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- 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.
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.
- 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.
- 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.
- So far, Todd, you're batting a big fat .000
It might be time to re-read the OP and learn.
Then, the next time you discuss central banking with someone, you'll sound like the genius you want to be, and you'll be able to back up your arguments.
The problem you have in this discussion is that you don't want to know how the system works. You're obviously smart enough to understand. Why would you want to spout stuff that's wrong?
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.
If they invest the $10,000 and borrow $1000 in reserves,
So instead of loaning $9,000, they borrow $1000 more and loan $10,000?
they earn interest on $10,000 less the interest they would pay on reserves
They're also paying interest on the $10,000 deposit.
Now, it's even more of a no-brainer because reserves and deposits do not enable lending.
Still wrong.
They can STILL lend money by creating deposits.
And when the owner of that new deposit withdraws that deposit, what does the bank do?
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.
You'll have to explain what these investments are.
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
You want them to invest $10,000 and loan $10,000 based on a $10,000 deposit and you think I'm uneducated? ROFLMAO!
Were banks to listen to you, they would go broke.
Were they to listen to you, they'd be out of business when their loan checks bounced.
- 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.
remember where your source said that the Fed had to provide collateral for all FRNs in circulation?
My source said the Fed had to provide collateral?
I'm pretty sure it said they paid for printing FRNs.
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.
No, you typed something claiming that.
You provided no source. No link. No cut and paste.
- 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.
remember where your source said that the Fed had to provide collateral for all FRNs in circulation?
My source said the Fed had to provide collateral?
I'm pretty sure it said they paid for printing FRNs.
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.
No, you typed something claiming that.
You provided no source. No link. No cut and paste.
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.
If they invest the $10,000 and borrow $1000 in reserves,
So instead of loaning $9,000, they borrow $1000 more and loan $10,000?
they earn interest on $10,000 less the interest they would pay on reserves
They're also paying interest on the $10,000 deposit.
Now, it's even more of a no-brainer because reserves and deposits do not enable lending.
Still wrong.
They can STILL lend money by creating deposits.
And when the owner of that new deposit withdraws that deposit, what does the bank do?
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.
You'll have to explain what these investments are.
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
You want them to invest $10,000 and loan $10,000 based on a $10,000 deposit and you think I'm uneducated? ROFLMAO!
Were banks to listen to you, they would go broke.
Were they to listen to you, they'd be out of business when their loan checks bounced.
//So instead of loaning $9,000, they borrow $1000 more and loan $10,000?//
- "Borrow short, lend long". Almost all loans are loans of money borrowed on better terms. Yes, they will do this, because it makes more profit.
//They're also paying interest on the $10,000 deposit.//
- They pay interest either way. When a factor does not differ between two courses of action, it is irrelevant.
Now, it's even more of a no-brainer because reserves and deposits do not enable lending.//
Still wrong.//
- The Bank of England just told you I'm right about this. What that the Bank of England said do you think is wrong?
//And when the owner of that new deposit withdraws that deposit, what does the bank do?//
- If the bank only has one deposit, then it would have to borrow to pay the depositor, and that might be bad. But to understand banking, you have to understand that no bank works with only one deposit.
//You'll have to explain what these investments are.//
- Take your pick. Money market mutual funds, mortgage-backed securities, whatever. The same sorts of investments any investor makes.
//You want them to invest $10,000 and loan $10,000 based on a $10,000 deposit and you think I'm uneducated? ROFLMAO!//
- Obviously. They teach you about leverage early in business school. This is what leverage looks like.
//Were they to listen to you, they'd be out of business when their loan checks bounced.//
- Yet we still have a banking industry, and they DO do it this way.
- 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.
remember where your source said that the Fed had to provide collateral for all FRNs in circulation?
My source said the Fed had to provide collateral?
I'm pretty sure it said they paid for printing FRNs.
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.
No, you typed something claiming that.
You provided no source. No link. No cut and paste.
//My source said the Fed had to provide collateral?
I'm pretty sure it said they paid for printing FRNs.//
- Yes, and the collateral means......?
//No, you typed something claiming that.
You provided no source. No link. No cut and paste.//
- I provided both.
- 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.
remember where your source said that the Fed had to provide collateral for all FRNs in circulation?
My source said the Fed had to provide collateral?
I'm pretty sure it said they paid for printing FRNs.
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.
No, you typed something claiming that.
You provided no source. No link. No cut and paste.
//My source said the Fed had to provide collateral?
I'm pretty sure it said they paid for printing FRNs.//
- Yes, and the collateral means......?
//No, you typed something claiming that.
You provided no source. No link. No cut and paste.//
- I provided both.
Yes, and the collateral means......?
My post didn't mention collateral. It said they paid for the printing.
- I provided both.
Great, tell me the post number and I'll reread it.
- 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.
remember where your source said that the Fed had to provide collateral for all FRNs in circulation?
My source said the Fed had to provide collateral?
I'm pretty sure it said they paid for printing FRNs.
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.
No, you typed something claiming that.
You provided no source. No link. No cut and paste.
//My source said the Fed had to provide collateral?
I'm pretty sure it said they paid for printing FRNs.//
- Yes, and the collateral means......?
//No, you typed something claiming that.
You provided no source. No link. No cut and paste.//
- I provided both.
Yes, and the collateral means......?
My post didn't mention collateral. It said they paid for the printing.
- I provided both.
Great, tell me the post number and I'll reread it.
- 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.
remember where your source said that the Fed had to provide collateral for all FRNs in circulation?
My source said the Fed had to provide collateral?
I'm pretty sure it said they paid for printing FRNs.
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.
No, you typed something claiming that.
You provided no source. No link. No cut and paste.
Again:
"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
- 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.
remember where your source said that the Fed had to provide collateral for all FRNs in circulation?
My source said the Fed had to provide collateral?
I'm pretty sure it said they paid for printing FRNs.
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.
No, you typed something claiming that.
You provided no source. No link. No cut and paste.
Again:
"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
It's reported as Interest on Federal Reserve notes. It doesn't say they are borrowing them from anyone, because clearly,
- 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.
remember where your source said that the Fed had to provide collateral for all FRNs in circulation?
My source said the Fed had to provide collateral?
I'm pretty sure it said they paid for printing FRNs.
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.
No, you typed something claiming that.
You provided no source. No link. No cut and paste.
Again:
"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
It's reported as Interest on Federal Reserve notes. It doesn't say they are borrowing them from anyone, because clearly, they are not.
Look at your link, page 7.
If they were borrowing FRNs, they would show as an asset of the Fed, not a liability.
If they were borrowing FRNs, where is the offsetting liability for the loan?
Damn, take an accounting class.
- 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.
remember where your source said that the Fed had to provide collateral for all FRNs in circulation?
My source said the Fed had to provide collateral?
I'm pretty sure it said they paid for printing FRNs.
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.
No, you typed something claiming that.
You provided no source. No link. No cut and paste.
//My source said the Fed had to provide collateral?
I'm pretty sure it said they paid for printing FRNs.//
- Yes, and the collateral means......?
//No, you typed something claiming that.
You provided no source. No link. No cut and paste.//
- I provided both.
Yes, and the collateral means......?
My post didn't mention collateral. It said they paid for the printing.
- I provided both.
Great, tell me the post number and I'll reread it.
//My post didn't mention collateral. It said they paid for the printing.//
- I c/p'd where it did say they had to provide collateral, Todd.
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."
- 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.
remember where your source said that the Fed had to provide collateral for all FRNs in circulation?
My source said the Fed had to provide collateral?
I'm pretty sure it said they paid for printing FRNs.
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.
No, you typed something claiming that.
You provided no source. No link. No cut and paste.
//My source said the Fed had to provide collateral?
I'm pretty sure it said they paid for printing FRNs.//
- Yes, and the collateral means......?
//No, you typed something claiming that.
You provided no source. No link. No cut and paste.//
- I provided both.
Yes, and the collateral means......?
My post didn't mention collateral. It said they paid for the printing.
- I provided both.
Great, tell me the post number and I'll reread it.
//My post didn't mention collateral. It said they paid for the printing.//
- I c/p'd where it did say they had to provide collateral, Todd.
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."
Each Federal Reserve Bank is required by law to pledge collateral at least equal to the amount of currency it has issued into circulation.
Okay. Now where does the word borrow show up in my source?
First, when the Fed receives currency from the Treasury, it pays only for the cost of printing the notes.
Was this part too complex?
- According to their story, they are borrowing them. In my initial post on the matter I made it clear that it was a fiction.
Your contention was that the Fed purchased them. You were wrong - if they purchased them, they would ALSO show up as an asset, no?
Accounting between the Fed and the Treasury does not conform to GAAP, btw. Some of that is because GAAP describes private entities, but it doesn't describe entities which can issue money. Another part of it is that the Fed and Treasury are in many ways one entity, and the accounting between them can be very strange.
- According to their story, they are borrowing them. In my initial post on the matter I made it clear that it was a fiction.
Your contention was that the Fed purchased them. You were wrong - if they purchased them, they would ALSO show up as an asset, no?
Accounting between the Fed and the Treasury does not conform to GAAP, btw. Some of that is because GAAP describes private entities, but it doesn't describe entities which can issue money. Another part of it is that the Fed and Treasury are in many ways one entity, and the accounting between them can be very strange.
According to your story.
Your contention was that the Fed purchased them. You were wrong - if they purchased them, they would ALSO show up as an asset, no?
They do purchase them, at the cost of production. Like a post-it note.
When the Fed sells them to a bank, they become a Fed liability.
Just as a CD becomes a bank liability when a bank sells it to you.
Currency
Each year, the Federal Reserve Board projects the likely demand for new currency, and places an order with the Department of the Treasury's Bureau of Engraving and Printing, which produces U.S. currency and charges the Board for the cost of production. The new-currency budget for 2015 is $717.9 million, and reflects the following costs per denomination:
Note Cost of Production
$1 and $2 4.9 cents per note
$5 10.9 cents per note
$10 10.3 cents per note
$20 and $50 10.5 cents per note
$100 12.3 cents per note
Further details about the production costs for Federal Reserve notes are presented in the 2015 Currency Budget.
FRB How much does it cost to produce currency and coin
No, not too complex at all. "When you took out the mortgage, you only paid a small down payment".
The mortgage is still a loan.
The Fed has to collateralize FRNs because they are still owned by the Treasury.
- According to their story, they are borrowing them. In my initial post on the matter I made it clear that it was a fiction.
Your contention was that the Fed purchased them. You were wrong - if they purchased them, they would ALSO show up as an asset, no?
Accounting between the Fed and the Treasury does not conform to GAAP, btw. Some of that is because GAAP describes private entities, but it doesn't describe entities which can issue money. Another part of it is that the Fed and Treasury are in many ways one entity, and the accounting between them can be very strange.
According to your story.
Your contention was that the Fed purchased them. You were wrong - if they purchased them, they would ALSO show up as an asset, no?
They do purchase them, at the cost of production. Like a post-it note.
When the Fed sells them to a bank, they become a Fed liability.
Just as a CD becomes a bank liability when a bank sells it to you.
Currency
Each year, the Federal Reserve Board projects the likely demand for new currency, and places an order with the Department of the Treasury's Bureau of Engraving and Printing, which produces U.S. currency and charges the Board for the cost of production. The new-currency budget for 2015 is $717.9 million, and reflects the following costs per denomination:
Note Cost of Production
$1 and $2 4.9 cents per note
$5 10.9 cents per note
$10 10.3 cents per note
$20 and $50 10.5 cents per note
$100 12.3 cents per note
Further details about the production costs for Federal Reserve notes are presented in the 2015 Currency Budget.
FRB How much does it cost to produce currency and coin
No, not too complex at all. "When you took out the mortgage, you only paid a small down payment".
The mortgage is still a loan.
The Fed has to collateralize FRNs because they are still owned by the Treasury.
The Fed has to collateralize FRNs because they are still owned by the Treasury.
No, the Fed has to collateralize them in case they ever have to retire them.
Otherwise the Fed could buy a $100 FRN for 12.3 cents and give the profit to the Treasury.
People get worried about inflation when a government does too much of that.
When silver was the collateral behind a silver certificate, did you think the Treasury owned it?
That there was somehow a loan involved?
