Economics Questions

Re: further questions about recent reisman article at mises.org website

nirgrahamUK — Sat, 11 Jul 2009 22:29:28 GMT

yes, they have a huge role, if they insisted on 100% reserves, no lending fraction of deposits, only TD's can be loaned out, then the credit booms would be curtailed. their stripping reserves down close to 0 vastly magnifies credit expansion. the fed are responsible for expansion, by their irresponsible regulation

Re: further questions about recent reisman article at mises.org website

sthomper — Sat, 11 Jul 2009 22:25:25 GMT

"it reflects the long-standing, deliberate policy of the Federal Reserve System of reducing and even altogether eliminating reserve requirements."

http://www.mises.org/story/3556

"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."

http://www.hussmanfunds.com/html/fedirrel.htm

maybe the hussman.com excerpt above is somehow advocting for the federal reserves by saying its irrelevant when failing to mention federal reserve policies themselves (if true at all) open the door for new credit to rapidly expand enabling bubbleland.

initially it seemed to me the hussman.com article was saying the federal reserve has nor role at all in bank credit expansion. but MUST adhere federal reserve policies then they have a huge role in bank credit expansion.

is this more correct?

Re: further questions about recent reisman article at mises.org website

nirgrahamUK — Sat, 11 Jul 2009 16:45:10 GMT

http://mises.org/story/3556#part1

Re: further questions about recent reisman article at mises.org website

Jon Irenicus — Sat, 11 Jul 2009 11:27:48 GMT

"These days, commercial and industrial loans are financed by issuing large denomination CDs"

This offers very limited detail. What I did find on the matter was this. This section indeed does imply that there is no link between reserves and most loans, but it never says all, and this bolsters the Austrian case at any rate. If Reisman has neglected this or is merely referring to something else it's not really a big error.

Re: further questions about recent reisman article at mises.org website

Esuric — Sat, 11 Jul 2009 08:20:35 GMT

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.

Re: further questions about recent reisman article at mises.org website

sthomper — Sat, 11 Jul 2009 03:55:05 GMT

"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.

"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."

"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."

Re: further questions about recent reisman article at mises.org website

nirgrahamUK — Sat, 11 Jul 2009 03:46:43 GMT

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.

Re: further questions about recent reisman article at mises.org website

sthomper — Sat, 11 Jul 2009 03:39:11 GMT

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?

Re: further questions about recent reisman article at mises.org website

Jon Irenicus — Sat, 11 Jul 2009 03:32:12 GMT

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.).

Re: further questions about recent reisman article at mises.org website

sthomper — Sat, 11 Jul 2009 03:32:12 GMT

"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.

Re: further questions about recent reisman article at mises.org website

MarxCapital — Sat, 11 Jul 2009 03:16:06 GMT

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?

Re: further questions about recent reisman article at mises.org website

nirgrahamUK — Sat, 11 Jul 2009 03:03:43 GMT

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)

Re: further questions about recent reisman article at mises.org website

sthomper — Sat, 11 Jul 2009 02:53:20 GMT

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:

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 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

Re: further questions about recent reisman article at mises.org website

nirgrahamUK — Sat, 11 Jul 2009 01:58:51 GMT

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.

Re: further questions about recent reisman article at mises.org website

I. Ryan — Sat, 11 Jul 2009 01:47:47 GMT

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.