Central Banks Don't Create Money.

[Toddsterpatriot]

They are not money that is withheld from deposits, or salted away in case of emergency.

Back to my $100 million in deposits. The Fed is now holding $10 million.
How is that different than "withheld from deposits, or salted away in case of emergency"?

- There's one think you probably intuitively understand but I want to make clear.

Cash is one of the things that banks can buy from the Fed with reserves. That's how cash is distributed - the Treasury "lends" it to the Fed (which is the "reason" the Fed gives all its profits to the Treasury - as "interest" on the Federal Reserve Notes it has "borrowed" from the Treasury and put into circulation), who sells it to banks in exchange for reserves.

Sales of cash are controlled to customer needs - refilling ATMs, basically - to what are called "existing obligations".

That's how cash is distributed - the Treasury "lends" it to the Fed

The Treasury doesn't lend it to the Fed or "lend" it to the Fed. Sorry.

(which is the "reason" the Fed gives all its profits to the Treasury - as "interest" on the Federal Reserve Notes it has "borrowed" from the Treasury and put into circulation),

That's funny. At what "interest rate" are the FRNs "lent" out?

Back to my $100 million in deposits. The Fed is now holding $10 million.
How is that different than "withheld from deposits, or salted away in case of emergency"?

- The Treasury absolutely does lend FRNs to the Fed. It prints them and let's the Fed use them. The Fed's ability to print bank notes was stripped from it in 1921 - almost a century ago.

Interest rate? "Every penny of the Fed's profits" is the interest rate.

The Treasury absolutely does lend FRNs to the Fed.

No it doesn't. The Fed buys them from the BEP. Buy, not borrow.

Sorry, you're just wrong. Look at the Fed's consolidated financial statements. On the income statement, they make a note to explain their "remittance to the Treasury" - that it is "interest" on all Federal Reserve Notes in circulation, which the Fed theoretically "borrows" from the Treasury. It does not buy them.

On the income statement, they make a note to explain their "remittance to the Treasury" - that it is "interest" on all Federal Reserve Notes in circulation,

Your confusion is both wide and deep.

Federal Reserve Notes in circulation, which the Fed theoretically "borrows" from the Treasury.

The distribution of coins differs from that of currency in some respects. First, when the Fed receives currency from the Treasury, it pays only for the cost of printing the notes. However, coins are a direct obligation of the Treasury, so the Reserve Banks pay the Treasury the face value of the coins.

How Currency Gets into Circulation - Federal Reserve Bank of New York

 

[Pksimon2007]

- The Fed is not "holding $10M" FROM anything. The Fed gave those reserves to the bank by putting them in their reserve account. The reserves are a completely separate thing from the deposit. They are related because reserves are used to keep score when banks accept deposits and have checks clear that are drawn on their accounts.

But the two kinds of money are not exchanged. Bank deposits never become central bank reserves or vice versa.

But the two kinds of money are not exchanged.

You are mistaken.

- No, Todd, I'm not.

Your bank account is a bank liability. It is money to you, it is not money to the bank.

It is worth nothing to anyone. A bank "using a deposit" to lend would be like me asking if you wanted to take over my house payment and paying me interest for the privilege of doing so.

Reserves are liabilities of the central bank. They are completely different from the liabilities of your bank, which you call money. The Fed has no use for a bank deposit at a commercial bank. It's a liability of the commercial bank. It has no value to the Fed.

It will not exchange it for anything.

Your bank account is a bank liability. It is money to you, it is not money to the bank.
It is worth nothing to anyone.

You said it is money to me then you said it is worth nothing to anyone.
Are you smoking some herb?

- It's money to you.

The bank can't lend your deposit, which would require actually reducing your deposit balance and giving it to somebody else.

How would you ever get your money out of your bank account if they did that?

Your bank balance is your record that the bank owes you money. If they actually reduced your bank balance to create a deposit for a borrower, the record of their debt to you would be gone. You would have lost your claim to the balance in your bank account forever. It's nonsense. Banks don't lend deposits.

The bank can't lend your deposit

They wouldn't lend my loan.

which would require actually reducing your deposit balance and giving it to somebody else.

Why are you confusing deposit account with deposit?
It must be because you don't know what you're talking about.

- You're confusing the verb "to deposit" with the noun "a deposit".

A deposit is a liability on the bank's general ledger, nothing more.

When you deposit a check, a deposit is created - a bank liability. The check - an asset - is swapped for reserves (an asset, a deposit in the bank's reserve account at the central bank).

There's nothing tangible IN your account. Your deposit is simply an account.

 

[Toddsterpatriot]

Those reserves are not a subtraction from the deposit the bank received.

The bank has $9 million available to lend. $1 million it cannot lend.

It now has $100 in deposits which it must reserve. But it received $100 in reserves, so the bank doesn't need to do anything.

Where did I say the bank had to do anything?

- That's incorrect.

Those deposits can't be loaned out at all. Deposits are a liability. They are not an asset which can be given to anyone to use.

Banks can't lend out the central bank's reserves.

Reserve requirements are not restrictions on lending at all.

I explained what reserve requirements do in my third post under the OP.

The net lending capability that the bank received because of these deposits is zero.

Those deposits can't be loaned out at all.

Sure they can.

Banks can't lend out the central bank's reserves.

It happens every day.

The net lending capability that the bank received because of these deposits is zero.

I took in $10 million in deposits and I can lend out $0?
Man, I'd return that book you're reading. Lots of bad info.

- Todd, you're getting your information from blogs or somewhere.

Quote me anywhere from the Federal Reserve Act or any banking law which says that banks can lend out deposits and hold a portion in reserves.

It doesn't exist, because it makes no sense.

A deposit is a bank liability - a promise to get you cash of you want or to make payments on your behalf. There is no tangible money in a bank deposit. A bank deposit is an IOU of a bank, just like a mortgage is an IOU to a bank.

A mortgage is my liability. Can I lend my mortgage to you? Will you pay me interest to borrow my promise to pay a bank money?

If you're willing to do that, we should talk.

Quote me anywhere from the Federal Reserve Act or any banking law which says that banks can lend out deposits and hold a portion in reserves.
If banks can't lend out deposits, what exactly do they lend out?

A deposit is a bank liability - a promise to get you cash of you want or to make payments on your behalf.

I'd love to know what the offsetting asset is that's related to this liability.

- Reserves!

If you deposit a check, the check is an asset. The bank can't use it in any way to service the deposit liability it has assumed.

The bank conceptually swaps the check with the central bank for reserves. The central bank conceptually swaps the check with the issuing bank and takes reserves from their reserve account.

Central bank reserves are an asset to a bank.

- Reserves!

Cool. Back in my original example, I had $10 million in deposits.
Now they sit at the Fed. $1 million is required reserves. $9 million are excess reserves.
I can loan $9 million. $9 million of the deposits I received.

It works with cash deposits too.

 

[Pksimon2007]

- There's one think you probably intuitively understand but I want to make clear.

Cash is one of the things that banks can buy from the Fed with reserves. That's how cash is distributed - the Treasury "lends" it to the Fed (which is the "reason" the Fed gives all its profits to the Treasury - as "interest" on the Federal Reserve Notes it has "borrowed" from the Treasury and put into circulation), who sells it to banks in exchange for reserves.

Sales of cash are controlled to customer needs - refilling ATMs, basically - to what are called "existing obligations".

That's how cash is distributed - the Treasury "lends" it to the Fed

The Treasury doesn't lend it to the Fed or "lend" it to the Fed. Sorry.

(which is the "reason" the Fed gives all its profits to the Treasury - as "interest" on the Federal Reserve Notes it has "borrowed" from the Treasury and put into circulation),

That's funny. At what "interest rate" are the FRNs "lent" out?

Back to my $100 million in deposits. The Fed is now holding $10 million.
How is that different than "withheld from deposits, or salted away in case of emergency"?

- The Treasury absolutely does lend FRNs to the Fed. It prints them and let's the Fed use them. The Fed's ability to print bank notes was stripped from it in 1921 - almost a century ago.

Interest rate? "Every penny of the Fed's profits" is the interest rate.

- From your source: "Each Federal Reserve Bank is required by law to ****pledge collateral**** at least equal to the amount of currency it has issued into circulation. The bulk of the collateral pledged is in the form of U.S. Government securities and gold certificates owned by the Federal Reserve Banks."

The Fed BUYS coins from the mint - that's why they pay face value. The Fed doesn't buy Federal Reserve Notes - that's why it only pays four cents up front.

Now pay attention - from the Federal Reserve's Combined Financial Statements:

"q. Interest on Federal Reserve Notes
The Board of Governors requires the Reserve Banks to transfer excess earnings to the Treasury as interest on
Federal Reserve notes after providing for the costs of operations, payment of dividends, and reservation of
an amount necessary to equate surplus with capital paid-in. This amount is reported as "Interest on
Federal Reserve notes expense remitted to Treasury" in the Combined Statements of Income and
Comprehensive Income. The amount due to the Treasury is reported as "Accrued interest on Federal
Reserve notes" in the Combined Statements of Condition. See Note 13 for additional information on
interest on Federal Reserve notes."

http://www.federalreserve.gov/monetarypolicy/files/BSTcombinedfinstmt2012.pdf






The Treasury absolutely does lend FRNs to the Fed.

No it doesn't. The Fed buys them from the BEP. Buy, not borrow.

Sorry, you're just wrong. Look at the Fed's consolidated financial statements. On the income statement, they make a note to explain their "remittance to the Treasury" - that it is "interest" on all Federal Reserve Notes in circulation, which the Fed theoretically "borrows" from the Treasury. It does not buy them.

On the income statement, they make a note to explain their "remittance to the Treasury" - that it is "interest" on all Federal Reserve Notes in circulation,

Your confusion is both wide and deep.

Federal Reserve Notes in circulation, which the Fed theoretically "borrows" from the Treasury.

The distribution of coins differs from that of currency in some respects. First, when the Fed receives currency from the Treasury, it pays only for the cost of printing the notes. However, coins are a direct obligation of the Treasury, so the Reserve Banks pay the Treasury the face value of the coins.

How Currency Gets into Circulation - Federal Reserve Bank of New York

 

[Pksimon2007]

- That's incorrect.

Those deposits can't be loaned out at all. Deposits are a liability. They are not an asset which can be given to anyone to use.

Banks can't lend out the central bank's reserves.

Reserve requirements are not restrictions on lending at all.

I explained what reserve requirements do in my third post under the OP.

The net lending capability that the bank received because of these deposits is zero.

Those deposits can't be loaned out at all.

Sure they can.

Banks can't lend out the central bank's reserves.

It happens every day.

The net lending capability that the bank received because of these deposits is zero.

I took in $10 million in deposits and I can lend out $0?
Man, I'd return that book you're reading. Lots of bad info.

- Todd, you're getting your information from blogs or somewhere.

Quote me anywhere from the Federal Reserve Act or any banking law which says that banks can lend out deposits and hold a portion in reserves.

It doesn't exist, because it makes no sense.

A deposit is a bank liability - a promise to get you cash of you want or to make payments on your behalf. There is no tangible money in a bank deposit. A bank deposit is an IOU of a bank, just like a mortgage is an IOU to a bank.

A mortgage is my liability. Can I lend my mortgage to you? Will you pay me interest to borrow my promise to pay a bank money?

If you're willing to do that, we should talk.

Quote me anywhere from the Federal Reserve Act or any banking law which says that banks can lend out deposits and hold a portion in reserves.
If banks can't lend out deposits, what exactly do they lend out?

A deposit is a bank liability - a promise to get you cash of you want or to make payments on your behalf.

I'd love to know what the offsetting asset is that's related to this liability.

- Reserves!

If you deposit a check, the check is an asset. The bank can't use it in any way to service the deposit liability it has assumed.

The bank conceptually swaps the check with the central bank for reserves. The central bank conceptually swaps the check with the issuing bank and takes reserves from their reserve account.

Central bank reserves are an asset to a bank.

- Reserves!

Cool. Back in my original example, I had $10 million in deposits.
Now they sit at the Fed. $1 million is required reserves. $9 million are excess reserves.
I can loan $9 million. $9 million of the deposits I received.

It works with cash deposits too.

- How about we let the Bank of England explain this to you:

"Money creation in practice differs from some popular misconceptions — banks do not act simply
as intermediaries, lending out deposits that savers place with them, and nor do they ‘multiply up’
central bank money to create new loans and deposits."

"
The reality of how money is created today differs from the description found in some economics textbooks:
• Rather than banks receiving deposits when households save and then lending them out, bank lending creates
deposits."

The Fed works in the same way as the BoE, and banking in England works the same way as it does here - and around the world.

Quarterly Bulletin 2014 Q1 Bank of England

 

[Toddsterpatriot]

But the two kinds of money are not exchanged.

You are mistaken.

- No, Todd, I'm not.

Your bank account is a bank liability. It is money to you, it is not money to the bank.

It is worth nothing to anyone. A bank "using a deposit" to lend would be like me asking if you wanted to take over my house payment and paying me interest for the privilege of doing so.

Reserves are liabilities of the central bank. They are completely different from the liabilities of your bank, which you call money. The Fed has no use for a bank deposit at a commercial bank. It's a liability of the commercial bank. It has no value to the Fed.

It will not exchange it for anything.

Your bank account is a bank liability. It is money to you, it is not money to the bank.
It is worth nothing to anyone.

You said it is money to me then you said it is worth nothing to anyone.
Are you smoking some herb?

- It's money to you.

The bank can't lend your deposit, which would require actually reducing your deposit balance and giving it to somebody else.

How would you ever get your money out of your bank account if they did that?

Your bank balance is your record that the bank owes you money. If they actually reduced your bank balance to create a deposit for a borrower, the record of their debt to you would be gone. You would have lost your claim to the balance in your bank account forever. It's nonsense. Banks don't lend deposits.

The bank can't lend your deposit

They wouldn't lend my loan.

which would require actually reducing your deposit balance and giving it to somebody else.

Why are you confusing deposit account with deposit?
It must be because you don't know what you're talking about.

- You're confusing the verb "to deposit" with the noun "a deposit".

A deposit is a liability on the bank's general ledger, nothing more.

When you deposit a check, a deposit is created - a bank liability. The check - an asset - is swapped for reserves (an asset, a deposit in the bank's reserve account at the central bank).

There's nothing tangible IN your account. Your deposit is simply an account.

When you deposit a check, a deposit is created - a bank liability.

Let's use cash. It will make your confusion more obvious.
A new bank opens with a single deposit of one hundred $100 bills.
$10,000 total. Assume a 10% reserve requirement.
The bank creates an account for the depositor and types in the number $10,000.
That account is an asset to the depositor and a liability to the bank.
The bank now has $10,000 in reserves in the form of vault cash.
Those reserves are an asset to the bank.

The bank can lend $9000 of that original deposit.
Without doing anything to that deposit account.

 

[Pksimon2007]

When you deposit a check, a deposit is created - a bank liability.

Let's use cash. It will make your confusion more obvious.
A new bank opens with a single deposit of one hundred $100 bills.
$10,000 total. Assume a 10% reserve requirement.
The bank creates an account for the depositor and types in the number $10,000.
That account is an asset to the depositor and a liability to the bank.
The bank now has $10,000 in reserves in the form of vault cash.
Those reserves are an asset to the bank.

The bank can lend $9000 of that original deposit.
Without doing anything to that deposit account.

- You're trying really hard to confuse yourself.

First, what percentage of the money in the economy is cash?

 

[Toddsterpatriot]

Those deposits can't be loaned out at all.

Sure they can.

Banks can't lend out the central bank's reserves.

It happens every day.

The net lending capability that the bank received because of these deposits is zero.

I took in $10 million in deposits and I can lend out $0?
Man, I'd return that book you're reading. Lots of bad info.

- Todd, you're getting your information from blogs or somewhere.

Quote me anywhere from the Federal Reserve Act or any banking law which says that banks can lend out deposits and hold a portion in reserves.

It doesn't exist, because it makes no sense.

A deposit is a bank liability - a promise to get you cash of you want or to make payments on your behalf. There is no tangible money in a bank deposit. A bank deposit is an IOU of a bank, just like a mortgage is an IOU to a bank.

A mortgage is my liability. Can I lend my mortgage to you? Will you pay me interest to borrow my promise to pay a bank money?

If you're willing to do that, we should talk.

Quote me anywhere from the Federal Reserve Act or any banking law which says that banks can lend out deposits and hold a portion in reserves.
If banks can't lend out deposits, what exactly do they lend out?

A deposit is a bank liability - a promise to get you cash of you want or to make payments on your behalf.

I'd love to know what the offsetting asset is that's related to this liability.

- Reserves!

If you deposit a check, the check is an asset. The bank can't use it in any way to service the deposit liability it has assumed.

The bank conceptually swaps the check with the central bank for reserves. The central bank conceptually swaps the check with the issuing bank and takes reserves from their reserve account.

Central bank reserves are an asset to a bank.

- Reserves!

Cool. Back in my original example, I had $10 million in deposits.
Now they sit at the Fed. $1 million is required reserves. $9 million are excess reserves.
I can loan $9 million. $9 million of the deposits I received.

It works with cash deposits too.

- How about we let the Bank of England explain this to you:

"Money creation in practice differs from some popular misconceptions — banks do not act simply
as intermediaries, lending out deposits that savers place with them, and nor do they ‘multiply up’
central bank money to create new loans and deposits."

"
The reality of how money is created today differs from the description found in some economics textbooks:
• Rather than banks receiving deposits when households save and then lending them out, bank lending creates
deposits."

The Fed works in the same way as the BoE, and banking in England works the same way as it does here - and around the world.

Quarterly Bulletin 2014 Q1 Bank of England

- How about we let the Bank of England explain this to you:

It's more fun correcting your errors.

 

[Pksimon2007]

When you deposit a check, a deposit is created - a bank liability.

Let's use cash. It will make your confusion more obvious.
A new bank opens with a single deposit of one hundred $100 bills.
$10,000 total. Assume a 10% reserve requirement.
The bank creates an account for the depositor and types in the number $10,000.
That account is an asset to the depositor and a liability to the bank.
The bank now has $10,000 in reserves in the form of vault cash.
Those reserves are an asset to the bank.

The bank can lend $9000 of that original deposit.
Without doing anything to that deposit account.

- If your bank has only one deposit, which is cash, you are absolutely right.

It works exactly as you say.

Now - how many banks do you know of which handle no checks?

Now if a bank has ANY checking deposits, it will NEVER do what you say, in accordance with your hypothetical.

Can you figure out why? (I'll give you a hint: banks are profit maximizers, like any other business).

 

[Pksimon2007]

- Todd, you're getting your information from blogs or somewhere.

Quote me anywhere from the Federal Reserve Act or any banking law which says that banks can lend out deposits and hold a portion in reserves.

It doesn't exist, because it makes no sense.

A deposit is a bank liability - a promise to get you cash of you want or to make payments on your behalf. There is no tangible money in a bank deposit. A bank deposit is an IOU of a bank, just like a mortgage is an IOU to a bank.

A mortgage is my liability. Can I lend my mortgage to you? Will you pay me interest to borrow my promise to pay a bank money?

If you're willing to do that, we should talk.

Quote me anywhere from the Federal Reserve Act or any banking law which says that banks can lend out deposits and hold a portion in reserves.
If banks can't lend out deposits, what exactly do they lend out?

A deposit is a bank liability - a promise to get you cash of you want or to make payments on your behalf.

I'd love to know what the offsetting asset is that's related to this liability.

- Reserves!

If you deposit a check, the check is an asset. The bank can't use it in any way to service the deposit liability it has assumed.

The bank conceptually swaps the check with the central bank for reserves. The central bank conceptually swaps the check with the issuing bank and takes reserves from their reserve account.

Central bank reserves are an asset to a bank.

- Reserves!

Cool. Back in my original example, I had $10 million in deposits.
Now they sit at the Fed. $1 million is required reserves. $9 million are excess reserves.
I can loan $9 million. $9 million of the deposits I received.

It works with cash deposits too.

- How about we let the Bank of England explain this to you:

"Money creation in practice differs from some popular misconceptions — banks do not act simply
as intermediaries, lending out deposits that savers place with them, and nor do they ‘multiply up’
central bank money to create new loans and deposits."

"
The reality of how money is created today differs from the description found in some economics textbooks:
• Rather than banks receiving deposits when households save and then lending them out, bank lending creates
deposits."

The Fed works in the same way as the BoE, and banking in England works the same way as it does here - and around the world.

Quarterly Bulletin 2014 Q1 Bank of England

- How about we let the Bank of England explain this to you:

It's more fun correcting your errors.

- Oddly, the Bank of England and the Fed have agreed with me on everything so far, and disagreed with you.

Even the article from the Fed WHICH YOU POSTED agreed with me.

So are the Fed and the Bank of England wrong about how they work?

 

[Pksimon2007]

- Todd, you're getting your information from blogs or somewhere.

Quote me anywhere from the Federal Reserve Act or any banking law which says that banks can lend out deposits and hold a portion in reserves.

It doesn't exist, because it makes no sense.

A deposit is a bank liability - a promise to get you cash of you want or to make payments on your behalf. There is no tangible money in a bank deposit. A bank deposit is an IOU of a bank, just like a mortgage is an IOU to a bank.

A mortgage is my liability. Can I lend my mortgage to you? Will you pay me interest to borrow my promise to pay a bank money?

If you're willing to do that, we should talk.

Quote me anywhere from the Federal Reserve Act or any banking law which says that banks can lend out deposits and hold a portion in reserves.
If banks can't lend out deposits, what exactly do they lend out?

A deposit is a bank liability - a promise to get you cash of you want or to make payments on your behalf.

I'd love to know what the offsetting asset is that's related to this liability.

- Reserves!

If you deposit a check, the check is an asset. The bank can't use it in any way to service the deposit liability it has assumed.

The bank conceptually swaps the check with the central bank for reserves. The central bank conceptually swaps the check with the issuing bank and takes reserves from their reserve account.

Central bank reserves are an asset to a bank.

- Reserves!

Cool. Back in my original example, I had $10 million in deposits.
Now they sit at the Fed. $1 million is required reserves. $9 million are excess reserves.
I can loan $9 million. $9 million of the deposits I received.

It works with cash deposits too.

- How about we let the Bank of England explain this to you:

"Money creation in practice differs from some popular misconceptions — banks do not act simply
as intermediaries, lending out deposits that savers place with them, and nor do they ‘multiply up’
central bank money to create new loans and deposits."

"
The reality of how money is created today differs from the description found in some economics textbooks:
• Rather than banks receiving deposits when households save and then lending them out, bank lending creates
deposits."

The Fed works in the same way as the BoE, and banking in England works the same way as it does here - and around the world.

Quarterly Bulletin 2014 Q1 Bank of England

- How about we let the Bank of England explain this to you:

It's more fun correcting your errors.

- Todd, I don't mean to be rude by asking this, but do you have any business experience or education in business or economics at all?

Because I'm trying to figure out whether that's the case or you're just trolling at this point.

 

[Toddsterpatriot]

When you deposit a check, a deposit is created - a bank liability.

Let's use cash. It will make your confusion more obvious.
A new bank opens with a single deposit of one hundred $100 bills.
$10,000 total. Assume a 10% reserve requirement.
The bank creates an account for the depositor and types in the number $10,000.
That account is an asset to the depositor and a liability to the bank.
The bank now has $10,000 in reserves in the form of vault cash.
Those reserves are an asset to the bank.

The bank can lend $9000 of that original deposit.
Without doing anything to that deposit account.

- You're trying really hard to confuse yourself.

First, what percentage of the money in the economy is cash?

Looks like about 43% of M1 and about 11% of M2.

 

[Toddsterpatriot]

Quote me anywhere from the Federal Reserve Act or any banking law which says that banks can lend out deposits and hold a portion in reserves.
If banks can't lend out deposits, what exactly do they lend out?

A deposit is a bank liability - a promise to get you cash of you want or to make payments on your behalf.

I'd love to know what the offsetting asset is that's related to this liability.

- Reserves!

If you deposit a check, the check is an asset. The bank can't use it in any way to service the deposit liability it has assumed.

The bank conceptually swaps the check with the central bank for reserves. The central bank conceptually swaps the check with the issuing bank and takes reserves from their reserve account.

Central bank reserves are an asset to a bank.

- Reserves!

Cool. Back in my original example, I had $10 million in deposits.
Now they sit at the Fed. $1 million is required reserves. $9 million are excess reserves.
I can loan $9 million. $9 million of the deposits I received.

It works with cash deposits too.

- How about we let the Bank of England explain this to you:

"Money creation in practice differs from some popular misconceptions — banks do not act simply
as intermediaries, lending out deposits that savers place with them, and nor do they ‘multiply up’
central bank money to create new loans and deposits."

"
The reality of how money is created today differs from the description found in some economics textbooks:
• Rather than banks receiving deposits when households save and then lending them out, bank lending creates
deposits."

The Fed works in the same way as the BoE, and banking in England works the same way as it does here - and around the world.

Quarterly Bulletin 2014 Q1 Bank of England

- How about we let the Bank of England explain this to you:

It's more fun correcting your errors.

- Todd, I don't mean to be rude by asking this, but do you have any business experience or education in business or economics at all?

Because I'm trying to figure out whether that's the case or you're just trolling at this point.

And I've been trying to figure out the purpose of your confused thread.
Trolling? Is that what it's called when I point out your many, many, many errors? LOL!

Tell me again about the Fed borrowing currency from the Treasury. Priceless!

 

[Pksimon2007]

When you deposit a check, a deposit is created - a bank liability.

Let's use cash. It will make your confusion more obvious.
A new bank opens with a single deposit of one hundred $100 bills.
$10,000 total. Assume a 10% reserve requirement.
The bank creates an account for the depositor and types in the number $10,000.
That account is an asset to the depositor and a liability to the bank.
The bank now has $10,000 in reserves in the form of vault cash.
Those reserves are an asset to the bank.

The bank can lend $9000 of that original deposit.
Without doing anything to that deposit account.

- You're trying really hard to confuse yourself.

First, what percentage of the money in the economy is cash?

Looks like about 43% of M1 and about 11% of M2.

Okay - now, from the currency component, how much of it is in domestic hands, and how much is held by banks?

 

[Pksimon2007]

- Reserves!

If you deposit a check, the check is an asset. The bank can't use it in any way to service the deposit liability it has assumed.

The bank conceptually swaps the check with the central bank for reserves. The central bank conceptually swaps the check with the issuing bank and takes reserves from their reserve account.

Central bank reserves are an asset to a bank.

- Reserves!

Cool. Back in my original example, I had $10 million in deposits.
Now they sit at the Fed. $1 million is required reserves. $9 million are excess reserves.
I can loan $9 million. $9 million of the deposits I received.

It works with cash deposits too.

- How about we let the Bank of England explain this to you:

"Money creation in practice differs from some popular misconceptions — banks do not act simply
as intermediaries, lending out deposits that savers place with them, and nor do they ‘multiply up’
central bank money to create new loans and deposits."

"
The reality of how money is created today differs from the description found in some economics textbooks:
• Rather than banks receiving deposits when households save and then lending them out, bank lending creates
deposits."

The Fed works in the same way as the BoE, and banking in England works the same way as it does here - and around the world.

Quarterly Bulletin 2014 Q1 Bank of England

- How about we let the Bank of England explain this to you:

It's more fun correcting your errors.

- Todd, I don't mean to be rude by asking this, but do you have any business experience or education in business or economics at all?

Because I'm trying to figure out whether that's the case or you're just trolling at this point.

And I've been trying to figure out the purpose of your confused thread.
Trolling? Is that what it's called when I point out your many, many, many errors? LOL!

Tell me again about the Fed borrowing currency from the Treasury. Priceless!

- Todd, I can't help your ignorance. Your own source agreed with me on that very issue. I also posted an explicit explanation from the Fed's financial statements that proved me right - the Fed borrows FRNs from Treasury. Both your source and mine (both sources from the Fed) agree that I'm right.

Yet you still cackle and guffaw.

You cannot learn, because your ego is preventing you from absorbing the very clear information put in front of you - even when you put information in front of yourself, you ignore it!

 

[Toddsterpatriot]

When you deposit a check, a deposit is created - a bank liability.

Let's use cash. It will make your confusion more obvious.
A new bank opens with a single deposit of one hundred $100 bills.
$10,000 total. Assume a 10% reserve requirement.
The bank creates an account for the depositor and types in the number $10,000.
That account is an asset to the depositor and a liability to the bank.
The bank now has $10,000 in reserves in the form of vault cash.
Those reserves are an asset to the bank.

The bank can lend $9000 of that original deposit.
Without doing anything to that deposit account.

- If your bank has only one deposit, which is cash, you are absolutely right.

It works exactly as you say.

Now - how many banks do you know of which handle no checks?

Now if a bank has ANY checking deposits, it will NEVER do what you say, in accordance with your hypothetical.

Can you figure out why? (I'll give you a hint: banks are profit maximizers, like any other business).

Now if a bank has ANY checking deposits, it will NEVER do what you say, in accordance with your hypothetical.

If the bank took a single $10,000 check deposit they wouldn't loan out $9000 of that deposit? Why not?

Can you figure out why?

No, I cannot figure out why you are so confused.

I'll give you a hint: banks are profit maximizers

Not lending out the available $9000 maximizes their profit?
I'm on the edge of my seat waiting for your further explanation.

 

[Toddsterpatriot]

Quote me anywhere from the Federal Reserve Act or any banking law which says that banks can lend out deposits and hold a portion in reserves.
If banks can't lend out deposits, what exactly do they lend out?

A deposit is a bank liability - a promise to get you cash of you want or to make payments on your behalf.

I'd love to know what the offsetting asset is that's related to this liability.

- Reserves!

If you deposit a check, the check is an asset. The bank can't use it in any way to service the deposit liability it has assumed.

The bank conceptually swaps the check with the central bank for reserves. The central bank conceptually swaps the check with the issuing bank and takes reserves from their reserve account.

Central bank reserves are an asset to a bank.

- Reserves!

Cool. Back in my original example, I had $10 million in deposits.
Now they sit at the Fed. $1 million is required reserves. $9 million are excess reserves.
I can loan $9 million. $9 million of the deposits I received.

It works with cash deposits too.

- How about we let the Bank of England explain this to you:

"Money creation in practice differs from some popular misconceptions — banks do not act simply
as intermediaries, lending out deposits that savers place with them, and nor do they ‘multiply up’
central bank money to create new loans and deposits."

"
The reality of how money is created today differs from the description found in some economics textbooks:
• Rather than banks receiving deposits when households save and then lending them out, bank lending creates
deposits."

The Fed works in the same way as the BoE, and banking in England works the same way as it does here - and around the world.

Quarterly Bulletin 2014 Q1 Bank of England

- How about we let the Bank of England explain this to you:

It's more fun correcting your errors.

- Oddly, the Bank of England and the Fed have agreed with me on everything so far, and disagreed with you.

Even the article from the Fed WHICH YOU POSTED agreed with me.

So are the Fed and the Bank of England wrong about how they work?

Even the article from the Fed WHICH YOU POSTED agreed with me.

This thread is way too long.
Please show me which portion of a Fed article agreed with which post of yours and disagreed with which post of mine.

So are the Fed and the Bank of England wrong about how they work?

No, just you.

 

[Toddsterpatriot]

- Reserves!

Cool. Back in my original example, I had $10 million in deposits.
Now they sit at the Fed. $1 million is required reserves. $9 million are excess reserves.
I can loan $9 million. $9 million of the deposits I received.

It works with cash deposits too.

- How about we let the Bank of England explain this to you:

"Money creation in practice differs from some popular misconceptions — banks do not act simply
as intermediaries, lending out deposits that savers place with them, and nor do they ‘multiply up’
central bank money to create new loans and deposits."

"
The reality of how money is created today differs from the description found in some economics textbooks:
• Rather than banks receiving deposits when households save and then lending them out, bank lending creates
deposits."

The Fed works in the same way as the BoE, and banking in England works the same way as it does here - and around the world.

Quarterly Bulletin 2014 Q1 Bank of England

- How about we let the Bank of England explain this to you:

It's more fun correcting your errors.

- Todd, I don't mean to be rude by asking this, but do you have any business experience or education in business or economics at all?

Because I'm trying to figure out whether that's the case or you're just trolling at this point.

And I've been trying to figure out the purpose of your confused thread.
Trolling? Is that what it's called when I point out your many, many, many errors? LOL!

Tell me again about the Fed borrowing currency from the Treasury. Priceless!

- Todd, I can't help your ignorance. Your own source agreed with me on that very issue. I also posted an explicit explanation from the Fed's financial statements that proved me right - the Fed borrows FRNs from Treasury. Both your source and mine (both sources from the Fed) agree that I'm right.

Yet you still cackle and guffaw.

You cannot learn, because your ego is preventing you from absorbing the very clear information put in front of you - even when you put information in front of yourself, you ignore it!

I also posted an explicit explanation from the Fed's financial statements that proved me right - the Fed borrows FRNs from Treasury.

I must have missed your cut and paste and link from the Fed that said they borrow FRNs from the Treasury. Please tell me the post #.

Yet you still cackle and guffaw.

Yes, your original rambling posts were funny. Your continued stubborn confusion is amusing.

 

[Pksimon2007]

When you deposit a check, a deposit is created - a bank liability.

Let's use cash. It will make your confusion more obvious.
A new bank opens with a single deposit of one hundred $100 bills.
$10,000 total. Assume a 10% reserve requirement.
The bank creates an account for the depositor and types in the number $10,000.
That account is an asset to the depositor and a liability to the bank.
The bank now has $10,000 in reserves in the form of vault cash.
Those reserves are an asset to the bank.

The bank can lend $9000 of that original deposit.
Without doing anything to that deposit account.

- If your bank has only one deposit, which is cash, you are absolutely right.

It works exactly as you say.

Now - how many banks do you know of which handle no checks?

Now if a bank has ANY checking deposits, it will NEVER do what you say, in accordance with your hypothetical.

Can you figure out why? (I'll give you a hint: banks are profit maximizers, like any other business).

Now if a bank has ANY checking deposits, it will NEVER do what you say, in accordance with your hypothetical.

If the bank took a single $10,000 check deposit they wouldn't loan out $9000 of that deposit? Why not?

Can you figure out why?

No, I cannot figure out why you are so confused.

I'll give you a hint: banks are profit maximizers

Not lending out the available $9000 maximizes their profit?
I'm on the edge of my seat waiting for your further explanation.

- They wouldn't lend out that cash because it would lower their profits over the alternative.

If they lend $9000, they get the interest on $9000, and nothing more.

If they invest the $10,000 and borrow $1000 in reserves, they earn interest on $10,000 less the interest they would pay on reserves (which would be less than they can earn by investing the $1000). They come out way ahead, it's a no-brainer.

Now, it's even more of a no-brainer because reserves and deposits do not enable lending. They can STILL lend money by creating deposits. Whether they were to lend the cash or create a deposit as a loan would have the same impact on their "lending limit", because their lending is constrained by their available capital.

So by doing things the way they do, rather than your way, the banks earn interest on $10,000 in investments PLUS they can still lend as much money as they are allowed to lend. If they were to lend the $9000 cash it would reduce their ability to create deposits - that would cost them $10.000 in loan investments and $10,000 in financial investments - in other words, your approach reduces their ability to invest by $20,000.

I asked you if you had any business experience or education for a reason. Were banks to listen to you, they would go broke.

 

[Pksimon2007]

- Reserves!

If you deposit a check, the check is an asset. The bank can't use it in any way to service the deposit liability it has assumed.

The bank conceptually swaps the check with the central bank for reserves. The central bank conceptually swaps the check with the issuing bank and takes reserves from their reserve account.

Central bank reserves are an asset to a bank.

- Reserves!

Cool. Back in my original example, I had $10 million in deposits.
Now they sit at the Fed. $1 million is required reserves. $9 million are excess reserves.
I can loan $9 million. $9 million of the deposits I received.

It works with cash deposits too.

- How about we let the Bank of England explain this to you:

"Money creation in practice differs from some popular misconceptions — banks do not act simply
as intermediaries, lending out deposits that savers place with them, and nor do they ‘multiply up’
central bank money to create new loans and deposits."

"
The reality of how money is created today differs from the description found in some economics textbooks:
• Rather than banks receiving deposits when households save and then lending them out, bank lending creates
deposits."

The Fed works in the same way as the BoE, and banking in England works the same way as it does here - and around the world.

Quarterly Bulletin 2014 Q1 Bank of England

- How about we let the Bank of England explain this to you:

It's more fun correcting your errors.

- Oddly, the Bank of England and the Fed have agreed with me on everything so far, and disagreed with you.

Even the article from the Fed WHICH YOU POSTED agreed with me.

So are the Fed and the Bank of England wrong about how they work?

Even the article from the Fed WHICH YOU POSTED agreed with me.

This thread is way too long.
Please show me which portion of a Fed article agreed with which post of yours and disagreed with which post of mine.

So are the Fed and the Bank of England wrong about how they work?

No, just you.

- I cited it in the post above, lol - remember where your source said that the Fed had to provide collateral for all FRNs in circulation?

What is collateral?

Security for a loan.

I also posted from the Fed where they explicitly SAID they borrowed them from Treasury and turned over all of their profits as interest payments.

Dang. Do you even bother to read, or is the cackle and guffaw machine on autopilot?

I also posted the Bank of England article explaining that banks do not lend deposits, but CREATE deposits when they lend.

This is not rocket science, but you have to read what is posted to understand how stuff works.