HYPER inflation just around the corner? fed Is Paying Banks NOT To Lend 1.8 Trillion

I understand it clearly, it's quite humorous how you guys haven't gotten it yet.

At all times, when banks ask for reserves, the central bank obliges. Reserves therefore impose no constraint. The deposit multiplier is simply, in the words of Kydland and Prescott (1990), a myth. And because of this, private banks are almost fully in control of the money creation process.

The money multiplier is not just some variable that changes day to day, it is a direct relationship between reserves and the money supply. You guys have horrible comprehension skills.

Do I listen to two Nobel Prize winning economists and one that is a senior monetary leader for the Federal Reserve or listen to Iriemon and Skeptic, the resident PF armchair experts. I think I'll go with the Nobel Prize economists.

 

It's quite humorous have nobody gets it but you.

If we accept that reserves impose no constraint, that doesn't mean there is no muliplier. Of course there is a multiplier, proved by the fact that M2 is even now, in a slow lending environment, 3x more than money base. You simply redifine words for your own meaning. What they are talking, as skeptic stated, is that the muliplier effect is not a constant.

Sure it is. It was very high when banks were lending (irresponsibly) in the 2000s, and dropped down when they got burned and shut off the spigots.

You're not "listening" to two Nobel Prize winning economists. You are misunderstanding them.

 

It's funny how plenty of educated people understand what they are saying. Maybe you just aren't one of those people.

Something unusal happened yesterday in my weekly department macroeconomics seminar at James Madison University. Someone had us discuss a paper that changed the minds of pretty much everybody in the room who did not already agree with the paper, which includes a highly diverse group ranging from Austrian, Old Monetarist, New Classical, New Keynesian, Old Keynesian, Post Keynesian, and some generally eclectic pragmatists. The paper is from the Fed Bd of Govs in 2010, by Seth Carpenter and Selva Demiralp, still unpublished as near as I can tell, and is entitled, "Money, Reserves, and the Transmission of Monetary Policy: Does the Money Multiplier Exist?" Their answer is not only "no," which I at least have thought was true since 2007 or so, but that the answer has been "no" probably since the mid-1980s and certainly since the mid-1990s. It is available at http://www.federalreserve.gov/pubs/feds/2010/201041/201041pap.pdf .

http://econospeak.blogspot.com/2013/02/the-myth-of-money-multiplier.html

Does the money multiplier exist? Their answer is no. Your answer is yes. I will go with their answer.

Yes, it does. The multiplier is not just some random variable. You still do not get this, lol.

That's not the money multiplier. That's just you guys multiplying two numbers together.

Yes, when they say the multiplier is a myth, I'm misunderstanding them, lol. You are beyond hilarious.

 

Yep no cronyism capitalism going on here! :rollingeyes:

 

It's funny how a lot of experts in banking think like me but a lot of non experts think like you and Skeptic.

This paper contends that the emphasis on policy-induced changes in deposits is misplaced. If anything, the process actually works in reverse, with loans driving deposits. In particular, it is argued that the concept of the money multiplier is flawed and uninformative in terms of analyzing the dynamics of bank lending. Under a fiat money standard and liberalized financial system, there is no exogenous constraint on the supply of credit except through regulatory capital requirements. An adequately capitalized banking system can always fulfill the demand for loans if it wishes to.

Piti Distayat and Claudio Bori, Bank for International Settlements (2009)


I will accept your apology now or later, your choice.

 

Here's the link to the Kydland and Prescott paper. Please quote the language where they say "The deposit multiplier is simply a myth." I scanned the paper and couldn't find it. In fact, if you do a word search, the phrase "deposit multiplier" doesn't even appear in the paper.

The myth they discuss in their paper appears to be business cycles and price levels. But maybe I missed it.

http://www.minneapolisfed.org/research/qr/qr1421.pdf

 

There is no evidence that either the monetary base or M1 leads the cycle although some economists still believe this monetary myth

 

Shut up, slave. Pay us and vote for who we tell you.

 

Sorry, I asked where it says "The deposit multiplier is simply a myth" which is the language you cited. Thanks.

 

You have to be smart enough to understand that is what they are saying. People don't speak like they are in high school like you their entire lives.

 

You guys are thoroughly confused about what the money multiplier is.

 

I'm smart enough to know when someone can't back up their claim and starts bull(*)(*)(*)(*)ting.

And I'm smart enough to know that "There is no evidence that either the monetary base or M1 leads the cycle although some economists still believe this monetary myth" is not saying "The deposit multiplier is simply a myth."

- - - Updated - - -

Tell us.

 

The money multiplier is a theory that states that the supply of money has a direct link to the monetary base. That is the multiplier theory. They are saying that the economists still believe in this myth in that the monetary base leads the cycle of the money supply.

The money multiplier is not just some random variable that describes the difference between the money supply and reserves. It is an equation that determines how much money can be created based on a quantity of reserves. So if they increase reserves banks can create more money based on this multiplier, if they decrease reserves, banks can create less money based on this multiplier.

It's really very simple. There is an entire paper I've shown you that talks about Does the Money Multiplier Exist? And the entire paper is pointing to the fact it doesn't.

It's getting pretty embarrassing for you.

 

Please cite a source that says that this is the money multiplier theory. I've never heard that as a description of the money multiplier or fractional banking.

Here's the Wiki description:

In monetary economics, a money multiplier is one of various closely related ratios of commercial bank money to central bank money under a fractional-reserve banking system.

http://en.wikipedia.org/wiki/Money_multiplier

It says nothing about a "direct link"

Funny, I'm not the once getting caught making (*)(*)(*)(*) up here.

 

These facts imply that the tight link suggested by the multiplier between reserves and money and bank lending does not exist.

http://www.federalreserve.gov/pubs/feds/2010/201041/201041pap.pdf


It's just not a good day for you bro. I won't even ask you to apologize right now because I know you'll need some time to take in this beating.

 

It gets even worse for you. They call you dubious!!!

Finally, the assumed link in the textbook version of the money multiplier between the creation of loans and the creation of demand deposits is dubious. According to the standard multiplier theory, an increase in bank lending is associated with an increase in demand deposits. The data as discussed below do not reflect any such link.

http://www.federalreserve.gov/pubs/feds/2010/201041/201041pap.pdf


Just a really rough day for you.

 

The money multiplier is defined in various ways.[1] Most simply, it can be defined either as the statistic of "commercial bank money"/"central bank money", based on the actual observed quantities of various empirical measures of money supply,[4] such as M2 (broad money) over M0 (base money), or it can be the theoretical "maximum commercial bank money/central bank money" ratio, defined as the reciprocal of the reserve ratio, 1/RR.

You may be referring to the theoretical maximum as to the ratio to M2/M0 (money base) as I've been discussing throughout. As I stated in my very first post on this thread, while there is a theoretical maximum multiplier that is the inverse of the reserve ratio (e.g. 1/RR) in practice the actual mulitplier is usually less.

What your papers are saying, as Skeptic and I have been saying, is that the model that supposes that M2 will always be at the theoretical limit is not accurate, because sometimes lending can slightly exceed the maximum (because banks can get some funding from sources other than deposits) and can be less (when bank lending slows down). I also noted this in my first paper, as an explanation as to why, even though base money has tripled, we have not had hyper inflation. It is because bank lending has slowed down, and is not operating at the theoretical limit.

The papers noting these facts point out the implication for the implementation of money policy (open market operations) which is premised on the concept that an expansion of the money base will result in an increase lending and a multiple increase in the M2 money supply.

 

Finally, the assumed link in the textbook version of the money multiplier between the creation of loans and the creation of demand deposits is dubious. According to the standard multiplier theory, an increase in bank lending is associated with an increase in demand deposits. The data as discussed below do not reflect any such link.

http://www.federalreserve.gov/pubs/f.../201041pap.pdf

Just a really rough day for you.

 

LOL, it's not rough for me at all. That says nothing inconsistent with my posts. They are talking about the same things I've said in my posts. They are not saying there is no fractional banking or multiplier at all, just that there is no direct link. And I've never said there was a direct link or ratio. To the contrary, my very first post explained that because bank lending has decreased the multiple is lower, and that is why we don't have hyper inflation even though the Fed tripled the money base.

These papers reinforce everything I've written.

 

These facts imply that the tight link suggested by the multiplier between reserves and money and bank lending does not exist.

http://www.federalreserve.gov/pubs/feds/2010/201041/201041pap.pdf

It's game over for you. The fact you haven't apologized yet is a little disturbing. Not once were we just talking about dividing M2/M0. You got caught in a lie and now you are changing the goal posts. The money multiplier we are talking about has nothing to do with the "simple" version.

 

How can M2 be a multiple of 3x the base money is there is no mulitplier?

You've never answered that one with any specificity.

If there was no multiplier by fractional lending, M2 would equal M0.

 

You are really starting to get incoherent and desperate. You keep babbling about there not being a tight link between the base and M2 as if that were my position. You're whole case is, as is typical with you, a giant straw man. Or you're just hopelessly confused or dishonest.

Case in point is your statement "Not once were we just talking about dividing M2/M0". How many times in my posts have I pointed out that M2 is currently 3x money base? How many times have I argued you were wrong because M2 was a multiple of M0? I've been saying since post one that the money supply is a multiple of the money base.

The fact you would make such a statement is just bizarre.

Try focusing on the real issue instead of a straw man and prove there is no multiplier of fractional banking at all when M2 is a 3x multiple of M0.

 

I have answered this many times. The multiplier suggests that M2 has a relationship with M0. What the study has found is that there is no relationship. That there is no multiplier. Banks simply make loans to meet demand, it has nothing to do with M0. They are two separate functions. There is no "multiplying" from the monetary base to the money supply.

All you are doing is a simple equation that doesn't describe anything or how banks work.

That is why there can be no multiplier by fractional lending and why M2 does not have to equal M0.

- - - Updated - - -

So your entire case is that you can divide M2/M0. Lmao!!! Great case. Here's your case in a nut shell.




This certainly tells us a lot.

 

You just dodged it again with your made up definition of the money multiplier. Let's try being honest for a change, shall we?

How can M2 be a multiple of 3x the base money is there is no multiplier because of fractional lending? Explain exactly how that could be the case.

 

I didn't dodge anything. I explained it so thoroughly that even a 5 year old could understand. There isn't fractional lending. It's simply banks making deposits and loans. It is not multiplying reserves, it is simply being created. That is why you can have M2 being 3x more than base money. Because banks have created more money than the Fed has created reserves. They didn't create more money based on those reserves.