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![[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?
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I herd in the first debate, Romney said that one of the presidents regulations on banks, made it so that there are steep penalties for loaning money to unqualified persons or companies.
However where Romney criticized this regulation wasn't the rule in its self, he said that the rule didn't clearly define the threshold of what constituted a person or company that should be deemed unqualified / qualified.
So this makes banks afraid to lend money, because they fear this penalty.
I suppose this could just be one aspect, and given it came directly from a candidates mouth it probably has spin.
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Lots of money printed=low interest rates.
Reserves ensures the ability to withdrawals are always possible. There are other macroeconomics that factor in to the amount - but you won't understand it without a good understanding of economics.
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Why is the government giving them interest on it though? They are basically printing their own money by not spending the money that the government gave them.
EDIT
Lots of money printed=low interest rates.
Reserves ensures the ability to withdrawals are always possible. There are other macroeconomics that factor in to the amount - but you won't understand it without a good understanding of economics.
The image I posted has the reserves held for 2000-2008, then the massive spike from the crisis for 2008-2010. I have a pretty decent understanding of macroeconomics, so please try me.
EDIT2: I also posed the question of "if printing stops will interest rates automatically rise?" which shouldve indicated that I understood printing = lower interest rates 
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I was writing but then it occurred to me that this kind of looks like a homework thread.
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I don't work at any of the big banks. I would guess they are having a hard time finding good loans to place all their excess reserves into. That may be part of the reason why they got so aggressively into sub-prime lending in the first place. They kept holding onto more and more money for their clients, but couldn't find enough qualified borrowers to profit from. So they started adding in sub-prime borrowers. Now, they've gotten burned (and maybe regulated) into not lending out to sub-prime borrowers, but they still have a crap ton of people wanting the big banks to hold onto their money.
The banks have nowhere profitable to put that money, so the banks are just holding onto their reserves.
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It's basically because of quantitative easing, an unconventional approach to monetary policy. The government essentially dumps a ton of printed money into the economy. Usually the government tries to lower interest rates to encourage spending, but they lowered interest rates almost to zero and it wasn't enough. So the government buys up financial assets with newly printed money, increasing the banks' excess reserves in the hopes that they will lend it and stimulate the economy. But this didn't work out that well: banks are holding onto it (because they're afraid to lend out more money, and people are afraid to borrow more money), and it hurt the credit quality of the United States, among other things, lol.
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On October 26 2012 12:56 Djzapz wrote:
I was writing but then it occurred to me that this kind of looks like a homework thread.
My thoughts exactly. TL do my homework for me!
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On October 26 2012 12:58 RenSC2 wrote:
I don't work at any of the big banks. I would guess they are having a hard time finding good loans to place all their excess reserves into. That may be part of the reason why they got so aggressively into sub-prime lending in the first place. They kept holding onto more and more money for their clients, but couldn't find enough qualified borrowers to profit from. So they started adding in sub-prime borrowers. Now, they've gotten burned (and maybe regulated) into not lending out to sub-prime borrowers, but they still have a crap ton of people wanting the big banks to hold onto their money.
The banks have nowhere profitable to put that money, so the banks are just holding onto their reserves.
And to add to this, wouldn't the continuous printing of money from government the banks the incentive to start finding a place to spend?
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On October 26 2012 12:56 Djzapz wrote:
I was writing but then it occurred to me that this kind of looks like a homework thread.
I have a 95.5 in the class and this is not at all related to homework. These are questions that I have in regards to that graph because I found it alarming. My homework in the class is all online with multiple choice.
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Yeah, this seemed far too dangerous and intellectually stimulating a question for homework...
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On October 26 2012 13:02 sam!zdat wrote:
Yeah, this seemed far too dangerous and intellectually stimulating a question for homework...
zzzzing! 
Definitely quite interesting though, cool that you're wondering about these kinds of things and getting some discussion going :D
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On October 26 2012 13:00 TheRabidDeer wrote:Show nested quote +On October 26 2012 12:56 Djzapz wrote:
I was writing but then it occurred to me that this kind of looks like a homework thread. I have a 95.5 in the class and this is not at all related to homework. These are questions that I have in regards to that because I found it alarming. My homework in the class is all online with multiple choice.
Even if I took your word for it, what kind of person gets 95.5% and is unable to answer to those questions which are essentially elementary? (Edit: I guess classes that have online multiple answers homework x_x). Anyway come on. Worst case scenario, google it. Easymode.
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On October 26 2012 13:04 Aerisky wrote:Show nested quote +On October 26 2012 13:02 sam!zdat wrote:
Yeah, this seemed far too dangerous and intellectually stimulating a question for homework... zzzzing! Definitely quite interesting though, cool that you're wondering about these kinds of things and getting some discussion going :D
This has been an awesome semester for me so far. Love my classes and I am taking a government and macroeconomics class during an election cycle (and one that has a heavy focus on the economy at that!). Learning so much and seeing everything in action and its all relevant to what is going on!
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On October 26 2012 13:04 Djzapz wrote:Show nested quote +On October 26 2012 13:00 TheRabidDeer wrote:On October 26 2012 12:56 Djzapz wrote:
I was writing but then it occurred to me that this kind of looks like a homework thread. I have a 95.5 in the class and this is not at all related to homework. These are questions that I have in regards to that because I found it alarming. My homework in the class is all online with multiple choice. Even if I took your word for it, what kind of person gets 95.5% and is unable to answer to those questions which are essentially elementary? (Edit: I guess classes that have online multiple answers exams x_x). Anyway come on. Worst case scenario, google it. Easymode.
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?
Gonna give that a quick read, thanks 
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On October 26 2012 13:04 Djzapz wrote:Show nested quote +On October 26 2012 13:00 TheRabidDeer wrote:On October 26 2012 12:56 Djzapz wrote:
I was writing but then it occurred to me that this kind of looks like a homework thread. I have a 95.5 in the class and this is not at all related to homework. These are questions that I have in regards to that because I found it alarming. My homework in the class is all online with multiple choice. Even if I took your word for it, what kind of person gets 95.5% and is unable to answer to those questions which are essentially elementary? (Edit: I guess classes that have online multiple answers homework x_x). Anyway come on. Worst case scenario, google it. Easymode.
I don't think that's fair at all.
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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.
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On October 26 2012 13:09 TheRabidDeer wrote:Show nested quote +On October 26 2012 13:04 Djzapz wrote:On October 26 2012 13:00 TheRabidDeer wrote:On October 26 2012 12:56 Djzapz wrote:
I was writing but then it occurred to me that this kind of looks like a homework thread. I have a 95.5 in the class and this is not at all related to homework. These are questions that I have in regards to that because I found it alarming. My homework in the class is all online with multiple choice. Even if I took your word for it, what kind of person gets 95.5% and is unable to answer to those questions which are essentially elementary? (Edit: I guess classes that have online multiple answers exams x_x). Anyway come on. Worst case scenario, google it. Easymode. 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? EDIT: Grade since you seemingly dont believe me. Only 94.9 not 95.5 as I thought. + Show Spoiler +Gonna give that a quick read, thanks
What interest? How can they collect interest when that money is doing absolutely nothing while kept in reserve?
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EPT![[image loading]](http://i.imgur.com/CKJKT.jpg)
