n. uk and irenicus please refrain from posting
from http://mises.org/story/3556
"The overwhelmingly greater part of our money supply today consists of fiduciary media in the form of checking deposits of one kind or another. For example, as of December 2007, the total money supply of the United States, i.e., currency plus bank deposits of all kinds that are subject to the writing of checks, including the making of payments by debit card, was $6901.9 billion;[3] at the same time, the monetary base was $836.4 billion."
additionally, " currency plus checking deposit liabilities of the central bank, when taken together, are known as the "monetary base."
"there was full, 100 percent standard-money backing for $42.7 billion of deposits, and no standard-money backing whatever for $6065.5 billion of deposits...."
my first question is what kind of money constitutes the 836 billion dollar monetary base MINUS the 42 billion dollar standard money deposits (which i assume are "A portion of the currency outstanding and a portion of the checking deposit liabilities of the Federal Reserve constitute the reserves of the banking system. These reserves are the standard money....in December of 2007, they were $42.7 billion.)??
is that just currency that people just have on hand?
secondly, is the 42 billion spoken of above 'held with the federal reserve"? is the 42 billion somehow different than the 'reserve ratio' cash that i have read that banks keep on hand? or is it the same thing?
the mises article goes on to say...."The new and additional money created by the banking system on the foundation of these new and additional reserves appeared in the loan market as a new and additional supply of loanable funds."
and
"Thus for each dollar of additional excess reserves created, a credit expansion was made possible on the order of a vast multiple. The new and additional fiduciary media corresponding to the credit expansion were the source of the funds for stock purchases in the stock market bubble and for housing and commercial real estate purchases in the housing bubble."
"Unless the Federal Reserve intervened to provide new and additional reserves equal to the increase in the need for reserves, the effect would be not only a rise in interest rates but a general tendency toward a contraction of credit. This last would result from the loss of reserves by banks whose reserves were already at the bare minimum necessary to conduct operations."
in seeming contrast this link http://www.hussmanfunds.com/html/fedirrel.htm contains the following excerpts.....
"The Federal Reserve is irrelevant. We don't just mean ineffective, though that is certainly likely to be true here. Rather, because of a change in the application of reserve requirements over the past decade, Fed actions have virtually zero impact on lending activity in the U.S. banking system."
when they say virtually do they mean falsely?
also....
"what the Fed does, let's take a look at why it is irrelevant.......
Activist monetary policy is based on the assumption that there is a predictable relationship between bank reserves and bank lending. The operative notion of easy money is that the Fed creates new bank reserves, and banks lend them out. These loans get spent, and the proceeds get deposited at other banks as new checking accounts. Whatever is not required to be held as reserves is then lent out again, and through the magic of the "money multiplier", loans and bank deposits go up by many times the initial injection of reserves.
That's the theory. But a change came in the 1970s with the emergence of money market funds, which require no reserve requirements. Then in the early 1990s, reserve requirements were dropped to zero on savings deposits, CDs, and Eurocurrency deposits.At present, reserve requirements apply only to "transactions deposits" - essentially checking accounts. The vast majority of funding sources used by banks to create loans have nothing - nothing - to do with bank reserves."
bank reserves with the federal reserve or with themselves?
"These days, commercial and industrial loans are financed by issuing large denomination CDs. Money market deposits are largely used to lend to corporations who issue short term commercial paper. Consumer loans are also made using savings deposits which are not subject to reserve requirements."
odd chart at link
"The point is simple. Commercial, industrial and consumer loans no longer have any link to bank reserves. Since 1995, the volume of such loans has exploded, while bank reserves have actually declined . Look at the one monetary aggregate that the Fed can directly control - the monetary base. Every bit of increase since January 1994 is accounted for by currency in circulation, not bank reserves."
mises article says ""The new and additional money created by the banking system on the foundation of these new and additional reserves appeared in the loan market as a new and additional supply of loanable funds."
other posted link says "The point is simple. Commercial, industrial and consumer loans no longer have any link to bank reserves. Since 1995, the volume of such loans has exploded, while bank reserves have actually declined ."
can anyone at mises sites clarify what seems to me to be opposite things being said about economic phenomena occuring in the us economy?
is someone leaving out some important piece of analysis in one or both of these articles?
thanks
Refrain from posting... because?
Freedom of markets is positively correlated with the degree of evolution in any society...
other posted link says "The point is simple. Commercial, industrial and consumer loans no longer have any link to bank reserves.
respond to these seemingly contradictory claima or look for another post on mises community to post at
thank you
sthomper:"The point is simple. Commercial, industrial and consumer loans no longer have any link to bank reserves.
explain how the qoute would have been worded in the past; e.g. Comercial, industrial and consumers loans used to have the following link to bank reserves... etc. and start with that.
Where there is no property there is no justice; a proposition as certain as any demonstration in Euclid
Fools! not to see that what they madly desire would be a calamity to them as no hands but their own could bring
I really enjoyed Reisman's most recent article. However, I cannot penetrate the ridiculous mess that is your posting style. Write more clearly and format your posts better.
If I wrote it more than a few weeks ago, I probably hate it by now.
ouch.
I am confident that if you thought about it you could solve these dilemmas to your own satisfaction. So with that goal in mind I will not offer you the answers that you seek directly, but rather pose questions for your to consider.
Explain:How would the quote have been worded were it pointed to describing the past?
e.g. Huffman would have said "Comercial, industrial and consumers loans used to have the following link to bank reserves .... blah blah ... though this has since changed"...
if you make this start, and I am not mistaken in my instincts and understanding,then I believe you will be on your way.
feel free to post your response to this mini 'staging 'question.
im am not well versed in economics. this is an economics questions posting forum.
i am not really interested in any staging questions. i wouldnt have posted the information if i was.
i am trying to find out which is true here between:
other posted link says "The point is simple. Commercial, industrial and consumer loans no longer have any link to bank reserves. (since the 1990s).
these two claims seem to be at odds. reisman article says commercial bank lending appeared as a result of bank reserves. hussman link, not huffman (read closer please) syas comercial bank lonas no longer have any link to bank reserves.
i did pose two questins at the top of this post and you have chosen not to answer them. you have insted posted other info. that is why i asked you not to post.
if you will answer my question truthfully to the extnet you can...then great. if not please dont offer me staging info on an economics question posting forum.
" I cannot penetrate the ridiculous mess that is your posting style."
maybe you can look back over the post and search for the words "my first question"
then look for the word SECONDLY.
if you can answer my questions there that would be swell
your huffman is either plain wrong, or is correct but has used poor language.
assume a car. it has an acceleration pedal and a break pedal. lets assume the point of conversation is acceleration and forward motion.
lets assume we start with the break on,
then as we press down on the accelerator the car may move forward if the engine can overpower the breaks.
alternatively,
if the break is not used, is it true that the break has no link to the acceleration of the car? 'no link' ?
i say it has 'a link', the link is that the car goes faster than if its brake had been engaged, (being that it hadn't)
so too for any loans made from accounts which require smaller reserves than others. with reserve requirments tending to zero money multiplication tends to infinity
also note, that there are ways to lend that dont involve fractionally lending out what people have in demand accounts.
but certainly whilst there is such fractional reserve banking and money multiplication any additional reserves which are in exess of requirments injected in by the government would be money multiplied. (i.e. they represent a larger supply of loanable funds than the initial injection amount would indicate)
sthomper: mises article says ""The new and additional money created by the banking system on the foundation of these new and additional reserves appeared in the loan market as a new and additional supply of loanable funds." other posted link says "The point is simple. Commercial, industrial and consumer loans no longer have any link to bank reserves. (since the 1990s).
These two quotes are saying the same exact thing. What's the problem?
"your huffman is either plain wrong, or is correct but has used poor language."
well thats a start. it seems you dont really know.
but dont say 'your' hussman. it was a link i found in the internet. i trust you clicked on it ti verify and confirm the information.
i dont get much out of you car and brake analogy.
I don't see why Reisman would deny the point Hussman is making, since a de-linking of loans from reserves is precisely what Austrians see as problematic. If there is no link, all the worse. And surely Hussman can substantiate his argument? What Reisman said is not controversial as far as economics goes, not even mainstream economists would deny it (and Hussman does not seem to be doing so - the problem with piling credit on reserves is that it disproportionately outnumbers it - if there is no link there is no theoretical limit to the expansion of credit.).
At present, reserve requirements apply only to "transactions deposits" - essentially checking accounts."The vast majority of funding sources used by banks to create loans have nothing - nothing - to do with bank reserves."
"... Commercial, industrial and consumer loans no longer have any link to bank reserves..."
http://www.hussmanfunds.com/html/fedirrel.htm
from the mises.org site.
"new and additional reserves appeared in the loan market as new and additional supply of loanable funds"
i dont see this as the same thing at all.
a vast majority of lending sources having no link to bank reserves....yet additional reserves somehow appear in the bank loan market as loanble funds?
Jon Irenicus:if there is no link there is no theoretical limit to the expansion of credit.
sthomper has got himself confused in semantics, he believes because you said 'no link' that they bear 'no relation'. so when speaking of one you would have no reason to speak of the other.
"de-linking of loans from reserves is precisely what Austrians see as problematic. If there is no link, all the worse."
this seems to make some sense. if the loans are poofed into existence with even less anchoring to existing paper money or shifting reserve strucures then held reserves would really be meaningless.
the hussman link does say that "These days, commercial and industrial loans are financed by issuing large denomination CDs"
so with the reisman article claiming new reserves were the source of additional bank lending yet another article claiming that no, its not reserves but cds (outside of federal reserve control).
to me thats confusing and conflicting.
these two statements seem to me to say differnt things.
"In both instances, the bubble was inaugurated and sustained by a process of massive credit expansion, i.e., the lending out of newly created money by the banking system, operating with the sanction and support of the country's central bank, the Federal Reserve System."
sthomper: mises article says ""The new and additional money created by the banking system on the foundation of these new and additional reserves appeared in the loan market as a new and additional supply of loanable funds." other posted link says "The point is simple. Commercial, industrial and consumer loans no longer have any link to bank reserves. Since 1995, the volume of such loans has exploded, while bank reserves have actually declined ."
The bankers come onto the loanable funds markets as suppliers of loans, that is, credit, or uncovered money substitutes (fiduciary media). The artificial increase in supply lowers the market/money rate, either absolutely or relatively (from the natural rate). These loans act as if they were drawn upon from the supply of savings, but clearly, they're not. Creating a disconnect between the capital markets and the bank reserves. What's the problem? What am I not getting? I think the term "reserves" is being used differently.
"If we wish to preserve a free society, it is essential that we recognize that the desirability of a particular object is not sufficient justification for the use of coercion."