Originally posted by kmax87Exactly. And your last point is exactly why adequate regulation (minimum reserve requirements, etc.) comes into play and is needed in order to minimize the risk of such bank runs.
You would think that the system, for it to be able to provide interest on deposits has to involve the creation of money through some form of fractional system. How else does a bank pay the interest on the deposit and make enough money to cover its operational costs and still generate a profit? And it all works fine it seems as long as depositors dont get nervous and all pull their funds at the same time.
Originally posted by kmax87And as long as the rules for reserves aren't too generous.
You would think that the system, for it to be able to provide interest on deposits has to involve the creation of money through some form of fractional system. How else does a bank pay the interest on the deposit and make enough money to cover its operational costs and still generate a profit? And it all works fine it seems as long as depositors dont get nervous and all pull their funds at the same time.
Originally posted by PalynkaI can accept fractional reserve banking as long as the reserve requirements are slowly raised to 20-25%. I think 10% is too low.
Not exactly. I'm trying to convey the idea that there's nothing fundamentally unsound with fractional reserve banking.
As long as there are no deposits, then there is no fractional reserve lending.
As long as there are deposits, then unless the depositary doesn't merely lock the money away then there will be fractional reserve lending.
Banks, by lendi ...[text shortened]... em properly. I don't see why the option of having to lock the deposit away is a better one.
Originally posted by Metal BrainThree questions.
I can accept fractional reserve banking as long as the reserve requirements are slowly raised to 20-25%. I think 10% is too low.
1) Why do you think 10% is too low?
2) Why do you think 20-25% is the correct level (not say 30-35% )?
3) Do you know what percentage the effective reserve requirement is?
Originally posted by telerionNear nothing. Many central banks have no reserve requirements at all. It is often left to the judgment of the banks. 33% may be even better. That is what the Bank of England used to have for requirements. The economy didn't suffer. My goal is simply to go in that direction. We can debate where to stop (or keep going) along the way.
Three questions.
1) Why do you think 10% is too low?
2) Why do you think 20-25% is the correct level (not say 30-35% )?
3) Do you know what percentage the effective reserve requirement is?
Why didn't you answer my question about the privately owned FRS charging the government interest? It is explained in more detail in the Money Masters. You should watch it again. It is hard to remember everything the first time you watch it. It has a lot of information packed into 3 1/2 hours.
Originally posted by Metal BrainI didn't answer your question because I feel that after answering 390293840934329048234 of your questions, I deserved an answer to a few. I will answer your question in time.
Near nothing. Many central banks have no reserve requirements at all. It is often left to the judgment of the banks. 33% may be even better. That is what the Bank of England used to have for requirements. The economy didn't suffer. My goal is simply to go in that direction. We can debate where to stop (or keep going) along the way.
Why didn't you answ ...[text shortened]... r everything the first time you watch it. It has a lot of information packed into 3 1/2 hours.
So far you've only answered my last one. Effectively in the US the rr has been as low as about 3%. As I wrote earlier, the MM video has some of its facts straight but most of the video is BS. I feel perfectly comfortable rejecting most of what they have to say. As for the other two questions, you really haven't given any reason for us to think that 10% is too low or 25% is just right or that even 33% is right. You're asserting that 25% is to be preferred to 10%. Why?
Originally posted by telerionDoes increasing the rr effectively compress the amount of speculation any banking system/market will entertain? If so wouldn't it be a good thing if by increasing the rr requirements, growth was then governed to remain at much more long term sustainable levels , thus lessening the boom bust aspect of the overall market cycle?
Effectively in the US the rr has been as low as about 3%. ..... You're asserting that 25% is to be preferred to 10%. Why?
Originally posted by kmax87I don't follow. Why would increasing the rr reduce speculation in the markets?
Does increasing the rr effectively compress the amount of speculation any banking system/market will entertain? If so wouldn't it be a good thing if by increasing the rr requirements, growth was then governed to remain at much more long term sustainable levels , thus lessening the boom bust aspect of the overall market cycle?
Originally posted by telerionthere would be less money available to finance projects, which in turn would probably mean it would be harder to get projects financed, which would probably mean that banks would be pickier who they chose to lend to which would probably mean more conservative return type projects would be approved, all because there was less money to be loaned in the first place. Ive heard it said that much of the present day crisis was precipitated by excess capacity in banks to lend, so the converse of greater rr provisioning levels suggests a less speculative, slower, but more sustainable business environment.
I don't follow. Why would increasing the rr reduce speculation in the markets?
Originally posted by kmax87I guess you could make that argument. You might at least reduce "speculative" behavior by banks. Of course a lot of speculative behavior comes from other people like investment banks (of course, not the same as commercial lenders) and wealthy people (foreign and domestic) so there could still be a lot of speculation and thus "bubbles." For an example, think of the dotcom bubble. Still, I guess that the gist of your argument is that banks would never have developed sub-prime loans if the rr had been higher which I suppose is possible.
there would be less money available to finance projects, which in turn would probably mean it would be harder to get projects financed, which would probably mean that banks would be pickier who they chose to lend to which would probably mean more conservative return type projects would be approved, all because there was less money to be loaned in the first pl ...[text shortened]... visioning levels suggests a less speculative, slower, but more sustainable business environment.
On the other hand, the rr really controls the size of multiplier effect on money. With a higher rr, a central bank could still get still give banks the same capacity to lend just by releasing more high-powered money into the banking system. It's possible that there could have been just as much capacity even with a higher rr and so the sub-prime industry would have developed anyway.
So bottom line is my response is "Maybe, maybe not" 🙂
Originally posted by telerionI listened to Bernanke explain to a congress committee on C-Span recently how the greater proportion of leverage in the market is sourced outside of banks, well definitely outside of any consumer bank at least, the question then I suppose is if investment banks are not bogged down by rr requirements, what mechanisms are put in place to provide adequate feedback in the system? Economics being only a field of interest and not a speciality of mine has me stretching for analogies out of flight control simulation and systems control, in order to make sense of the dynamics in play.
So bottom line is my response is "Maybe, maybe not" 🙂
Now it seems to me the Fed tries to close the loop and it has certain indicators such as inflation and other such measures with which to determine the command inputs it should make. The point is if some parts of the system are not robustly controllable, then no amount of big lever pushing on their part could ever produce the desired output from their input commands.
Its like a plane in flight. You want to be able to have a transfer function that can describe the subtle interplay between flight control surface deflections, and the 12 degrees of freedom of state that describe the plane's physical orientation in equilibrium flight(thrust, elevators, ailerons, rudder) &(horizontal,lateral and vertical velocity, roll angle, angle of attack, yaw angle, roll rate, pitch rate and yaw rate, horizontal, lateral and vertical displacement) Combined with a turbulence model(also a transfer function) you can work out how the system will respond to a range of desired flight conditions and sudden unpredictable(stochastic) inputs.
The point is that the dynamics of a plane in flight are well understood, because every aspect of the dynamic relationship of that planes behaviour in flight can be broken down into a complex concatenation of single input single output systems.
What in your opinion are the loops of control that the Fed has at its disposal to command desired outputs from the system, and where does the system break down? Is it a lack of knowledge to be able to describe mathematically what in reality is a random chaotic process, that defies understanding, or is it a case of there being areas within the market that are so free of any external control or oversight, that no matter what the fed does if the system is shocked one too many times without settling, the dynamics within the poorly regulated sectors of the economy then present a bag of unknown unknowns to the Fed, that can destabilize the system so quickly, that it would be equivalent to sending a very stable aircraft into a spiral nosedive. The problem being that its very inherent longitudinal stability actually works against the plane in the spiral, such that its flight control surfaces are not large enough to generate the forces required to recover itself out of its death spiral. The question I suppose I really want to know is what are the states of the economy, and what controls are used to effect changes of those states?
Originally posted by telerionIn other words, you don't know the answer to the question and you are annoyed that you cannot.
I didn't answer your question because I feel that after answering 390293840934329048234 of your questions, I deserved an answer to a few. I will answer your question in time.
So far you've only answered my last one. Effectively in the US the rr has been as low as about 3%. As I wrote earlier, the MM video has some of its facts straight but most of the ...[text shortened]... right or that even 33% is right. You're asserting that 25% is to be preferred to 10%. Why?
The Money Masters said the rr was effectively 3% as well but you dismiss the documentary as BS so I was not about to give you something else from their website. If most of the video is BS why don't you prove it instead of avoiding the facts? Are you afraid you will fail?
Here is an excerpt from the MM FAQ web link.
"The people would be legitimately concerned to know that the member bank stockholders elect six of the nine members (i.e., 2/3rds) of the Boards of the reserve banks of their regions. Rather than regulating or controlling the activities of private banks in their regions, the opposite is the case".
You are one of those guys that Churchill described aren't you?
Once in a while you will stumble upon the truth but most of us manage to pick ourselves up and hurry along as if nothing had happened.
Originally posted by telerionFDIC is a safe guard to protect banks from a flaw in low reserve requirements. Why did the big banks need to be bailed out? Because they speculated with other peoples money. Raising reserve requirements would simply limit the amount of OPM they can speculate with.
And the biggest safe guard against bank runs has been FDIC.
Those banks should have been put into FDIC receivership.
If you want to make the case for low reserve requirements, go ahead and make it. It is a losing argument.
Man, you are absolutely crazy. You've stumbled on to one internet site and now you quote it as if it were the Bible. Money Masters has zero credibility within the academic economics and private financial fields. I mean the main guy behind the MM project is a painter by profession who in his own words made up his mind about debt and finance in high school when he learned about logarithmic functions! That doesn't prove MM wrong of course, but it would give most sane people pause before buying the cartoon hook, line and sinker.
I already gave you an example of where the MM video "Money as Debt" went wrong. In fact, I gave an approximate time where it went from wildly biased yet more or less factual to just BS. You're going to have a terribly hard time in a debate with me about MM when the only source you ever draw from is MM. With the accuracy of MM under question, you'll be left to rely on other sources and your own knowledge of monetary economics. With most people I would welcome such a debate since it would open their eyes to the error of MM. But I'm afraid that in your case it's probably a lost cause. With your blind zealousness for MM such a debate would probably best fit in the Spirituality forum.
Now to your post:
In other words, you don't know the answer to the question and you are annoyed that you cannot.
No. I do know the answer or at least a lot of it (since Fed banks have multiple sources of revenue, I can't be certain that I know all of the sources). The point is though that you have been dodging people left and right in this thread. You avoid any uncomfortable subject by posing an extraneous question and then demanding yet another answer. Well, you've got to pay to play. And you owe us more than few answers of your own.
The Money Masters said the rr was effectively 3% as well but you dismiss the documentary as BS so I was not about to give you something else from their website.
Why did you say that it's "near nothing" then? If your Bible says 3%, why didn't you just say it? No need to even mention that you learned it from MM. I think that we can safely assume that everything you write about here comes straight from that cartoon.
If most of the video is BS why don't you prove it instead of avoiding the facts? Are you afraid you will fail?
I have given you the reason above. I've already spotted plenty wrong with Money as Debt. I think most people recognize that it's a cartoon, and you probably never will. So what's the point? How about defending my first factual criticism against Money as Debt? It actually goes to the heart of the thesis of that film. If you can successfully thwart that. Then we can move on to the next problem.
Here is an excerpt from the MM FAQ web link.
Oh goody, another precious drop of wisdom from the Most High Elders!
"The people would be legitimately concerned to know that the member bank stockholders elect six of the nine members (i.e., 2/3rds) of the Boards of the reserve banks of their regions. Rather than regulating or controlling the activities of private banks in their regions, the opposite is the case".
No "the people" wouldn't. It's not alarming at all. The banks are the ones that have to deal with the regional Feds on a daily basis. Besides the regional Fed banks are supposed to represent the private sector in the FOMC meetings anyway. The Board of Governors are the ones that represent the public (and the BOG makes up the majority of the committee). But I've already said all of this.
You are one of those guys that Churchill described aren't you?
Yes! You found me! And I would have gotten away with it too if it weren't for you meddling kids!
For the record, at one time, I worked in a commercial bank. I do not work in one now. I have not yet been inducted into that inner circle . I do hope that one day I may be found worthy however. And then my quest for world domination will be fulfilled!!!! Wah ha ha ha ha!
Once in a while you will stumble upon the truth but most of us manage to pick ourselves up and hurry along as if nothing had happened.
Oh how truly appropriate.