tag:blogger.com,1999:blog-5204863782883637837.post4686268917451820369..comments2024-03-27T20:51:11.303-04:00Comments on Accepting Ignorance: Monetary Supply FundamentalsAlrenoushttp://www.blogger.com/profile/11119846531341190283noreply@blogger.comBlogger7125tag:blogger.com,1999:blog-5204863782883637837.post-5312309451506966352017-06-13T00:17:35.101-04:002017-06-13T00:17:35.101-04:00Considering the incorrect claims you've alread...Considering the incorrect claims you've already made, it's far from clear what you do already know.<br /><br />Declaring something to be the opposite of true doesn't make it false. If you have evidence that I'm wrong, try posting it!<br /><br />The reserve requirement is the ratio or a certain type of assets to deposit liabilities. Contrary to popular belief, it does not limit how much a bank can lend, because the bank can always obtain more reserves if it needs to.<br /><br />Although the Basel requirements do include some liquidity requirements, they primarily limit the ratio of capital to risk adjusted asset value. That is not directly affected by deposits.Aidan Stangerhttps://www.blogger.com/profile/04337508602472095102noreply@blogger.comtag:blogger.com,1999:blog-5204863782883637837.post-72229543555621275362017-06-12T22:09:52.245-04:002017-06-12T22:09:52.245-04:00Basel requirements focus on what the bank actually...<i>Basel requirements focus on what the bank actually owns, making them quite unlike fractional reserve requirements.</i><br />Things that are the opposite of true!<br />Yeah I'ma go ahead and assume you don't know anything I don't already know. Alrenoushttps://www.blogger.com/profile/11119846531341190283noreply@blogger.comtag:blogger.com,1999:blog-5204863782883637837.post-5157631088850758672017-06-12T21:02:26.280-04:002017-06-12T21:02:26.280-04:00Basel requirements focus on what the bank actually...Basel requirements focus on what the bank actually owns, making them quite unlike fractional reserve requirements. And anyway, the Basel requirements are only a secondary limit: the normal limiting factor is what the bank can lend profitably, which is limited by the supply of creditworthy customers.<br /><br />The selling and the buying of loans, or indeed anything, are equal by definition! My point is lowering interest rates encourages the formation of loans because more customers become creditworthy. Lowering interest rates always increases the demand for money, although you won't find a statistical correlation because lowering interest rates is usually done in response to something else decreasing the demand for money. ZIRP is a (rather ineffective) response to a greatly decreased demand for money, and would not be contemplated at a time of high inflation.<br /><br />On what do you base the ludicrous claim that <i>"Real inflation in America is something like 13-15%"</i>?Aidan Stangerhttps://www.blogger.com/profile/04337508602472095102noreply@blogger.comtag:blogger.com,1999:blog-5204863782883637837.post-58357843991062466692017-06-12T20:21:58.790-04:002017-06-12T20:21:58.790-04:00Basel requirements are logically identical to frac...Basel requirements are logically identical to fractional reserve requirements. All it does is make 'reserve' slightly more complicated. Looks like you got hung up on the names being different. <br /><br />Lowering interest rates discourage the selling of loans, not the buying of loans. <br /><br />Deflation:<br />Loans go away, you get deflation. However, since loan buyers are discouraged, demand for money goes down, causing inflation. <br /><br /><i>With inflation as high as in your example, the government would obviously raise interest rates to try to control it</i>What a lovely fantasy. Do you come from the past? Have you not noticed ZIRP? Real inflation in China is over 20%. Real inflation in America is something like 13-15%. Even if they don't gather accurate numbers internally, they'll have a good-enough gut feeling. They know quantitative easing is massive inflation, they just hope voters won't notice. (And they usually don't.) Alrenoushttps://www.blogger.com/profile/11119846531341190283noreply@blogger.comtag:blogger.com,1999:blog-5204863782883637837.post-37499578055542047992017-06-12T12:37:41.688-04:002017-06-12T12:37:41.688-04:00Your understanding of fractional reserve banking i...Your understanding of fractional reserve banking is completely wrong, though it's a common mistake.<br /><br />In reality, reserves are never the constraining factor on what banks can afford to lend. The money multiplier is just a ratio - it plays no part whatsoever in determining the amount the banks can lend.<br /><br />The real limiting factor is either the Basel capital requirements or the availability of profitable customers to lend to.<br /><br />http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoneycreation.pdf explains how it really works.<br /><br />As for the rest of your article:<br /><i>"Inflation caused by increased loaning is countered by lowering interest rates discouraging loans."</i><br />ITYM <b>raising</b> interest rates discouraging loans!<br /><br />And I can't understand the claim...<br /><i>"Deflation caused by decreased loaning is countered by the deflation itself discouraging loan buyers."</i><br />...wouldn't it exacerbate it rather than counter it?<br /><br />You also seem to have overlooked that there's a huge deflationary effect from improvements in production, which has to be counteracted by the government increasing the amount of money in the economy - either directly by deficit spending, or indirectly by keeping interest rates at levels where the private sector will borrow more.<br /><br />And the dangers of artificially low interest rates are greatly exaggerated. With inflation as high as in your example, the government would obviously raise interest rates to try to control it. And in a more realistic situation, the gap wouldn't be enough (and the uncertainty would be too high) to enable businesses to profit from doing nothing, but it would make it easier for businesses to profit from doing something. So ultimately it would be good for business.Aidan Stangerhttps://www.blogger.com/profile/04337508602472095102noreply@blogger.comtag:blogger.com,1999:blog-5204863782883637837.post-49996329171367703852016-05-19T13:19:24.216-04:002016-05-19T13:19:24.216-04:00Well, actually I found out the Fed doesn't pun...Well, actually I found out the Fed doesn't punish overlending, and rather retroactively justifies it. Something else is restraining them from lending infinite money.<br /><br />But keeping to this post -<br /><br />Bank has $10 in reserve. Can lend $100, does. Debtor immediately buys stocks. Stockbroker deposits $100. Bank can now lend $90 based on the stockbroker's account. Does. Someone buys a not-completely-cheap night out for two. Restaurant deposits $90. Bank can lend out $81 based on the foodie's account. We're up to $271 of debt based on $10 on reserve. This does converge, at something like $968. Round to $1000 because I'm not the Fed and can't change it anyway. Alrenoushttps://www.blogger.com/profile/11119846531341190283noreply@blogger.comtag:blogger.com,1999:blog-5204863782883637837.post-8590252314096407972016-05-19T13:13:57.509-04:002016-05-19T13:13:57.509-04:00The money multiplier is 1/RR, so the banks can len...The money multiplier is 1/RR, so the banks can lend 10x, not 100x.Anonymousnoreply@blogger.com