Originally posted by PalynkaNo, you did not. I asked you a simple question and you failed to answer it? Is it because you cannot find the answer?
I already proved you wrong. Try reading.
If the fed collects interest from the bonds it holds, the Fed must have paid for those bonds somehow, right?
How did the fed pay for them and where did the money come from?
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Originally posted by Metal BrainThey printed some, they got some from previous open market sales, they collected interest, they electronically created money, etc...
No, you did not. I asked you a simple question and you failed to answer it? Is it because you cannot find the answer?
If the fed collects interest from the bonds it holds, the Fed must have paid for those bonds somehow, right?
How did the fed pay for them and where did the money come from?
And?
Edit - It's "funny" how you keep changing the questions as soon as I answer one of your posts, Mr. FreeThinker.
Metal brain, you say that inflation is tax, but have you thought about whom that tax adversely affects?
Higher inflation erodes the real value of savings (generally, hurting richer people) and erodes the real value of debts (generally, helping the poor).
Of course, if inflation gets out of hand then all bets are off and the currency collapses and gold would indeed be a sensible thing to be holding. But a period of relatively high inflation (say, 5-10% pa for 5-10 years) would be no unmitigatedly bad thing right now.
The policies you seem to be promoting would have the opposite effect. Higher reserve rates = tighter money = lower inflation / higher deflation -- this would hurt borrowers and helps savers.
That the FED (and - note - other central banks around the world with different governance structures) are carrying out QE to expand the money supply rather undermines your theory that the Fed acts in the interests of a banking elite at the expense of the ordinary unwashed masses (aka, us).
Originally posted by PalynkaSo they created it out of nothing and we pay for it with inflation. They collect interest for nothing but printing the money. Who gets the better deal?
They printed some, they got some from previous open market sales, they collected interest, they electronically created money, etc...
And?
Edit - It's "funny" how you keep changing the questions as soon as I answer one of your posts, Mr. FreeThinker.
I did not change my question. That was the same question I asked you before. If you would answer the questions the first time I would not have to ask again.
Originally posted by Metal BrainMonetary authorities are governmental or quasi-governmental institutions (the latter is the case of the US). Decisions made on policy are not about "getting a deal" and you keep acting under the delusion that the Fed's decisions are purely private.
So they created it out of nothing and we pay for it with inflation. They collect interest for nothing but printing the money. Who gets the better deal?
I did not change my question. That was the same question I asked you before. If you would answer the questions the first time I would not have to ask again.
They give the "people" a great deal by monitoring, regulating and intervening in the monetary system.
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Originally posted by no1marauderI began to add more to my post about how much Ricardian Equivalence actually matters, but I decided it would make my post too long-winded.
How elegant. Of course, it doesn't happen that way in reality, but hey, neoclassical economists never let the real world get in the way of their pet theories.
I know you love to pigeon-hole me as a Milton Friedman-loving, Chicago-style economist. That is an enormous exaggeration. In my post, I was merely pointing out a concept within a theoretical model that illustrated the influence of future states on present decisions. I was not making any argument that RE is a completely accurate representation of reality. I understand the assumptions behind Ricardian Equivalence, and I know what happens when you relax them.
In the end, RE is an extreme outcome. Households, as a sector, do not save the entirety of a debt-financed tax cut. Likewise, they do not consume all of it. The question is to what degree they do save it, and that question is not settled. I think it's an interesting (and for obvious reasons important) research agenda.
Originally posted by Metal BrainI wasn't aware that this whole problem was caused by the "speculation" of consumer banks.
I never said I wanted high reserve requirements. I said they were too low. If you want to argue 3% is not too low, fine. But don't say I can never say they can be too high, because they can if you have no workable alternative to fractional reserve banking in place.
The economic problems we are having would not be as bad if rr were not so low. If banks ...[text shortened]... onomic problems.
http://www.pbs.org/wgbh/pages/frontline/shows/wallstreet/weill/demise.html
Originally posted by murrowIf a person has an adjustable rate mortgage inflation will not spare them from higher interest rates, although it is possible that people with fixed rate mortgages could benefit. It has happened before.
Metal brain, you say that inflation is tax, but have you thought about whom that tax adversely affects?
Higher inflation erodes the real value of savings (generally, hurting richer people) and erodes the real value of debts (generally, helping the poor).
Of course, if inflation gets out of hand then all bets are off and the currency collapses and gold ...[text shortened]... ts in the interests of a banking elite at the expense of the ordinary unwashed masses (aka, us).
Inflation taxes everybody. Inflation is bad. It discourages saving and it erodes the value of your currency. Banks will raise interest rates to make up for inflation losses. Even if a few people benefit, the next guy that takes out a loan will not.
Higher reserve rates leading to lower inflation would not be a bad thing. If permanently circulating currency were to replace the debt created money it would not cause deflation. If US notes were used to buy back bonds from the Fed that would keep the money supply steady.
When banks were failing they were buying each other up even though the toxic debt came with the sale, why would they do that? They had far too much debt of their own to absorb more. No bank could survive with all of that debt. They were risking near CERTAIN BANKRUPTCY unless they would get bailed out. They must have known they were going to get bailed out big time. Why would they risk bankruptcy on a mere possibility they would get bailed out? They had to have been really darn confident the bailouts would save them in the end. Anything else defies logic.
Right now they are printing money like crazy and using it to bailout bad investments. This will put money back into the economy but is it well spent? Seems to me they are just looting our economy while there is still wealth left to loot. They will not tell us where all that money went. They don't think is is any of our business.
If nothing tangible is destroyed it is not destruction of wealth, it is transfer of wealth. We are getting screwed.
Originally posted by PalynkaMore opinions and no facts.
Monetary authorities are governmental or quasi-governmental institutions (the latter is the case of the US). Decisions made on policy are not about "getting a deal" and you keep acting under the delusion that the Fed's decisions are purely private.
They give the "people" a great deal by monitoring, regulating and intervening in the monetary system.
Originally posted by Metal Brain
When banks were failing they were buying each other up even though the toxic debt came with the sale, why would they do that? They had far too much debt of their own to absorb more. No bank could survive with all of that debt. They were risking near CERTAIN BANKRUPTCY unless they would get bailed out. They must have known they were going to get bailed out big time. Why would they risk bankruptcy on a mere possibility they would get bailed out? They had to have been really darn confident the bailouts would save them in the end. Anything else defies logic.
Whether or not they were confident that they'd get bailed out, one bank may have purchased another because the purchasing bank had capital on hand to absorb the bad assets. Then when things smooth over in the future, these banks could emerge stronger for having absorbed their competitor.
Originally posted by Metal BrainI know that they the restrictions between commercial lenders and investment banks were reduced. I still think it is naive to suggest that banks were taking advantage of a low reserve requirement in order to gamble. In actuality the consumer banking side was part of the problem, not because of investments, but because they made unsound loans and then sold them to other companies for fee income.
Read the wall street fix link. Investment banks used to be kept separate from consumer banks.
Originally posted by Metal BrainBank failures were actually pretty rare before the current mess; there wasn't a single one in 2005-06 and only three in 2007. http://www.fdic.gov/bank/individual/failed/banklist.html
I never said I wanted high reserve requirements. I said they were too low. If you want to argue 3% is not too low, fine. But don't say I can never say they can be too high, because they can if you have no workable alternative to fractional reserve banking in place.
The economic problems we are having would not be as bad if rr were not so low. If banks ...[text shortened]... onomic problems.
http://www.pbs.org/wgbh/pages/frontline/shows/wallstreet/weill/demise.html
You correctly identify the repeal of Glass-Stegall as a source of the financial collapse, but don't seem to understand why it was. Under GS, banks' ability to "speculate" was severely limited; generally in order to make profits they had to use their money to do what they are supposed to do i.e. loan money to consumers and businesses to keep the economy flowing. An increase in the reserve requirement then would have stifled growth and raised interest rates, both leading to less profits for businesses and more hardship for consumers.
Once banks were allowed to expand into areas they had no expertise in in search of greater paper profits to justify exorbitant bonuses for upper and middle level management, it was inevitable that risk taking would increase exponentially. And just as inevitable that at some point it would be realized that the newly created securities that this paper wealth were based on were vastly inflated in book value. Once this came to the attention of investors, the banks and financial firms were headed for a free fall. But this had absolutely nothing to do with "reserve requirements".
