Regulating inflation.

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

  1. Roon

    Roon Well-Known Member

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    When discussing why inflation is bad I would be remiss if I didn't point out in your explanation of "Why you don't care" you are making the assumption(that I don't think it is very prudent to make) that wages will continue to rise along with inflation.
     
  2. Roon

    Roon Well-Known Member

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    Well since all money is credit - for that $1 trillion to exist there needs to be $1 trillion worth of debt somewhere....so that debt simply gets repaid and the money disappears...in the simplest of terms.
     
  3. Econ4Every1

    Econ4Every1 Well-Known Member

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    Looking back what I said was true, looking forward you are correct, wages that don't keep pace with inflation are the real problem. As soon as we abandon neo-liberal supply side theory we could get back to working less, but like all things in economics, they can't be viewed in a vacuum.
     
  4. james M

    james M Well-Known Member

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    money is fungible so if they have enough reserves they lend them out
     
  5. james M

    james M Well-Known Member

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    this is largely false. The Fed exists to expand or contract money supply. Private banks are allowed to expand or contract only to extent Fed determines that expansion or contraction to be consistent with its monetary goals.
     
  6. james M

    james M Well-Known Member

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    it depends what bank did with money. Probably the money is not destroyed but merely in hands of new people who have no obligation to pay back bank depositors. And???
     
  7. Econ4Every1

    Econ4Every1 Well-Known Member

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    Nope, that's not how it works. Money fungibility has nothing to do with it. It's accounting.
     
  8. james M

    james M Well-Known Member

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    The conclusion in this scenario is that banks are in their lending restricted by their own funds plus the amount of deposits that they can attract and that therefore the “lending out deposits” terminology makes sense.Note that this system is very dangerous if banks engage in maturity transformation, ie if the loan terms are longer than the deposit terms: if ever depositors request money back faster than loans mature then the Bank goes bankrupt

    Note that in this scenario it is still entirely correct using the “lending out deposits” terminology, because the only way the bank can extend a loan to a customer is if a depositor accepts to freeze his deposit during the period of the
    We found that under scenarios (2) and (3) the banks’ capacity to provide loans was limited by available deposits (or, in the case of (3), available long term deposits). Under scenario (4) banks were under no such restriction (scenario (1) did not have banks).https://medium.com/@odtorson/do-banks-lend-out-deposits-4671bb27fcb5

    loan.
     
    Last edited: May 19, 2017
  9. Roon

    Roon Well-Known Member

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    Incorrect. The banks can expand as much and as often as they like so long as they maintain the appropriate reserve requirements.
     
  10. james M

    james M Well-Known Member

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    ah but they don't set their own reserve requirements so have no control over how much they can lend out!!
     
  11. 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.
     
  12. james M

    james M Well-Known Member

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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.
     
  13. 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
     
  14. 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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  15. 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
  16. james M

    james M Well-Known Member

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

    james M Well-Known Member

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

    james M Well-Known Member

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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.
     
  19. james M

    james M Well-Known Member

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    did someone deny that?? Do you know what a strawman is?
     
  20. 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

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