tag:blogger.com,1999:blog-2761684730989137546.post1892345317749581908..comments2024-03-28T07:50:06.102-04:00Comments on Mike Norman Economics: Quantitative Easing Explained (badly)mike normanhttp://www.blogger.com/profile/03296006882513340747noreply@blogger.comBlogger41125tag:blogger.com,1999:blog-2761684730989137546.post-11231857346249530232010-11-19T14:16:18.726-05:002010-11-19T14:16:18.726-05:00MT, also see the Univ of Missouri at KC economics ...MT, also see the Univ of Missouri at KC economics blog. They wrote a blog<br />about it <a href="http://neweconomicperspectives.blogspot.com/2010/11/yes-government-bonds-add-to-private.html" rel="nofollow">yesterday </a> and there is a discussion in the comments.bubbleRefugehttps://www.blogger.com/profile/17519418009762139033noreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-63743461817492936392010-11-19T13:33:59.489-05:002010-11-19T13:33:59.489-05:00bubble wow...great post here man. Cool. Its fun. I...<i>bubble wow...great post here man.</i> <b>Cool. Its fun. It helps me to run through all the logic.</b> <br /><br /><i>I have a few questions for you on this...it's really all making alot more sense to me know hearing you explain this.</i><br /><i><br />Okay so #1: What does the Fed do when they increase reserve levels NORMALLY for banks as more deposits (loans) are made? Do they just push a button on a computer?<br /></i> <b>Ceterus paribus, its automatic as far as I know. Ceterus paribus, member banks automatically go into over-draft when they are out of reserves. It makes sense if you think about it because otherwise the payments system could break down. But also reserves are added to the 'system' by deficit spending by the treasury. Reserves are removed from the system by taxation.</b><br /><i><br />#2. Are the reserves at the Fed backed up AT ALL by anything (even printed money if not gold/silver/etc.)? I ask this b/c essentially if reserves are endogenous then really is there ANYTHING that people would get if there was a run on the banks? </i> <b>No reserves are special electronic accounts used by banks and the treasury to settle payments.Once upon a time it was based upon gold.</b><br /><i><br />#3. The reserve levels will increase as the Fed buys these longer term T-bills</i> <b>Yes Ceterus Paribus. But, as above, aggregate reserve levels are endogenous.</b> <i>is based upon b/c of the interest that they will accumulate on them correct from the US Treasury? (money which also comes from the Fed as well anyway! So it's like the Treasury's money at the Fed is going into the bank's money at the Fed...right? haha!!)</i> <b>The Fed returns all of its profit from Treasury securities to the Treasury by law. </b><br /><br /><i><br />#4. You say that the fed is "swapping new reserves for treasury securities". Is this to mean that as new deposits (loans) are made from here on out...it is THOSE reserve increases that will purchase treasuries?</i> <b>The Fed's QE2 program purchases treasury securities from the private sector in exchange for reserves not to exceed 600B.</b>bubbleRefugehttps://www.blogger.com/profile/17519418009762139033noreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-78380878706989239792010-11-19T12:59:31.442-05:002010-11-19T12:59:31.442-05:00bubble wow...great post here man.
I have a few q...bubble wow...great post here man. <br /><br />I have a few questions for you on this...it's really all making alot more sense to me know hearing you explain this. <br /><br />Okay so #1: What does the Fed do when they increase reserve levels NORMALLY for banks as more deposits (loans) are made? Do they just push a button on a computer? <br /><br />#2. Are the reserves at the Fed backed up AT ALL by anything (even printed money if not gold/silver/etc.)? I ask this b/c essentially if reserves are endogenous then really is there ANYTHING that people would get if there was a run on the banks? <br /><br />#3. The reserve levels will increase as the Fed buys these longer term T-bills b/c of the interest that they will accumulate on them correct from the US Treasury? (money which also comes from the Fed as well anyway! So it's like the Treasury's money at the Fed is going into the bank's money at the Fed...right? haha!!) <br /><br />#4. You say that the fed is "swapping new reserves for treasury securities". Is this to mean that as new deposits (loans) are made from here on out...it is THOSE reserve increases that will purchase treasuries? <br /><br />I hope these questions make sense to you and thanks again man! This is really a GREAT discussion!Mariohttps://www.blogger.com/profile/00905402431684735610noreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-11809087128846400442010-11-19T09:59:01.200-05:002010-11-19T09:59:01.200-05:00You stated that a bank can borrow from the Fed dir...<i>You stated that a bank can borrow from the Fed directly irrespective of reserves held (so long as the Fed obliges). Yes, but the bank's reserves are then increased by the Fed when the Fed loans that bank money. The bank's account at the Fed will then show more reserves. It is out of these increased reserves that the bank wil then pyramid more debt. So: of course more reserves tend to increase the credit money supply which is the whole point</i> <b>I said a bank makes a loan irrespective of the amount of reserves it has. In the accounting period after the loan was made, the bank may borrow reserves in order to meet reserve deficiencies if any. Their is no reserve requirement for making loans. Reserve requirements are relative to deposits. Loans create new deposits. Reserves are used for liability settlement in the banking system. <br /> Bank loans are not constrained by reserve levels because a bank can always borrow reserves later if needed. As I said before, aggregate reserve levels are endogenous: the more loans in the system, the more deposits, therefore more reserves are created. So quantity of reserves is irrelevant because reserves in an of themselves are available to banks in infinite amounts if the bank qualifies. QE increases levels of reserves because the fed is targeting long term interest rates by swapping new reserves for treasury securities. So in terms of quantity of money QE operations are a wash. In QE, the FED is increasing the banks reserve balance by swapping reserves for treasury securities in the banking system. It all nets to zero. That is why all the hysteria about QE is totally unfounded.</b>bubbleRefugehttps://www.blogger.com/profile/17519418009762139033noreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-38783818216335053742010-11-18T18:22:11.747-05:002010-11-18T18:22:11.747-05:00bubble refuge,
You stated that a bank can borrow ...bubble refuge,<br /><br />You stated that a bank can borrow from the Fed directly irrespective of reserves held (so long as the Fed obliges). Yes, but the bank's reserves are then increased by the Fed when the Fed loans that bank money. The bank's account at the Fed will then show more reserves. It is out of these increased reserves that the bank wil then pyramid more debt. So: of course more reserves tend to increase the credit money supply which is the whole point.<br /><br />You also wrote that the bank can participate in the Federal Funds Market. Right again, but the reserves borrowed from one bank were already in the banking system. One bank's gain in reserves is another bank's temporary loss in reserves. The net reserves in the banking system do not change when this operation is initiated though.welfarewarfare statehttps://www.blogger.com/profile/18188909985707356639noreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-28253478381045597792010-11-18T16:47:18.007-05:002010-11-18T16:47:18.007-05:00>>Reserves are not lent out. Reserves are no...<i>>>Reserves are not lent out. Reserves are not lent out. Repeat after me. Reserves are not lent out.<br />What is lent out? Is reserve not money? Is it not going to an institution that lends money? If reserves are not lent out why it is being added to banks...what good it is doing? </i> <b>Thats kind of the whole point. Reserves are not money that banks can lend. For the most part, banks can always lend as long as people want to borrow and banks think the people are credit worthy. Banks don't lend reserves they lend bank deposits which are a different animal. </b>bubbleRefugehttps://www.blogger.com/profile/17519418009762139033noreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-66197316651198575282010-11-18T16:43:30.935-05:002010-11-18T16:43:30.935-05:00You also said...
>>A bank makes a loan and c...<i><br />You also said...<br />>>A bank makes a loan and can borrow reserves in the following accounting period to meet the reserve requirements. Not the current accounting period.<br /><br />Q. Does this not establish a link between lending and reserves? Why do banks need to borrow in the next current accounting period if there is no connection between reserves and lending. And if there is a connection then it is clear that adding reserves enable more lending thereby increasing money supply.</i> <b> Let me drill down on that. Banks have reserve requirements imposed by the FED. Reserve requirements are a percentage of bank deposits. So, each time a new loan is created of say 1000 dollars in the banking system, a deposit is created in some bank and that bank is required to have 100 dollars more in its reserve account (10%). Because of the accounting period lag, those reserves can be borrowed in the following banking period either from the FED directly or from a participant in the Federal Funds Market ( other bank). Therefore, the banking system can create new loans irrespective of its reserve balances, because the reserves may be added in the following accounting period. Therefore the following statement is true: <i>Banking lending is not constrained by reserve requirements</i> and this is why Fed policies such as QE have not worked. They may have psychological value.</b><br /><i><br />You also said...<br />>>This means the level of reserves a bank has does not limit its ability to make loans. The limiting factor is bank capital requirements and actual loan demand.<br /><br />How is this minimum capital that a bank needs to have to loan money is different than the reserves? What is reserves? Does a reserve not add to the capital of the bank there by increasing its capacity to lend more money?</i><b> Capital is basically a banks assets (loans made) minus liabilities ( deposits). Reserves are a component of bank capital but banks profit by lending 'long' to the public and borrowing short 'reserves' to cover reserve requirements and settlements. Therefore reserves levels are endogenous based upon how much the level of government spending (which adds reserves) and aggregate borrowing which creates demand for reserves in the system. <br />Its important to distinguish between federal money(reserve account balances) and bank money(bank deposits ie checking accounts).<br /></b><br /><br />I would be grateful if you could answer my questions to clear my doubts. thanks.bubbleRefugehttps://www.blogger.com/profile/17519418009762139033noreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-1059871095976683722010-11-18T16:43:04.815-05:002010-11-18T16:43:04.815-05:00Answers are in line and bold. Your questions are g...<b>Answers are in line and bold. Your questions are good and quite natural. Many people are unaware of the innards of government finance and banking. I've spent hundreds of hours reading white papers about it and it took me a while to get where I am and I'm still learning. </b><br /><i>So you are saying that reserves do not influence lending by a bank and therefore do not increase money supply. Is my understanding correct until here?</i> Yes<br /><i><br />If yes, then<br /><br />Q. why do we need reserves at all? Banks can keep on lending and since they make money by loans ..why do they need reserves?<br /></i> <b>They are used to settle payments between banks and between banks and the federal government.<br />Reserves are "federal money" so to speak. They are account balances at the US Federal Reserve( the FED) held by banks that are members of the federal reserve system. The US Treasury is a member and has an account there as well with a balance. Reserves are used to "settle payments" between banks. For example,if Person A from Bank A writes a check to Person B at Bank B for <br />100 dollars. 100 dollars in reserves are transferred from person Bank A's Federal reserve account to Bank B's federal reserve account. Also Person A's bank account is debited 100 and person B's Bank account is credited 100. </b>bubbleRefugehttps://www.blogger.com/profile/17519418009762139033noreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-55281835244728531402010-11-18T16:41:50.986-05:002010-11-18T16:41:50.986-05:00Answers are in line and bold. Your questions are g...<b>Answers are in line and bold. Your questions are good and quite natural. Many people are unaware of the innards of government finance and banking. I've spent hundreds of hours reading white papers about it and it took me a while to get where I am and I'm still learning. </b><br /><i>So you are saying that reserves do not influence lending by a bank and therefore do not increase money supply. Is my understanding correct until here?</i> Yes<br /><i><br />If yes, then<br /><br />Q. why do we need reserves at all? Banks can keep on lending and since they make money by loans ..why do they need reserves?<br /></i> <b>They are used to settle payments between banks and between banks and the federal government.<br />Reserves are "federal money" so to speak. They are account balances at the US Federal Reserve( the FED) held by banks that are members of the federal reserve system. The US Treasury is a member and has an account there as well with a balance. Reserves are used to "settle payments" between banks. For example,if Person A from Bank A writes a check to Person B at Bank B for <br />100 dollars. 100 dollars in reserves are transferred from person Bank A's Federal reserve account to Bank B's federal reserve account. Also Person A's bank account is debited 100 and person B's Bank account is credited 100. </b><br /><br />You also said...<br />>>A bank makes a loan and can borrow reserves in the following accounting period to meet the reserve requirements. Not the current accounting period.<br /><i><br />Q. Does this not establish a link between lending and reserves? Why do banks need to borrow in the next current accounting period if there is no connection between reserves and lending. And if there is a connection then it is clear that adding reserves enable more lending thereby increasing money supply.</i> <b> Let me drill down on that. Banks have reserve requirements imposed by the FED. Reserve requirements are a percentage of bank deposits. So, each time a new loan is created of say 1000 dollars in the banking system, a deposit is created in some bank and that bank is required to have 100 dollars more in its reserve account (10%). Because of the accounting period lag, those reserves can be borrowed in the following banking period either from the FED directly or from a participant in the Federal Funds Market ( other bank). Therefore, the banking system can create new loans irrespective of its reserve balances, because the reserves may be added in the following accounting period. Therefore the following statement is true: <i>Banking lending is not constrained by reserve requirements</i> and this is why Fed policies such as QE have not worked. They may have psychological value.</b>bubbleRefugehttps://www.blogger.com/profile/17519418009762139033noreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-70371700971938140212010-11-18T16:40:52.458-05:002010-11-18T16:40:52.458-05:00Answers are in line and bold. Your questions are g...<b>Answers are in line and bold. Your questions are good and quite natural. Many people are unaware of the innards of government finance and banking. I've spent hundreds of hours reading white papers about it and it took me a while to get where I am and I'm still learning. </b><br /><i>So you are saying that reserves do not influence lending by a bank and therefore do not increase money supply. Is my understanding correct until here?</i> Yes<br /><i><br />If yes, then<br /><br />Q. why do we need reserves at all? Banks can keep on lending and since they make money by loans ..why do they need reserves?<br /></i> <b>They are used to settle payments between banks and between banks and the federal government.<br />Reserves are "federal money" so to speak. They are account balances at the US Federal Reserve( the FED) held by banks that are members of the federal reserve system. The US Treasury is a member and has an account there as well with a balance. Reserves are used to "settle payments" between banks. For example,if Person A from Bank A writes a check to Person B at Bank B for <br />100 dollars. 100 dollars in reserves are transferred from person Bank A's Federal reserve account to Bank B's federal reserve account. Also Person A's bank account is debited 100 and person B's Bank account is credited 100. </b><br /><br />You also said...<br />>>A bank makes a loan and can borrow reserves in the following accounting period to meet the reserve requirements. Not the current accounting period.<br /><i><br />Q. Does this not establish a link between lending and reserves? Why do banks need to borrow in the next current accounting period if there is no connection between reserves and lending. And if there is a connection then it is clear that adding reserves enable more lending thereby increasing money supply.</i> <b> Let me drill down on that. Banks have reserve requirements imposed by the FED. Reserve requirements are a percentage of bank deposits. So, each time a new loan is created of say 1000 dollars in the banking system, a deposit is created in some bank and that bank is required to have 100 dollars more in its reserve account (10%). Because of the accounting period lag, those reserves can be borrowed in the following banking period either from the FED directly or from a participant in the Federal Funds Market ( other bank). Therefore, the banking system can create new loans irrespective of its reserve balances, because the reserves may be added in the following accounting period. Therefore the following statement is true: <i>Banking lending is not constrained by reserve requirements</i> and this is why Fed policies such as QE have not worked. They may have psychological value.</b> <br /><i><br />You also said...<br />>>This means the level of reserves a bank has does not limit its ability to make loans. The limiting factor is bank capital requirements and actual loan demand.<br /><br />How is this minimum capital that a bank needs to have to loan money is different than the reserves? What is reserves? Does a reserve not add to the capital of the bank there by increasing its capacity to lend more money?</i><b> Capital is basically a banks assets (loans made) minus liabilities ( deposits). Reserves are a component of bank capital but banks profit by lending 'long' to the public and borrowing short 'reserves' to cover reserve requirements and settlements. Therefore reserves levels are endogenous based upon how much the level of government spending (which adds reserves) and aggregate borrowing which creates demand for reserves in the system. <br />Its important to distinguish between federal money(reserve account balances) and bank money(bank deposits ie checking accounts).<br /></b><br /><br />I would be grateful if you could answer my questions to clear my doubts. thanks.bubbleRefugehttps://www.blogger.com/profile/17519418009762139033noreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-7503175049578694842010-11-18T15:39:04.950-05:002010-11-18T15:39:04.950-05:00>>Reserves are not lent out. Reserves are no...>>Reserves are not lent out. Reserves are not lent out. Repeat after me. Reserves are not lent out. <br /><br />What is lent out? Is reserve not money? Is it not going to an institution that lends money? If reserves are not lent out why it is being added to banks...what good it is doing?Unknownhttps://www.blogger.com/profile/05724880816099618322noreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-31469043001712708312010-11-18T15:31:44.343-05:002010-11-18T15:31:44.343-05:00Bubble Reguge you wrote...
>>Reserves are no...Bubble Reguge you wrote...<br />>>Reserves are not lent out. Reserves are not lent out. Repeat after me. Reserves are not lent out. <br /><br />>> Lending is not reserve constrained. Banks make money by making loans. Period. <br /><br />So you are saying that reserves do not influence lending by a bank and therefore do not increase money supply. Is my understanding correct until here?<br /><br />If yes, then<br /><br />Q. why do we need reserves at all? Banks can keep on lending and since they make money by loans ..why do they need reserves?<br /><br />You also said...<br />>>A bank makes a loan and can borrow reserves in the following accounting period to meet the reserve requirements. Not the current accounting period. <br /><br />Q. Does this not establish a link between lending and reserves? Why do banks need to borrow in the next current accounting period if there is no connection between reserves and lending. And if there is a connection then it is clear that adding reserves enable more lending thereby increasing money supply.<br /><br />You also said...<br />>>This means the level of reserves a bank has does not limit its ability to make loans. The limiting factor is bank capital requirements and actual loan demand.<br /><br />How is this minimum capital that a bank needs to have to loan money is different than the reserves? What is reserves? Does a reserve not add to the capital of the bank there by increasing its capacity to lend more money?<br /><br />I would be grateful if you could answer my questions to clear my doubts. thanks.Unknownhttps://www.blogger.com/profile/05724880816099618322noreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-48612795266768231082010-11-18T15:17:59.531-05:002010-11-18T15:17:59.531-05:00MT,
I really APPRECIATED your LAST post. I especi...MT,<br /><br />I really APPRECIATED your LAST post. I especially APPRECIATED how you CAPITALIZED every other WORD. No, REALLY, I mean IT.<br /><br />In any event, government can't increase so-called aggregate demand. Demand doesn't create supply. It is supply that creates its own demand. Google Say's law for a complete expalnation. All government can do is transfer spending power away from the individual and to the state. The government is an ineffecient user of scarce reources because central planners lack mechanisms like a profti/loss test. <br /><br />If spending were the magic elixir then our economy wouldn't be in the shape it is in now. Does anyone really think that the American citizen and government have been frugal for the last 20 years? We have spent our wad or consumed our seed corn if you will. <br /><br />The problem with our economy is a lack of savings which directly correlates to artificially low interest rates. It is out of this savings that real credit for capital investment derives. Capital can't be replaced by artificial banking procedures.<br /><br />Cheers!welfarewarfare statehttps://www.blogger.com/profile/18188909985707356639noreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-73057898813284620492010-11-18T11:53:56.198-05:002010-11-18T11:53:56.198-05:00welfare...bubble is correct here...and I myself ne...welfare...bubble is correct here...and I myself never even considered that accounting technique so that is great to learn and know. <br /><br />We have a DEMAND crisis not a credit crisis. <br /><br />The Fed does QE to help offset a credit crisis while demand is lagging (at least that's how I understand it imo). <br /><br />In this case of QE2...it seems to me at least that the Fed is attempting to create and maintain an environment that caters to people and their demands (aka low 10 year rates for a low mortgage at a great real estate buying opportunity)...if people bite at those seriously GREAT DEALS then that would be good for everybody. <br /><br />Remember the FED CANNOT CREATE MORE JOBS!!! That's businesses, legislation, and government working with businesses...the Fed CAN create an attractive environment (aka set the stage) for when jobs do arrive on the scene. <br /><br />Also do you understand that even if there WAS an inflation issue as we started to come out of this recession, the Fed has MANY, MANY PROVEN AND HIGHLY SUCCESSFUL WAYS of curbing that inflation?? They can VERY SUCCESSFULLY unwind these QE actions when the time is necessary. I think you fail to realize this or even admit this fact.<br /><br />As for the inflation/deflation argument...I'm not even going there...I want to say that RIGHT NOW, like Mike says in this post, inflation is lagging and where it's climbing is in "odd" areas that are not CRUCIAL to our economy. The BIGGIES are in disinflation and/or deflation. Just imo!!! <br /><br />Great discussion here none the less guys!! I like it! :DMariohttps://www.blogger.com/profile/00905402431684735610noreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-80301584272140761232010-11-18T09:26:33.824-05:002010-11-18T09:26:33.824-05:00You mentioned that banks make money by making loan...<b>You mentioned that banks make money by making loans. Yes, but they can make more loans when they have more reserves which is why increasing reserves or decreasing reserve requirements tends to increase the credit money supply.</b><br />That's completely false. A bank makes a loan and can borrow reserves in the following accounting period to meet the reserve requirements. Not the current accounting period. This means the level of reserves a bank has does not limit its ability to make loans. The limiting factor is bank capital requirements and actual loan demand. <br /><br />You are wrong and this debunks your argument that the fed is creating money and inflation. It is not. Just look at the state of things today. Despite all the efforts to the contrary from the FED, nobody is borrowing and nobody is lending compared to the past. Its because people are deleveraging and banks don't want to make bad loans in a bad economy. Nothing to do with reserves.bubbleRefugehttps://www.blogger.com/profile/17519418009762139033noreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-76917663699011625152010-11-18T02:28:15.190-05:002010-11-18T02:28:15.190-05:00What artificial lending standards are you talking...What artificial lending standards are you talking about?!?!?!!?!?DoggeyStyleMikey_AHhttps://www.blogger.com/profile/00937751721906705752noreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-80913689563201228022010-11-17T20:23:36.459-05:002010-11-17T20:23:36.459-05:00Bubble Refuge,
The increased reserves enable the ...Bubble Refuge,<br /><br />The increased reserves enable the banks to lend out more money because they have more reserves on which to pyramid debt, i.e. credit money. Increased reserves tend to increase the credit money supply.<br /><br />We have very different definitions of inflation. I define inflation as an increase in the money supply with the EFFECT being an increase in prices all else being equal. Classical economists were always more careful about the language used and were keen to use the terms deflation and inflation correctly. I sometimes fall into the bad habit of identifying the effects of inflation (price increases) with inflation (monetary expansion) itself, too. <br /><br />We should be experiencing large decreases in prices right now given that we are in a depression. The market's deflationary forces are being overwhlemed by the Fed's inflationary efforts though.<br /><br />You mentioned that banks make money by making loans. Yes, but they can make more loans when they have more reserves which is why increasing reserves or decreasing reserve requirements tends to increase the credit money supply.<br /><br />Repeat after me: increases in reserves or decreases in reserve requirements tend to increase the money supply.<br /><br />cheers!welfarewarfare statehttps://www.blogger.com/profile/18188909985707356639noreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-28480659667598563222010-11-17T19:06:03.431-05:002010-11-17T19:06:03.431-05:00What do you think the point of increasing reserves...<b>What do you think the point of increasing reserves is if not to increase the credit money supply.</b> Increasing reserves does not increase the credit money supply because reserves are not lent out. You are ignorant of the facts, as are most people and that is why we have such a big problem. Reserves are not lent out. Reserves are not lent out. Repeat after me. Reserves are not lent out. <br /><br /><b> Do you think the Fed's goal is to decrease the credit money supply by increasing reserves? The Fed has come out publicly and stated that they think that price inflation is too low. (This is like the New York police force claiming that the crime rate is too low.) They are deliberately pursuing an inflationist policy.</b> But the fed is not creating inflation via money growth. They want to increase demand in the economy by reducing interest rates. This does nothing for demand because interest rates are already low enough. So its all a facade. <br /><b><br />It's true that sometimes banks do not create new credit money with those increased reserves, but isn't that because the Fed is paying those banks a higher interest simply for holding those reserves than the banks think they can get by making risky loans?</b><br />Lending is not reserve constrained. Banks make money by making loans. Period. <br />Lets get our facts straight before we bash. There are some real smart guys that post here and on Warren's and Bill Mitchels site. Lots of recent posts on QE expalaining how it is useless because no money is actually created or lent out.bubbleRefugehttps://www.blogger.com/profile/17519418009762139033noreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-50351381363346147942010-11-17T18:16:27.204-05:002010-11-17T18:16:27.204-05:00we have not seen any major inflation ever in this ...<b>we have not seen any major inflation ever in this country</b><br /><br />You have a weird sense of humor.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-86095921026997953532010-11-17T17:39:41.303-05:002010-11-17T17:39:41.303-05:00Bubblerefuge,
What do you think the point of incr...Bubblerefuge,<br /><br />What do you think the point of increasing reserves is if not to increase the credit money supply. Do you think the Fed's goal is to decrease the credit money supply by increasing reserves? The Fed has come out publicly and stated that they think that price inflation is too low. (This is like the New York police force claiming that the crime rate is too low.) They are deliberately pursuing an inflationist policy. <br /><br /> It's true that sometimes banks do not create new credit money with those increased reserves, but isn't that because the Fed is paying those banks a higher interest simply for holding those reserves than the banks think they can get by making risky loans?<br /><br />Shouldn't you be off somewhere reading Modern Monetary Hypothesis anyway? My favorite genre is fiction, too, but on economic matters I much prefer the nonfiction section.<br /><br />cheers!welfarewarfare statehttps://www.blogger.com/profile/18188909985707356639noreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-13461118071876514692010-11-17T15:46:17.497-05:002010-11-17T15:46:17.497-05:00Banking reserves do end up being credit money ofte...<b>Banking reserves do end up being credit money often times. That is a fact. Quantitiave easing is designed to keep interest rates artificially low and to create price inflation.</b> No it is not a fact. How does it work if no new money is created? I keep asking you this and you refuse to answer the question because you can't because you are incompetent.bubbleRefugehttps://www.blogger.com/profile/17519418009762139033noreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-14995056086729094352010-11-17T15:32:46.760-05:002010-11-17T15:32:46.760-05:00To all of you,
Can any of you show me a price cha...To all of you,<br /><br />Can any of you show me a price chart of commodities over the last year and a half that shows falling prices in the aggregate? You guys want to use 2005 or 2007 as your baseline. This was before the housing collapse though wasn't it? The same thing that caused a run up in prices from 2002 to 2008 is the same thing that is causing a renewed run up in prices now: the monetary policy of the Fed.<br /><br />It just takes more units of the currency to buy anything because the money has been debased by our gloriously incompetent twits at the Fed.welfarewarfare statehttps://www.blogger.com/profile/18188909985707356639noreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-37763572379847344892010-11-17T15:21:05.771-05:002010-11-17T15:21:05.771-05:00Bubblerefuge,
I'm sure you are aware that th...Bubblerefuge,<br /><br /> I'm sure you are aware that the T in MMT stands for theory,right? I think the term theory is far too generous in this case though. A theory is a hypothesis that has withstood all attempts to refute it by test. Given the events of the last decade and the events to come maybe MMT should be renamed Modern Monetary Hypothesis. Your so-called "theory" is crackpot.<br /><br /> Why are you guys so certain that you are right given how wrong you've been about economic events over the last 5 years? <br /><br />Banking reserves do end up being credit money often times. That is a fact. Quantitiave easing is designed to keep interest rates artificially low and to create price inflation. Many incompetents at the Fed and in academia think that inflation will cure the unemployment problem. The seventies just called and said, "Nope!" The central planners are wrong now just as they were wrong about the effects of QE1.<br /><br />By the way, you told me that you weren't going to respond to me anymore. What gives?<br /><br />cheers!welfarewarfare statehttps://www.blogger.com/profile/18188909985707356639noreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-77940761361539017242010-11-17T15:06:31.404-05:002010-11-17T15:06:31.404-05:00Matt Frank,
Oil wasn't at $150 dollars a year...Matt Frank,<br /><br />Oil wasn't at $150 dollars a year and a half ago. Oil hasn't been near $150 dollar ssince the summer of 2008. that's over two years ago. <br /><br />The run up in commodites renewed in the spring of 2009 after much of the deleveraging had been completed in the wake of the Fed's burst housing bubble. Is this the best that the Normanites can do? Try harder, come on!welfarewarfare statehttps://www.blogger.com/profile/18188909985707356639noreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-70374481749401269982010-11-17T12:56:30.595-05:002010-11-17T12:56:30.595-05:00Is inflation usually measure over a 3 year time pe...<i>Is inflation usually measure over a 3 year time period?<br /><br />Besides, We were told that inflation was tame, or next to nothing when Oil went from $10 to $147 and Natural gas went from $2 to $15, Dow went from 7700 to 14300 and Price of real estate went up 200%. Why should a fall in price of these items be considered deflationary?</i><br />You can quibble about how inflation is measured, but the bottom line is that we have not seen any major inflation ever in this country in the inflation indexes as a result of too much demand caused by government policy. Most of the inflation we've experienced in the inflation indexes can be attributed to supply side factors. Yes, fraud in mortgage industry of late and in IPO's in late nineties caused bubbles.bubbleRefugehttps://www.blogger.com/profile/17519418009762139033noreply@blogger.com