Regulating inflation.

This is an excellent explanation of fractional reserve banking. However, remember that the Fed can create new money when it buys treasuries from the public. It buys the treasury from bank A and pays the bank by crediting the banks reserves at the fed. Poof! New money just created.

 

Right - when I said "Direct control" I should have said complete control.

 

I agree they don't have complete control.

However...they could raise reserve requirements to 100%, in which case they would.

 

They certainly could. I however expect that would change in short order once a couple of them got stuck with pitch forks. .

 

They are mandated not to influence inflation but to control it exactly which is what they do this is why their target is 1 to 2% inflation and why we have 1 to 2% inflation. Did you think it was just coincidence? To use your example it would be like saying the captain of the big ocean liner only has influence over the destination of his ship When the reality is that with experience the captain can control the ship to within one or 2 feet

 

It's much easier to maintain that inflation "target" when you keep moving the goalposts via how you measure inflation.

You didn't address a single thing that I said. Everything I said in my post is factually accurate. You can address it if you wish, or you can keep bringing out analogy's. Your choice I guess.

 

Sue McDonalds for damages after you pay your tax

 

sure I did, you said we have run away inflation between 100-10000% because the private banks can create money at will and I informed that we have something called the Fed which is mandated to keep inflation at 0% -2% and generally succeeds. Then you said the we do have tremendous inflation as the Austrian's predicted but the Fed covers it up with counterfeit inflation numbers. Have I got it right?

 

@Roon, did you actually say 100-10000%? I don't think I saw that. And did you say "tremendous" inflation? I don't think I saw that either.

 

well, if banks can create money at will why wouldn't they????

 

I said none of those things - you are correct.

I simply said - and proved mind you - that private banks can expand the money supply at will so long as they can satisfy the reserve requirements set forth for them.

 

Banks create money by loaning out, say, 90% of their deposits. But once all the banks are levered up to this point, they must stop. That's where we are now. So once that point is reached, things become very stable and the fed can, as @Roon pointed out, tweak the money supply by such things as changing reserve requirement or open market operations.

The fact that you asked the question you did indicates that you don't have a very good understanding of fractional reserve banking. This is not a criticism, as almost nobody does. But I think that maybe you should look into the topic some more.

 

so you agree!!! from now on it will be very stable despite the fractional reserve system that supposedly enables banks to create money at will!!! Thus the fractional system creates stability thanks to Fed's 10% reserve requirement which they can change as they see fit to meet mandate on no inflation. Thanks

 

Agree with what, specifically?

No, it doesn't create stability in banks. The amount of money created by banks reaches a limit and stays there. However, they are one bank run away from disaster.

 

I agree with your one scenario but more typically with $1 trillion in loans there should be 100's of contractors who got loans. Even if a few of them default, and the bank defaults, the long-term payback of those loans should go to the sap who deposited the $1 trillion. I find it confusing that whether it's $500K or $1 trillion on deposit, if the bank goes bankrupt, there should still be a long-term stream of payments coming from contractors to the default bank. If so, those with more than FDIC $250K on deposit should get back the bulk of their money. But instead it works more like you stated in which those long-term payments will go to pay down general bank debt with no regard for the sap who deposited $1 trillion

 

Savings/checking accounts at ten different banks is still only insured for $2.5 million...

 

I probably should have said 'my deposited $1 trillion disappears, minus the FDIC part. The bank would sell assets to meet it's liabilities but I'm thinking the bank does not consider my $1 trillion deposit as a liability...only as a asset. I would get the FDIC part but the rest of the $1 trillion pays off all the other sins of the bank...

 

It didn't make any difference what the bank did with the $1 trillion. My problem is once I give the bank $1 trillion the bank considers it an asset instead of a liability. When the bank sells it's assets to pay for it's evil deeds, certainly part of that is my $1 trillion but I'm thinking the bank does not consider me a liability who is owed $1 trillion plus interest...

 

1) you could put money in 10 different banks under 10 different legal names and have 100 insured accounts if you were determined to waste your money in a bank

2) after admin expenses you would be entitled to your share of any uninsured money the bank had left to pay general creditors and depositors.

 

I have no problem at my age and financial situation if our cash is not earning the highest returns...I'm more interested in access and security.

Regarding your #2 if the bank's liabilities are much less than my deposit then I 'might' get something back in addition to FDIC...

 

Inflation over my lifetime has averaged 3.58%, but the Fed is now trying to maintain an average rate of about 2% per year.

 

If the rate of inflation > interest rate.

The amount you have to repay is worth less and less each year.

So if you are in debt, inflation is your friend.


Bank of England has targeted a 2% rate if inflation all my life. It's a dogma here.
No idea why they chose 2% as the magic number to aim for and not 0%. But there you go.

 

I think 2% because they would rather miss on the high side than on the low side. A little inflation can help poor debtors including government and can encourage people to invest and spend rather than to save whereas deflation would have the opposite effect

 

I'd rather they helped poor savers.

The government can encourage people to build up a stake. To get some working capital so they don't stay poor.
Teach a man to fish and all that.


Winners a and losers. Cooking the books produces zero extra resources.
It's a zero sum gain.

So all my MP's have mortgages. Every single one of them. When we look around and actually find out who the winners and losers are in this relationship, oh look. This is not lost on me.

So while this is all very nice for debtors, and great that MP's can vote themselves more of my money. This doesn't help me or any of the majority of people in this country who are not in debt. It screws them. Rich and poor alike.

Winners = debtors. Losers= savers.

Deflation? You guessed it, great for savers.


Question: Should government fiscal policy encourage saving money or borrowing money as a priority?

 

we are not pigs who want to be led around by the nose by brainless politicians. We want to be free to make our own decisions.