EPTBanks - Somebody more educated fill me in? - Page 2
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sam!zdat
United States5559 Posts
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sam!zdat
United States5559 Posts
On October 26 2012 13:18 Impervious wrote: What interest? How can they collect interest when that money is doing absolutely nothing while kept in reserve? because there's a negative real interest rate? does that sound right? sorry I'm bad at economics | ||
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TheRabidDeer
United States3806 Posts
On October 26 2012 13:17 JonnyBNoHo wrote: Banks aren't lending their excess reserves for two main reasons. 1) There isn't enough demand for loans. Some people borrowed too much before the crisis and so they are preoccupied paying that debt back. Other people don't want to borrow when they are unsure if they will be able to pay it back due to a crummy economy. Businesses could borrow more but don't see the economy as strong enough to justify large expansions. 2) Banks got burned badly with foreclosures - hundreds went bust - and they don't want to repeat past mistakes. So now they are being ultra-careful with who they lend to. While not a bad thing necessarily, it does mean that fewer loans will be made. Now why is the Fed still printing money? Because printing money will make money cheaper - interest rates will fall and entice people and businesses to borrow more. So a $200K mortgage that doesn't work at 5% works when the mortgage rate falls to 3% both from the perspective of the homeowner and the bank. I can understand a lower demand for loans, so did the government simply over-correct? Or did the government misappropriate the money by giving it to banks instead of finding other uses for it? Also, arent rates low enough? They are below 3% now for a 15 year. On October 26 2012 13:18 Impervious wrote: What interest? How can they collect interest when that money is doing absolutely nothing while kept in reserve? Banks collect a .25% interest on all reserves. | ||
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JonnyBNoHo
United States6277 Posts
On October 26 2012 13:09 TheRabidDeer wrote: Alright, so: 1) The bank is given over a trillion dollars from the government to bail them out because hey.. they needed the money! 2) The bank then spends basically NONE of it. But, I thought they needed it? 3) Interest rates are lower because of it, but did they really need to be lower? Which leads me to another question, couldnt there have been a more effective distribution than giving it to banks then letting them sit on it and collect interest? This wouldve kept interest rates low but mightve stimulated spending from the public, no? I mean if you give it directly to people, they will either spend it or save it. Either way, giving a trillion to the public couldve done a great deal more. Right? Well, the bank bailouts are separate from the issue of banks sitting on their deposits. The bailout money wasn't something the banks could lend out - it was used to shore up their balance sheets - while the Federal reserve printing money is what ended up deposited at the banks. As far as giving money to the public in lieu of printing money the problem is the reversal. Printing money gets reversed when the economy picks up to hold back inflation. So just giving the money away wouldn't work. | ||
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Djzapz
Canada10681 Posts
On October 26 2012 13:09 TheRabidDeer wrote: Alright, so: 1) The bank is given over a trillion dollars from the government to bail them out because hey.. they needed the money! 2) The bank then spends basically NONE of it. But, I thought they needed it? 3) Interest rates are lower because of it, but did they really need to be lower? Which leads me to another question, couldnt there have been a more effective distribution than giving it to banks then letting them sit on it and collect interest? This wouldve kept interest rates low but mightve stimulated spending from the public, no? I mean if you give it directly to people, they will either spend it or save it. Either way, giving a trillion to the public couldve done a great deal more. Right? You've been given sources explaining this way better than I ever could, and I don't have insight on the situation for every bank but. 1- No single bank has been "given" a trillion dollars, not even close. The bailout money was spread across a bunch of different businesses. Also, the money isn't given, it's loaned - and the majority of it has been paid back WITH interests. I'm sure some of the banks didn't need it, it doesn't matter - those banks already paid back their debt and the government actually collected interests and turned a profit off those. The money that's in the banks is NOT the bailout money. 2- It's part of the government's strategy for the crisis. Read the sources you've been given. Precaution against some risks, and also not too many people are demanding bank credit right now. 3- Interest rate doesn't need to be low. The fine folks at the federal reserve decide that it should be this low to favor spending. Your next question shows that you don't understand the strategy behind saving those banks. People are incredibly dependent on their banks. If a bank falls, those people lose their life savings. You can throw piles of money at people if you want, but the idea behind this kind of interventionism is that if you let those huge behemoth banks fall, some people will be fucked beyond belief. Still not convinced that this isn't a homework thread but either way like I said read the papers you've been given here. Of course you can disagree with the government's way to go about this. Anyway I need to sleep really badly. Cheers! | ||
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ETisME
12276 Posts
On October 26 2012 13:17 JonnyBNoHo wrote: Banks aren't lending their excess reserves for two main reasons. 1) There isn't enough demand for loans. Some people borrowed too much before the crisis and so they are preoccupied paying that debt back. Other people don't want to borrow when they are unsure if they will be able to pay it back due to a crummy economy. Businesses could borrow more but don't see the economy as strong enough to justify large expansions. 2) Banks got burned badly with foreclosures - hundreds went bust - and they don't want to repeat past mistakes. So now they are being ultra-careful with who they lend to. While not a bad thing necessarily, it does mean that fewer loans will be made. Now why is the Fed still printing money? Because printing money will make money cheaper - interest rates will fall and entice people and businesses to borrow more. So a $200K mortgage that doesn't work at 5% works when the mortgage rate falls to 3% both from the perspective of the homeowner and the bank. printing money also is to maintain it's current interest rate. with the high RR ration, the interest would rise without any interference. The problem with printing money is of cause inflation, devalue compared to foreign currency etc | ||
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Impervious
Canada4172 Posts
On October 26 2012 13:22 TheRabidDeer wrote: Banks collect a .25% interest on all reserves. How can they collect interest on something kept in reserve? I've looked into the fractional reserve system to get a basic understanding of how banks can seemingly pull money out of nowhere, and somehow charge interest on money that doesn't actually exist, but how the fuck can they actually pull money out of thin air (interest on money literally doing nothing)? | ||
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TheRabidDeer
United States3806 Posts
On October 26 2012 13:25 JonnyBNoHo wrote: Well, the bank bailouts are separate from the issue of banks sitting on their deposits. The bailout money wasn't something the banks could lend out - it was used to shore up their balance sheets - while the Federal reserve printing money is what ended up deposited at the banks. As far as giving money to the public in lieu of printing money the problem is the reversal. Printing money gets reversed when the economy picks up to hold back inflation. So just giving the money away wouldn't work. Ah I see. I was under the impression that the money sitting in their reserves was from the bailout, rather than from the money that has continued to be printed. Is this also why they are collecting interest from the government for their reserves? A kind of means for the government to continue to print money? On October 26 2012 13:26 Impervious wrote: How can they collect interest on something kept in reserve? I've looked into the fractional reserve system to get a basic understanding of how banks can seemingly pull money out of nowhere, and somehow charge interest on money that doesn't actually exist, but how the fuck can they actually pull money out of thin air (interest on money literally doing nothing)? I dont know why they are getting interest on it, just something that the government has in place. EDIT: Your next question shows that you don't understand the strategy behind saving those banks. People are incredibly dependent on their banks. If a bank falls, those people lose their life savings. You can throw piles of money at people if you want, but the idea behind this kind of interventionism is that if you let those huge behemoth banks fall, some people will be fucked beyond belief. Actually the question was operating under the belief that the banks didnt need the bailout money after all (as I assumed the reserves were from that). So I was under the assumption that the banks wouldnt have failed. But I have been corrected in this. | ||
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Djzapz
Canada10681 Posts
On October 26 2012 13:26 Impervious wrote: How can they collect interest on something kept in reserve? I've looked into the fractional reserve system to get a basic understanding of how banks can seemingly pull money out of nowhere, and somehow charge interest on money that doesn't actually exist, but how the fuck can they actually pull money out of thin air (interest on money literally doing nothing)? The fed pays interests on bank reserves to keep the money in the coffers. You're right that it doesn't come from thin air, obviously. It's a monetary policy like the low interest rate, and likely a means to keep inflation where they want it, among other things. | ||
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JonnyBNoHo
United States6277 Posts
The Federal Reserve used all the weaponry in its arsenal during the financial crisis, and created some new ones. The Treasury’s decision to pull back one innovation — in which the Treasury sold bonds and put the money on deposit at the Fed — has put the spotlight on another one. Because of an act of Congress, the Fed now has the power to pay interest on the reserves that banks leave on deposit at the Fed. That’ll change the way the Fed manages the economy in the future — but only in ways that credit market geeks can understand. For years, the Fed’s primary tool has been the federal funds interest rate, the rate that banks charge each other for overnight loans. Banks with more reserves than they need to comply with legal minimums lend to others who need reserves. The Fed’s policy committee — the Federal Open Market Committee — sets a target for that rate, but doesn’t control it. It influences it by affecting the supply and demand for reserves in the open market. In the past, when it wanted rates higher, it would announce a new target with much fanfare and then the next day reduce the supply of reserves — usually by selling securities from its portfolio which drained cash from the banking system. Rates usually responded to the announcement in anticipation of the actual Fed market maneuvers. When the Fed wanted rates lower, it did the opposite. Changes in the fed funds rate ricochet through the economy. Higher rates tend to discourage consumer and business borrowing and slow economic activity. Today, the Fed’s target for the fed funds rates is near zero and the banking system is awash with reserves. Many of those reserves aren’t being lent to other banks which can then use them to lend them to customers. Instead, they’re on deposit with the Fed. Until recently, the Fed didn’t pay interest on these reserves. Now it does. That changes things. Someday, the Fed will declare the emergency over and decide to tighten credit. There’s concern that because there are so many reserves sloshing around the banking system and all sorts of ordinary relationships have been distorted by the crisis and the Fed’s response that it won’t be able to get the fed funds rate up simply by announcing a new target and then reinforcing that with open-market operations. After all, as the Federal Reserve Bank of New York acknowledged earlier in the crisis, from “time to time” its trading desk has been “unable to prevent the federal funds rate from falling to very low levels.” So now when the Fed decides it wants to raise the fed funds rate, it now has two options: It can affect the SUPPLY of reserves as it used to by buying and selling Treasury securities on the open market. Or it can influence the DEMAND for reserves. If it raises the interest rate it pays on reserves, it will encourage banks to put more reserves on deposit at the Fed and lend less of their reserves to other banks in the interbank market. That should push the fed funds rate up. This, the Fed says, will mean less credit and higher interest rates throughout the banking system. “Paying interest on excess balances just makes it easier for the [New York Fed trading] Desk to implement the target federal funds rate chosen by the FOMC,” the New York Fed says. “Raising the rate of interest paid on reserve balances will give us substantial leverage over the federal funds rate and other short-term market interest rates, because banks generally will not supply funds to the market at an interest rate significantly lower than they can earn risk free by holding balances at the Federal Reserve,” Fed Chairman Ben Bernanke told Congress earlier this year. “Indeed, many foreign central banks use the ability to pay interest on reserves to help set a floor on market interest rates. The attractiveness to banks of leaving their excess reserve balances with the Federal Reserve can be further increased by offering banks a choice of maturities for their deposits.” This new tool, the Fed says to anyone who will listen, should reassure anyone that’s worrying that the Fed has the technical capacity to raise interest rates when the time comes. A longer explanation from the NY Fed here. <-- looks like a good read if you are having trouble falling asleep. | ||
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Impervious
Canada4172 Posts
On October 26 2012 13:31 TheRabidDeer wrote: I dont know why they are getting interest on it, just something that the government has in place. That blows my mind. | ||
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TheKwas
Iceland372 Posts
A liquidity trap is a situation described in Keynesian economics in which injections of cash into the private banking system by a central bank fail to lower interest rates and hence fail to stimulate economic growth. A liquidity trap is caused when people hoard cash because they expect an adverse event such as deflation, insufficient aggregate demand, or war. Signature characteristics of a liquidity trap are short-term interest rates that are near zero and fluctuations in the monetary base that fail to translate into fluctuations in general price levels.[citation needed] Contents [hide] 1 Conceptual evolution 2 Criticisms 3 See also 4 References 5 Further reading [edit]Conceptual evolution In its original conception, a liquidity trap refers to the phenomenon when increased money supply fails to lower interest rates. Usually central banks try to lower interest rates by buying bonds with newly created cash. In a liquidity trap, bonds pay little to no interest, which makes them nearly equivalent to cash. Under the narrow version of Keynesian theory in which this arises, it is specified that monetary policy affects the economy only through its effect on interest rates. Thus, if an economy enters a liquidity trap, further increases in the money stock will fail to further lower interest rates and, therefore, fail to stimulate. In the wake of the Keynesian revolution in the 1930s and 1940s, various neoclassical economists sought to minimize the concept of a liquidity trap by specifying conditions in which expansive monetary policy would affect the economy even if interest rates failed to decline. Don Patinkin and Lloyd Metzler specified the existence of a "Pigou effect," named after English economist Arthur Cecil Pigou, in which the stock of real money balances is an element of the aggregate demand function for goods, so that the money stock would directly affect the "investment saving" curve in an IS/LM analysis, and monetary policy would thus be able to stimulate the economy even during the existence of a liquidity trap. While many economists had serious doubts about the existence or significance of this Pigou Effect, by the 1960s academic economists gave little credence to the concept of a liquidity trap. The neoclassical economists asserted that, even in a liquidity trap, expansive monetary policy could still stimulate the economy via the direct effects of increased money stocks on aggregate demand. This was essentially the hope of the Bank of Japan in the 1990s, when it embarked upon quantitative easing. Similarly it was the hope of the central banks of the United States and Europe in 2008–2009, with their foray into quantitative easing. These policy initiatives tried to stimulate the economy through methods other than the reduction of short-term interest rates. When the Japanese economy fell into a period of prolonged stagnation despite near-zero interest rates, the concept of a liquidity trap returned to prominence.[1] However, while Keynes's formulation of a liquidity trap refers to the existence of a horizontal demand curve for money at some positive level of interest rates, the liquidity trap invoked in the 1990s referred merely to the presence of zero interest rates (ZIRP), the assertion being that since interest rates could not fall below zero, monetary policy would prove impotent in those conditions, just as it was asserted to be in a proper exposition of a liquidity trap. While this later conception differed from that asserted by Keynes, both views have in common first the assertion that monetary policy affects the economy only via interest rates, and second the conclusion that monetary policy cannot stimulate an economy in a liquidity trap. Declines in monetary velocity offset injections of short term liquidity... Much the same furor emerged in the United States and Europe in 2008–2010, as short-term policy rates for the various central banks moved close to zero. Paul Krugman argued repeatedly in 2008-11 that much of the developed world, including the United States, Europe, and Japan, was in a liquidity trap.[2] He noted that tripling of the U.S. monetary base between 2008 and 2011 failed to produce any significant effect on U.S. domestic price indices or dollar-denominated commodity prices.[3][4] http://en.wikipedia.org/wiki/Liquidity_trap Basically, interest rates can't go much (any) lower and there's still not enough demand for this money: no one wants to invest during a bad economy, and the economy is bad because no one wants to invest. This is why most Keynesian economists argue that in a liquidity trap, you have to focus more on fiscal stimulus rather than monetary stimulus (since fiscal stimulus directly injects the money into the system, whereas monetary does not). In other words, you're right that the money could have been spent better elsewhere, but since the money isn't really in the economy it doesn't really cost anything--printing money that doesn't do anything is pretty much the same thing as printing nothing in the first place--and it's better to overshoot monetary policy in this case than undershoot. The metaphor that always stuck out in my mind is that monetary policy is like a string or a rope: you can pull it to great affect, but trying to push it is downright frustrating. Unfortunately, in the current political atmosphere, trying to pass a fiscal stimulus motion will only allow your political opponents to tell the public that you're a money-spending socialist who is driving the country up debt-mountain, so clever monetary policy (see Quantitative Easing controversies) is basically trying to compensate for the lack of political will. | ||
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sam!zdat
United States5559 Posts
On October 26 2012 13:41 TheKwas wrote:no one wants to invest during a bad economy, and the economy is bad because no one wants to invest. Is this the whole story, though? | ||
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Impervious
Canada4172 Posts
On October 26 2012 13:41 JonnyBNoHo wrote: Fed Paying Interest on Reserves: A Primer A longer explanation from the NY Fed here. <-- looks like a good read if you are having trouble falling asleep. That second link there is a pretty heavy read. I'm going to read it again tomorrow to make sure I'm understanding this properly. If I am, then this is a fucking brilliant tool for the Fed to use to control the banks, yet, at the same time, is going to be extremely expensive for taxpayers..... And it failed pretty hard during the crisis for some reason, because it should have been able to help curb the effects of the housing bubble a lot better than it appears to have. I know I'm going to be looking into this a bit more. EDIT - by extremely expensive, I mean it is not necessarily going to directly use tax money, but it will make an effect on everyone. | ||
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jdseemoreglass
United States3773 Posts
Nope. Part of the story is that the graph is nonsense. They have absolute dollars in millions as an axis as though the fractional reserve ratio were not a percentage which will entail a different absolute amount from bank to bank and even a different percentage from bank to bank. It's a contextless graph which doesn't mention the banks, their market capitalization, they reserve percentages.... The graph is designed to make an extreme statement and therefore to evoke a clear answer. The other part of the story, which you will hear from practically no one, is that the reason the economy is "bad" is because it is correcting for previous OVER-investment. And so the claim that the lack of continued over-investment is the problem with the economy is to ignore that economies should operate around an average equilibrium and deviations from that equilibrium cannot be considered "good" in an objective sense since they will result in corrections in the future with a net negative loss for the economy in comparison. What most people will hear from their professors, however, is simply that rich entities hoard money and so we need Obama, errr... government to spend trillions in stimulus dollars and tax more because trickle-down economics doesn't work. It's like three straw men rolled into one. | ||
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Sub40APM
6336 Posts
On October 26 2012 12:33 TheRabidDeer wrote: ![[image loading]](http://i.imgur.com/Lc2XV.jpg) Picture taken from my economics text I was wondering if somebody could educate me on this. Up until the huge collapse, banks kept the bare minimum required by the government stored up in their vaults. And this makes sense, why keep money in your vaults when you can invest it to make more money? I mean, banks have over a trillion dollars waiting to be spent (and using the money multiplier that is significantly more than that which could be on the market for basic economic growth). So, why arent they spending? Why is the government STILL printing money if there is still all of this unused money? Will interest rates automatically rise if printing stops? Why are the banks collecting interest on this money too? 1. In 2008 what you had was a bank run. The traditional banking model is: I offer you 3% on your deposits, I take your deposits and loan them out at 6% and thats it. Maybe I buy some treasuries that pay at above 3% and coast on the difference. Since the 1980s biggest banks have moved away from funding themselves via depositors and instead use 'repo.' Basically they take their long term assets on their books mortgages/bonds/securities/whatever and they offer them at a very very tiny discount to someone who has a pile of money for a specific period of time. The pure investment banks like Bear Sterns and Lehman Brothers funded their entire daily operations via such repos. In the mornings their repo desk would call up other banks or big corporations and say we need this much cash and we are willing to pay this much interest and also we will put up bonds and other securities worth this much. The financial crash happened because a larger and larger portion of the bonds used to collateralize these repo agreements were structured products (CDOs) of mortgage backed securities that, theoretically, were as good as government bonds but paid higher interest rates, which made them very appealing. [In a repo transaction even though I am paying you an interest rate for the cash you lent me and you get an interest payment from me and also my bonds to hold onto the interest that those bonds pay to me belong to me and has to be paid back when you return the bonds] As you are probably aware, despite "AAA" moniker slapped onto these bonds a lot of them had various sub prime mortgages, or even worse, synthetic sub-prime 'mortgages' that mimicked a real CDO but without any actual underlying collateral. So when the various sub prime CDOs started failing, many things that were rated 'AAA' turned out be rated '????' and so banks stopped entering into repo agreements with each other or started demanding insane haircuts [Hand over 10 billion dollars in bonds and ill give you 5 billion in cash] which started outright blowing up people who depended on day-to-day funding like Bear and Lehman but it also put giant holes into banks balance sheets. You see, as part of the entire securitization process through which banks handed over money to mortgage originators to get loans and then in turn repackaged them into bonds there was a tremendous amount of raw material, CDOs themselves or just mortgages being stored in a metaphorical 'warehouse' legal entity while the bankers got to it, on the balance sheets of banks. In theory this was great because banking regulations required them to hold back certain reserves and a AAA rated bond required almost no haircut whereas an actual loan to a corporation was haircuted much more severely. So almost every bank in the world that was a major player in the capital markets game has a ton of things on its balance sheet that is on paper "AAA" but in reality "???." Banks stopped trusting each other and stopped re-rolling each others repos. Which is essentially what a bank run was in the old days before deposit insurance, customers stopped trusting their banks and asked to take out their money. Because banks are always borrowing short and lending long they found themselves with a funding mismatch and started dying 2) The governments' response, eventually, was to bailout the banks. There were actually several different degrees of respones. Firs there was an idea that the Fed would become the repo counter party to the banks, but because banks didnt trust each other and the Fed and the banks were worried that if they appeared to be going to the bank they would look in danger and would further deteroirate the trust other counterparties the solution was to do 'anonymous repos.' The fed would offer loans and in an anonymous auction banks would get to bid how much they were prepared to pay the Fed for its generosity. [Some might find this strange but in Sept of 08 there was 0 inter bank lending. So those institutions that enjoyed borrowing at 2-3% found themselves unable to raise cash even at 10%!] Anyway, that sort of worked but it wasnt enough as Citi and BofA were essentially walking bankrupts. So the solution was TARP, which gave government money to the banks in exchange for bonds that may or may not have been worth anyway. The Fed did its part by loaning money to banks at nothing, some might even say negative real rates, and the banks used it to shore up their balance sheets. To replace the "???" stuff with actual AAA treasuries. The fact that the banks could borrow at 2% from the Fed and then buy a Treasury bond that paid 4% and make money on that 2% was just another form of bailout. It was essentially a way to sidestep the nasty political issue, after all it was reckless lending by banks that torpedoed the capitalist system yet here they were getting bailed out while your dad was losing his job and your house was worth 1/2 of what it was last year. Since most common people dont understand what the Fed is, much less how it operates, it was a great way to get some liquidity back into a system desperate for it. As to why the banks are sitting on those 'massive' reserves? We dont actually know what the banks have on their balance sheet. Lehman Brothers' latest quarterly statement said it had 64 billion in Assets over Liabilities. Then it went bankrupt and it turned out it had between 40-80 billion in Liabilities over Assets. Identifying what is on a banks' balance sheet is notoriously difficult, just today Credit Suisse reported that they have 21% "total capital" yet when you look at their balance sheet you see 43 billion of equity onto approximately trillion in assets. So does it have 21% 'total capital' or only 4%? Banks have also taken advantage of accounting rules that let them reclassify assets as either 'ready for sale' (I think thats the most liquid designation of an asset? Accounting guys correct me.) which means that those assets have to be marked to the market as it is [so if you had a bunch of Greek 'AAA' loans on your balance sheet and now that stuff is trading at a discount of almost 50% you feel pretty dumb and also you need a lot of capital quick] or 'held to maturity', which means you can classify this as assets worth as what you paid for it and are stating that you will hold onto this asset all the way until it matures and pays back. So again, if you were clever and put all your Greek debt into hold for maturity it *looks like* you have a bunch of AAA rated capital on your balance sheet but you and I both know that that stuff is dodgy. Oh and, of course, there are also things still being litigated over the crisis. For example, both Bank of America and Citi are still dealing with lawsuits pertaining to bad mortgages. Because Bank of America bought a bunch of really dodgy mortgage companies right up to 2008 they also have to deal with all those legacies costs. What the ultimate legal costs for all of those things are is also unclear. So basically, that chart can be taken at face value to mean that 'according to the filings to their regulators, banks appear to have a lot of capital on hand.' Just like Bear Sterns and Lehman brothers did until they didnt. 3) And of course demand for loans have declined dramatically. As housing prices continue to be in the crapper with little sine of an actual improvement, the demand for new mortgages and household formation has declined dramatically. All those kids in their 20s who are either renting or still living at home despite having a job [plus all those who live at home because after college they cant find jobs] are a weighing down on loans. Plus, corporations, freaked out in 2008 by the fact that their banks were going bankrupt [and corporations like everyone else embraced 'modern finance' which meant maximizing your leverage and relying for banks for your funding while deploying your cash in money market funds or some repos pre 2008] would also mean that the corporations themselves would find themselves temporarily unable to cover their costs because their 'efficient' finance relied on access to loans/trade finance/etc. took the lesson to heart and started hording massive amounts of cash. All those people who were fired and all those people who had to work harder, longer and for, in real terms, less pay meant that at least American corporations reached impressive peaks of efficiency. All that extra efficiency went into hording money due to the fear of another 2008 style melt down. TL;DR 1) Banks still need the money 2) Despite what they officially report a lot of them can still blow up at any time 3) Demand for loans is at an all time high but for various political and ideological reasons no one is going to try and ramp up demand further to restore growth to trend level anyway, sorry for sloppy spelling and lack of certain details but I just wrote this off the top of my head as a way to avoid some more of my mind numbing work. | ||
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Yurie
11683 Posts
On October 26 2012 13:25 ETisME wrote: printing money also is to maintain it's current interest rate. with the high RR ration, the interest would rise without any interference. The problem with printing money is of cause inflation, devalue compared to foreign currency etc You talk like devalue compared to a foreign currency is bad? It is a very good thing for an export based economy. Last I heard the US wasn't really one though so it might not be true for the US and just increase the amount their trade balance is negative in. | ||
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TheRabidDeer
United States3806 Posts
On October 26 2012 13:59 jdseemoreglass wrote: Nope. Part of the story is that the graph is nonsense. They have absolute dollars in millions as an axis as though the fractional reserve ratio were not a percentage which will entail a different absolute amount from bank to bank and even a different percentage from bank to bank. It's a contextless graph which doesn't mention the banks, their market capitalization, they reserve percentages.... The graph is designed to make an extreme statement and therefore to evoke a clear answer. The other part of the story, which you will hear from practically no one, is that the reason the economy is "bad" is because it is correcting for previous OVER-investment. And so the claim that the lack of continued over-investment is the problem with the economy is to ignore that economies should operate around an average equilibrium and deviations from that equilibrium cannot be considered "good" in an objective sense since they will result in corrections in the future with a net negative loss for the economy in comparison. What most people will hear from their professors, however, is simply that rich entities hoard money and so we need Obama, errr... government to spend trillions in stimulus dollars and tax more because trickle-down economics doesn't work. It's like three straw men rolled into one. Title of graph: Required and Total Reserves of Banks You also do see that the amount of required reserves increases in the 2008+ range. http://www.newyorkfed.org/research/current_issues/ci15-8.pdf (linked in this thread) has a very similar graph. Also, the theory that people hold is that the economy is OVER correcting for the previous over-investing. This in addition to the uncertainty about the USD and jobs and the economy on the whole. Also, I live in texas. I am fairly certain my professor is a republican as well. | ||
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GnarlyArbitrage
575 Posts
The third bailout isn't giving money to banks, it's combating hyper-deflation and combating the Euro and the Chinese Yuan. Y'all mad? /DX be going up to 120 while AAPL be FUCKING DEAD. | ||
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FabledIntegral
United States9232 Posts
Have you seen the rates you can get for bonds and shit with your own money? It's like nothing. It's largely in part a byproduct of the Fed keeping interest rates down to attempt to stimulate the economy and boost investment, but clearly the banks don't seem to care. On October 26 2012 14:08 Yurie wrote: You talk like devalue compared to a foreign currency is bad? It is a very good thing for an export based economy. Last I heard the US wasn't really one though so it might not be true for the US and just increase the amount their trade balance is negative in. So many more considerations than just exports. | ||
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