accuracy where they will go in the long-term when valuations are distorted. Economics as a profession failed enormously understanding the past two bubbles because they didn't understand the role of valuation on future asset prices and what it would mean for the economy.

The economic circumstances of yesterday play a role in the circumstances of today, but the economic circumstances of fifty years ago play no role in the circumstances of today. Why do the economic circumstances of 2007 play a role in the circumstances of today, 2013?

What do you mean by this?

I mean why would anybody think that the financial crisis in 2008 has anything at all to do with the current state of the economy?

For a number of reasons. First, you have to work off the excessive bad debt in the banking system before we close the output gap. We haven't done that yet, though we're getting close. Second, it has changed the behavior of corporations, who after not one but two near-death experiences over the past decade, are hoarding cash instead of investing it. Third, you have retail investors who have been spooked even worse than companies, and have pulled hundreds of billions of dollars out of the stock market, and have ratcheted up savings since the crisis instead of spending, though again, that might be changing. Finally, you have a Federal Reserve and its ZIRP, which is affecting risk premia and almost certainly causing distortions in capital markets, which is great for borrowers but sucks for savers. BB bonds are yielding 5%. With inflation at 2% and a default rate of 2%, that means the real rate on junk bonds is 1%. Crazy. Risk is almost certainly being mispriced as the Fed attempts to inflate away the debt. That distorts capital allocation in the economy.