Regulating inflation.

Discussion in 'Economics & Trade' started by Brett Nortje, Apr 18, 2017.

  1. Roon

    Roon Well-Known Member

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    They have no control? Not setting their own reserve requirement has little to do with it. If their reserve requirement is 10%....they can "lend out"(in reality create money by entering key strokes on a computer) 90% of any and all deposits in perpetuity. So long as deposits continue to come in they can continue to loan out and expand the money supply.
     
  2. james M

    james M Banned

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    You don't seem to understand the Fed exists to control the money supply. Private banks can only expand if the Fed allows them too.
     
  3. Roon

    Roon Well-Known Member

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    That just isn't true though. You seem to not understand how fractional reserve banking actually works. Let me help you.

    Here is a paper produced by the Chicago Federal Reserve bank...please read it and get back to me.

    http://www.rayservers.com/images/ModernMoneyMechanics.pdf
     
  4. Econ4Every1

    Econ4Every1 Well-Known Member

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    You just have no conception of banking at all. If the bank went under it's because it's liabilities exceeded its assets. A bank deposit of $1 trillion would create a $1 trillion dollar asset to the bank and a $1 trillion dollar liability. Hypothetically this is fun, but in reality, there are few banks that would keep this much money on their balance sheet. Most banks would shift most of that money off their own balance sheets to the Fed or other banks that needed the reserves. The bank would have a liability (that it owed the money to the depositor) offset by an asset/s held by the Fed (or other banks) keeping a small portion for its own needs. If the bank became insolvent all of its assets, including any investor capital and capital earned as part of its profits would be taken and used to pay off its liabilities. Depending on the amount of leverage that bank using would determine how much money was available to depositors to recover. However, there is a hierarchy of repayment and depositors are not on the top of that list.
     
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  5. Econ4Every1

    Econ4Every1 Well-Known Member

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    You have to be the first Austrian (I assume your an Austrian) I've ever met that has a clue about how money is created and lent. I still disagree with you on some finer points, but I have to say, you know more than most of your peers.
     
    Last edited: May 19, 2017
  6. james M

    james M Banned

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    so who controls the money supply:1) the Fed, 2) the Girl Scouts, 3) the private banks?
     
  7. james M

    james M Banned

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    the question was what happens to money. Do you know????
     
  8. james M

    james M Banned

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    Austrian school teaches that inflation is bad. That was a needed lesson until 1980 or so but now the debate has moved far beyond that.
     
  9. james M

    james M Banned

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    did someone deny that?? Do you know what a strawman is?
     
  10. Econ4Every1

    Econ4Every1 Well-Known Member

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    I just told you, the banks assets and capital are taken from investors and shareholders and used to repay the banks liabilities. How much our fictional $1 trillion dollar depositor would get back would depend on how much the bank's liabilities exceeded its assets and the kind of leverage the bank was utilizing. It would also depend on the hierarchy of repayment. The government would get theirs, preferred shareholders would get theirs etc, etc.....

    Like I said, the Fed and possibly other banks would hold a large part of the $1 trillion deposit and would be obligated to give it back, probably to a trustee who would be charged to repay the banks debts. If the bank held enough capital the money would all simply be repaid. If it did not, some people would be repaid pennies on the dollar.
     
    Last edited: May 19, 2017
  11. Econ4Every1

    Econ4Every1 Well-Known Member

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    The private sector uses bank deposits as money, and bank deposits are not directly controlled by the central bank: they get created by government spending and bank loans.
     
  12. james M

    james M Banned

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    I think he was really asking what happens to the $trillion that a guy borrowed to buy a factory. The answer is, the $ trillion is in the hands of the guys who the borrower paid to build the factory.
     
  13. james M

    james M Banned

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    the question is who controls the money supply.
     
  14. Econ4Every1

    Econ4Every1 Well-Known Member

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    You are a hoot ...If a bank went under, it's because its liabilities exceeded its assets. No one has to say that.
     
  15. Roon

    Roon Well-Known Member

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    The answer is that it is complicated.

    The Fed can only manipulate the incentives banks have to either loan or not when it gets down to it. I am not sure I would call that control....they can influence the money supply sure...but a large portion of it is mostly out of their direct control.
     
  16. Roon

    Roon Well-Known Member

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    I am not exactly an Austrian.....I am a huge Mises/Hayek fan however. I just do my best to understand our current reality so that I can tell people why it is wrong ;).

    Thanks for the kind words though.
     
    Last edited: May 20, 2017
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  17. Longshot

    Longshot Well-Known Member

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    Hm, so you're saying the bank has a $1T liability to me, but is unable to pay its debt because it is bankrupt? Then I suppose I get nothing from them. I don't think a bank depositor has any standing as a creditor in bankruptcy proceedings, but I don't know for sure.
     
  18. james M

    james M Banned

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    so why do they have a mandate to control inflation within 1-2% if they have no control and how do they control it within 1-2 % if they have no control?
     
  19. james M

    james M Banned

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    so why did you say it? Do you have any idea?
     
  20. james M

    james M Banned

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    that puts you 50 years behind the times at least and it shows with your nonsense about banks being free to create all the money they want as if the Fed did not exist. Insane!!. Austria was merely a response to huge European inflation in the 1930's.
     
  21. Econ4Every1

    Econ4Every1 Well-Known Member

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    Even if that were true
    Just stating a fact.
     
  22. Econ4Every1

    Econ4Every1 Well-Known Member

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    If a bank held $1 trillion in assets and $1 trillion and one cents in liabilities, technically it's bankrupt. That does not mean there's no money repay creditors. It just means that creditors will get less than 100 cents on the dollar. I don't claim to be an expert with respect to standing, but I'd find it hard to believe that depositors wouldn't be returned some of their money if those with the highest standing (e.g. government and certain shareholders) were repaid and there was still money left.
     
  23. Roon

    Roon Well-Known Member

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    Like I said - they can control the incentives associated with what banks do with the deposits they receive and that offers a measure of control. It is essentially like attempting to steer a Cruise ship though....its not going to happen right away and it will take a while after you attempt to change course to start moving in that direction.
     
  24. Roon

    Roon Well-Known Member

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    Well given your apparent understanding of banking and economics I will take you thinking I am behind the times as a compliment.
     
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  25. james M

    james M Banned

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    As long as you now agree that the fed exists to control the money supply. Thanks
     

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