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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?
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.
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.
Except that the anatomy of this slump isn't the regular "investment is far below trend" story. When you look at the business cycle accounting, investment isn't the problem at all. Almost all of the slump comes from a huge decline in labour input. The financial crisis story would be nice if this were a typical post-war investment cycle, except the data very clearly show that there is a disruption in labour markets, not in the allocation of credit.
Eventually, the excesses are cleared away and the economy starts growing at trend again.
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.
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.
Oh yeah, toddster, you asked me how a bank turns a $1000 deposit into $10,000.
It's too late to get into it. Tell you tomorrow or the next day.
A Full Reserve Bank can't do it, but a Fractional Reserve bank CAN. But they'll do it in a different way.A bank cannot make a $10,000 loan on a $1000 deposit unless you make up the difference with wholesale funding. You're thinking about equity. Both sides of a balance sheet must match. Deposits are liabilities. Loans are assets. Liabilities + equity = assets. That must happen for any corporation, including a bank.
A Full Reserve Bank can't do it, but a Fractional Reserve bank CAN. But they'll do it in a different way.A bank cannot make a $10,000 loan on a $1000 deposit unless you make up the difference with wholesale funding. You're thinking about equity. Both sides of a balance sheet must match. Deposits are liabilities. Loans are assets. Liabilities + equity = assets. That must happen for any corporation, including a bank.
Oh yeah, toddster, you asked me how a bank turns a $1000 deposit into $10,000.
It's too late to get into it. Tell you tomorrow or the next day.
A bank cannot make a $10,000 loan on a $1000 deposit unless you make up the difference with wholesale funding. You're thinking about equity. Both sides of a balance sheet must match. Deposits are liabilities. Loans are assets. Liabilities + equity = assets. That must happen for any corporation, including a bank.
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.
Except that the anatomy of this slump isn't the regular "investment is far below trend" story. When you look at the business cycle accounting, investment isn't the problem at all. Almost all of the slump comes from a huge decline in labour input. The financial crisis story would be nice if this were a typical post-war investment cycle, except the data very clearly show that there is a disruption in labour markets, not in the allocation of credit.
I agree that this isn't the typical credit / inventory cycle that marked the post-war period and ended around 1998 (or maybe 1987 when Greenspan bailed out the stock market). The crisis stems from the misallocation of capital, just as the prior crisis - the Tech Bubble - also stemmed from a misallocation of capital. Misallocations of capital occur when investors misjudge their return on investment. That's why they throw money at worthless dotcom companies, pay 100x earnings for Cisco, or think housing prices will grow to the sky. When capital is mispriced and bubbles occur, there are huge distortions in investment, which eventually leads to collapse. Eventually, the excesses are cleared away and the economy starts growing at trend again. We are near the end of the misallocations in mortgage credit and housing supply.
Now, the question is whether or not the Fed is creating yet more excesses in other asset markets. I think they are, but time will tell.
If you start from the thesis that all assets are liabilities and thus are zeroed out or effectively zeroed out, and asset markets cannot have a profound effect on behavior, you are starting from the wrong premise. The economics profession, especially those in academia, fundamentally misunderstood the nature of the problem.
You gotta love the euphemisms banks use to hide their true meaning.
"liquidity constrained" = Out of cash.
Can I use that excuse with my landlord?
This is a link to the Sovereign Bank deposit account agreement. Do you see anything in there that says I can't get my funds because they're out of cash?
(PDF)
http://www.google.com/url?sa=t&rct=...kNJHsAq58B0eH2w&bvm=bv.42080656,d.dmQ&cad=rja
Gee, on one hand you tell me that they put it in the 'contract', on the other hand you claim they're not making it clear. I'm confused!
No, the problem is fractional reserve banking. I'll make that clearer in my response to the toddster below. If I get to it tonight...
Just get a few million people to withdraw their funds from banks and see what happens.
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.
That's easy. You take out a $10,000 loan and then withdraw the money as cash. You're not paying interest on that cash? Of course you are. And since every single dollar was created as debt, then it follows that every single dollar bill carries interest. Not that you're paying it, but somebody, somewhere is, otherwise, that cash wouldn't exist.
Get it?
The ponzi scheme fraud is easy to detect. Just get a few million people to withdraw their funds from banks and see what happens.
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.
That's easy. You take out a $10,000 loan and then withdraw the money as cash. You're not paying interest on that cash? Of course you are. And since every single dollar was created as debt, then it follows that every single dollar bill carries interest. Not that you're paying it, but somebody, somewhere is, otherwise, that cash wouldn't exist.
Get it?
The ponzi scheme fraud is easy to detect. Just get a few million people to withdraw their funds from banks and see what happens.
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.
That's easy. You take out a $10,000 loan and then withdraw the money as cash. You're not paying interest on that cash? Of course you are. And since every single dollar was created as debt, then it follows that every single dollar bill carries interest. Not that you're paying it, but somebody, somewhere is, otherwise, that cash wouldn't exist.
Get it?
The ponzi scheme fraud is easy to detect. Just get a few million people to withdraw their funds from banks and see what happens.
Oh yeah, toddster, you asked me how a bank turns a $1000 deposit into $10,000.
It's too late to get into it. Tell you tomorrow or the next day.
A bank cannot make a $10,000 loan on a $1000 deposit unless you make up the difference with wholesale funding. You're thinking about equity. Both sides of a balance sheet must match. Deposits are liabilities. Loans are assets. Liabilities + equity = assets. That must happen for any corporation, including a bank.
Implicit here was that the $1000 "deposit" results in the bank gaining $1000 in reserves, either through a direct deposit of currency or settling a transfer from another bank.
It doesn't produce 10 loans to 1 deposit. It's able loan $10,000, and that involves creating $10,000 in deposits. Every loan results in the creation of a deposit, so assets and liabilities are balanced. But what restricts banks from creating arbitrarily many loan/deposits out of thin air? Those deposits end up in the clearing system, and the bank needs reserves to settle them with other banks. So they're lending is constrained by the rate at which deposits are put through the clearing system. The assumption here, just for illustrative purposes, is a reserve requirement of 10%; which means $1000 in reserves can be used to create $10,000 in loans.
You gotta love the euphemisms banks use to hide their true meaning.
"liquidity constrained" = Out of cash.
Can I use that excuse with my landlord?
It's not a euphemism banks use. I'm using it. Sorry, economics jargon slips out when i'm talking about economics.
Yes, you can use that excuse with your landlord. And if it's a breach of contract, they can take legal action. Chances are, they'll accept it once or twice.
Sorry, page 4, heading 7. Withdrawals. About the only time it even sounds close to the truth is when they say they might refuse a large withdrawal due to "cash processing" problems.This is a link to the Sovereign Bank deposit account agreement. Do you see anything in there that says I can't get my funds because they're out of cash?
(PDF)
http://www.google.com/url?sa=t&rct=...kNJHsAq58B0eH2w&bvm=bv.42080656,d.dmQ&cad=rja
A) I'm not doing homework. Do you honestly expect me to read 30 pages of shit.
B) Nowhere to sign on the dotted line? So it's not a contract in which they're obliged to give you all pertinent information.
C) If your bank hasn't warned you of the possibility that you might not be granted access to your money on demand, you get to take legal action. Because that is fraud, and you can sue people for engaging in fraud.It it the agreement, just not the exact one you sign, which has a signature spot. I have one from recently and it's word for word, except for the signature page.
Gee, on one hand you tell me that they put it in the 'contract', on the other hand you claim they're not making it clear. I'm confused!
Let me clear it up. You made proposition A. I said I don't think A is true. I then abstracted to, "even if A were true (which I don't think it is), the solution would be B, and not what you propose".
No, the problem is fractional reserve banking. I'll make that clearer in my response to the toddster below. If I get to it tonight...
I thought the problem with fractional reserve was that it's fraud? If it's fraud, that means they just have to make it clear to customers what's going on. Then it stops being fraud. So fraud doesn't justify getting rid of fractional reserve. If you want to get rid of fractional reserve, there has to be a better argument, not revolving around fraud.
And since every single dollar was created as debt
If the Fed creates $1 million in new reserves and buys a bond with it, how was that created as debt?
