The Creation of the Federal Reserve System (Part 3)

But I still walk out with a good or service right? So this entire time I didn't use any reserves but I still have goods and services based on my swiping of a card? And the store will allow me to walk out with out me transferring anything I own to them?

So you are transferring money from your account to another account? Hmmmm...

Not the %, the reservable deposits are smaller compared to the banks overall balance sheet. So capital is much more of a requirement these days than reserves.

I never lie...

In discussing the money multiplier, we must first define money. For better or worse, most economists think of M2 as the measure of money. M2 is defined as the sum of currency, checking deposits, savings deposits, retail money market mutual funds, and small time deposits. Since 1992, the only deposits on depository institutions’ balance sheets that had reserve requirements have been transaction deposits, which are essentially checking deposits.5 As noted above, the majority of M2 is not reservable and money market mutual funds are not liabilities of depository institutions. Nevertheless, it is the link between money and reserves that drives the theoretical money multiplier relationship. As a result, the standard multiplier cannot be an important part of the transmission mechanism because reserves are not linked to most of M2.

Source: http://www.federalreserve.gov/pubs/feds/2010/201041/201041pap.pdf

Of course there is a requirement for banks to have capital. You are speaking of a hypothetical bank that doesn't have any loans or investments. Yes a bank with out loans or investments and just holds deposits for customers doesn't need capital.

If the bank declines my request yes, but if it doesn't than McDonald's will accept my plastic credit card. If McDonald's didn't accept cash, cash would be declined.

No it isn't. Putting money in a checking account is not an investment.

So my employer requests that they take "x" amount of dollars from his account and put that money in my account. Hmmmm... so because there is an intermediary there it is not a transfer... lol.

99.9% of people can walk in to Best Buy right now and purchase a tv with their debit card if they have money in their account. It never happens just because cash is backed by the United States Govt. If Best Buy no longer accepted cash than you couldn't walk out with a tv.

 

For perspective, M2 averaged about $7¼ trillion in 2007. In contrast, reservable deposits were about $600 billion, or about 8 percent of M2. Moreover, bank loans for 2007 were about $6¼ trillion.6 This simple comparison suggests that reservable deposits are in no way sufficient to fund bank lending. Indeed, if we consider the fact that reserve balances held at the Federal Reserve were about $15 billion and required reserves were about $43 billion, the tight link drawn in the textbook transmission mechanism from reserves to money and bank lending seems all the more tenuous. Figure 2 plots required reserves with M2 (both panels), and there is no relationship. M2 trends upward, growing in nominal terms with the economy. Required reserves, however, fell dramatically just after 1990 following the reduction in required reserve ratios and trended down through 2000, largely as retail sweep programs allowed depository institutions to reduce their reserve requirements. The fact that only a very small fraction of M2 is reservable explains the disconnect between money, measured as M2, and required reserves.

 

Not necessarily. If the bank declines the transaction, then what? You don't walk out with a good or service.

Wrong. It has been shown to you countless times that no reserves = no transaction.

No. You're transferring nothing. You're requesting a transfer. Huge difference.

I'm sure they are in many cases.

Repetetive and wrong. The only thing that matters is that its capital is non-negative. The bank must be able to meet the necessary reserve demands and also meet the Fed's 10% required ratio at the end of the day.

Nothing in your link debunks anything in my point.

The only things that matter are that its equity is non-negative, that it can meet its reserve demand, and that it can meet the Fed's required ratio at the end of the day.

You are hopelessly confused. McDonalds is not accepting your plastic card. You are not giving McDonald's your plastic card to keep as payment. You are using your plastic card to communicate with the bank to initialize your transfer request to McDonald's bank account. McDonald's is accepting the transfer of claims on the bank's reserves as a form of payment. They are not accepting your plastic credit card as a form of payment.

in·vest·ment
noun
1. the investing of money or capital in order to gain profitable returns, as interest, income, or appreciation in value.

Source: dictionary.com

LOL. Back to square one.

They "put" nothing in his account. There are no dollars in a bank account. There are only claims on dollars in his account. If there were dollars in his bank account, there would be no need for the FDIC when banks failed. People could simply withdraw all of their money at any time after a bank failed. You need to think long and hard about why your position makes absolutely no sense.

I never said it is not a transfer. You are making strawmans again. I said your employer is not the one doing the transferring. He is the one requesting the transfer.

Sure.

This is wrong. Nobody would accept fiat FRN's if not for legal tender laws. You have admitted this in the past and yet you continue to spread this disinformation. Why?

What would cause Best Buy to not accept cash?

 

If, if they don't then I walk out with a good or service. So what?

It has never been shown to me. It has been repeated constantly and the use of MMM step 6 has been overused. But it has never been "shown" to me that banks NEED reserves for a transaction to clear.

There is no difference. If I give my buddy $1,000 to buy me a tv at best buy, I'm still transferring my money to best buy. Just because my buddy physically has to drive over their to transfer it doesn't mean I'm not transferring MY money.

It's not a blanket 10%. Reserves are a dime a dozen and can easily be attained for anyone with capital. The only requirement is capital. Reserves are easy to get for banks.

Sure it does, you are saying banks need reserves for their deposits. This link says they do not. They need it for transactional deposits and that is very minimal in terms of a banks amount of deposits.

Yes, the only thing that does matter is their equity is non-negative. Good job, you are learning!

I'm transferring money from my account to McDonald's account. When they accept the plastic card that is what they are accepting.

Lol, putting your money in a checking account is not an investment.

Sure there are. I can log on to my bank right now and check how many dollars I have in my account. Just because you call them claims doesn't mean they aren't dollars.

Sure he is. It's their money that they are giving to me. They aren't giving me any reserves.

I'm just making a point that people accept cash for the same reason they accept transfers of digits in an account. Trust!

If they couldn't buy anything else with it.

 

I don't even understand your argument anymore. Let me try to get some clarification of what you are trying to say.

1) Deposits are only money depending on how you define "money".
--- They are considered money in every classification of money but the monetary base

2) When I use my debit card I am not transferring anything. I'm simply "requesting" a transfer.
--- Not really sure what the difference is, but oh well.

3) Checking accounts are investments.
--- First I've ever heard of that

I no longer get your position because it defies logic. What exactly are you even trying to argue about?

 

So, deposit account transactions are not the same as cash transactions. At all. When using cash, you don't have to get the transaction approved by a third party.

Banks can front money from their own capital in order to make transactions happen, but at the end of the day when all the book-keeping is updated, it boils down to the bank needing reserves.

Wrong again. Cash transactions are not the same as deposit transactions. Proven above.

Sure. But it doesn't change the fact that banks need reserves kept up with the Fed's required ratio at the end of the day.

Banks don't need capital. A bank can theoretically have zero capital and still be solvent because its assets will balance out with its loans. As long as it cannot meet the reserve withdraw demand, the bank will fail.

The link says no such thing. You're fabricating again.

That means a bank could have a capital of $0.01, which is effectively $0. That means banks are not capital constrained. Good job, you are learning!

You're transferring nothing. You're requesting a transfer. Huge difference.

Sure, but only if your transaction request gets approved by your bank. Otherwise they won't accept your plastic card as a form of payment and request an alternate form of payment.

Please explain how placing your money into a checking account in order to gain profitable returns as interest is not an investment.

That's exactly what it means. It shows how many claims you have on dollars. It doesn't show you how many dollars you have. If the bank fails, your account statement will still say that you have $X worth of claims. But that doesn't mean you actually have $X, because if you try to go to the bank and withdraw your dollars, you won't get them.

If there were dollars in your bank account, there would be no need for the FDIC when banks failed. People could simply withdraw all of their money at any time after a bank failed. Deposits != Cash. For the millionth time.

You need to think long and hard about why your position makes absolutely no sense.

He is not giving you money. He is giving you nothing but his approval on your request to transfer money from his account to your account. Huge difference.

Depends. If you directly cash the check your employer gave you, then the bank most certainly is giving you reserves.

Wrong. People accept transfers of digits in an account because of trust. They don't accept FRN's because of trust. They accept FRN's because of legal tender laws. That has nothing to do with trust and everything to do with government force.

Why would that ever happen? You seem to be under the belief that the FRN is immune to hyperinflation.

 

Exactly.

The difference is that with cash, you don't need the approval of a third party to make the transaction.

They fit the definition of investment.

My position is totally based on logic. I am debunking your misunderstandings of how transactions work within our banking system.

 

Yea you do. Like you always say, no one would use fiat if it wasn't for legal tender laws. So people accept cash for the same reason they accept little digits. They believe they will be able to get something for it in the future. I don't accept payments in to my bank account because I want to take cash out of the bank. I rarely ever have any cash on me. I pay for everything with my debit card.

I don't get any return on the money I have in my checking account.

What you consider debunking is saying that there is an intermediary that has to approve your transfer of digits from one account to the next therefore you are not transferring anything when you use your debit card. Lol, that sounds incredibly logical...

 

Sure. But that is totally irrelevent to your inaccurate claim that swiping your debit card amounts to you transferring money from your bank account to the seller's bank account.

How sad for you. That doesn't change the fact that banking is an investment.

What's illogical about it?

 

So then I don't need money in my account to make a purchase by swiping your card? Your "claim" theory is stupid. All money is claims. If I'm going to a store and swiping my card and walking out with a tv, they are accepting the money in my account to be transferred to their account. They aren't accepting reserves or "claims". They are accepting money. We have already gone over this a million times and it's mind-boggling that you still can't comprehend it.

Sorry to burst your bubble, but checking accounts are not investments. Even savings accounts aren't really investments.

Saying that I do not transfer anything when I make a purchase with my debit card, lol.

 

When did I ever say that? Post quote and page # please.
No, if you had no money in your deposit account, the bank would decline your request to transfer all or part of your claims on its reserves to another account.

It's not stupid. It is 100% accurate. Proven to you countless times in this thread by Iriemon and myself.

Different money are claims on different things. It's not stupid if you understand that elementary point. Cash/reserves = claims on govt debt. Deposits = claims on cash/reserves. HUGE difference.

What do you think deposit money is? A claim on reserves. We have gone over this a million times and it's mind-boggling that you still can't comprehend it.

How is it not an investment? You put your money into the bank, which carries the risk that you may not be able to get it back if the bank fails. The bank loans the money out, collects interest on it, and splits the interest between you (the deposit account holder) and its shareholders in the form of dividends.

Because you don't transfer anything. The bank does the transferring. That is not illogical, that is 100% pure indisputable fact.

 

Yes, it would decline the transfer because I didn't have any money. Lol, so if I have money in my account they transfer it. Wow!! What an amazing concept!

It has never been proven to me. All money is a claim based on your logic, so it doesn't matter if I'm transferring claims because I'm still transferring money.

So deposits are money. Thanks for finally admitting it!

Deposit money is money.

The money you have in your checking/savings accounts is considered savings not investments. No one invests in a savings account, lol. Econ 101. Actually below Econ 101. I think we learned this in Freshmen year of high school.

Who cares who physically transfers the money... it is still my money that I am transferring over to someone else so it can be THEIR money. If I give my friend $1,000 to buy me a tv at best buy I'm transferring my $1,000 to best buy... it doesn't matter if there is an intermediary are not. The fact you are arguing this point is once again hilarious, like so many of your other points.

 

So you admit that you were putting words in my mouth?

"Based on my logic"? I've freely admitted that all money is a claim. The difference is that you are deceptively trying to make the point that since all money is a claim, that deposits = cash. This is a logical flaw, like so many other logical flaws in your positions.

Cash/reserves = claim on government debt.
Deposits = claim on cash/reserves, ie. a claim on a claim.

You're transferring nothing. You're requesting the transfer of money. If the bank approves (ie it has the reserves to make the transaction possible), then the bank is the entity which transfers the money at your request.

It depends on how you define "money". We established this hundreds of posts and weeks ago. There is no need to keep rehashing this same point.

http://en.wikipedia.org/wiki/Investment

A financial instrument that is insured by the pledge of assets from a third party, such as a deposit in a financial institution insured by a government agency may be considered an investment.

Econ 101. Actually below Econ 101. I think we learned this in middle school.

It matters because the bank has to approve the transaction, and the bank has to perform the transaction. No reserves = no transaction. Step 6, MMM.

Transactions through cash are not the same thing as a transaction through a bank. The fact you are arguing this point is once again hilarious, like so many of your other points.

 

No I was laughing at your expense

If you and I go to Best Buy and buy a tv. I go with my debit card that has $1,000 in claims and you go to the best buy with $1,000 in cash. We both walk out with a tv. So tell me, how are they different?

Lol, so when I swipe my debit card and immediately check my account and my account has less digits in it, I did not transfer anything? It just magically disappeared?

Hahahahaha!! You still don't understand the difference between savings and investments. That is humorous! You should go back to middle school and try to learn again.

You still have yet to prove that No reserves = no transaction. I have even shown you links describing banks that are deficient in reserves and what happens to them. They have to pay a fine to the Fed. There is no source that says a bank needs reserves in order to transfer my money in my account to your account. We've gone over this 1,000,000 times. But I'm sure it still will not register in your brain.

What is the difference. We can both go to Best Buy right now and walk out with a tv. So tell me what is the difference? The only difference is I'm transferring over little bytes from my account to their account and you are transferring physical cash. Gone over this a million times.

 

No I was laughing at your expense

If you and I go to Best Buy and buy a tv. I go with my debit card that has $1,000 in claims and you go to the best buy with $1,000 in cash. We both walk out with a tv. So tell me, how are they different?

Lol, so when I swipe my debit card and immediately check my account and my account has less digits in it, I did not transfer anything? It just magically disappeared?

Hahahahaha!! You still don't understand the difference between savings and investments. That is humorous! You should go back to middle school and try to learn again.

You still have yet to prove that No reserves = no transaction. I have even shown you links describing banks that are deficient in reserves and what happens to them. They have to pay a fine to the Fed. There is no source that says a bank needs reserves in order to transfer my money in my account to your account. We've gone over this 1,000,000 times. But I'm sure it still will not register in your brain.

What is the difference. We can both go to Best Buy right now and walk out with a tv. So tell me what is the difference? The only difference is I'm transferring over little bytes from my account to their account and you are transferring physical cash. Gone over this a million times.

 

In that scenerio, the only thing that is similar is the outcome. The processes by which the outcomes were acheived were different in both scenerios. Sometimes the outcomes are not the same either if, for example, your bank was insolvent and declined your attempt to claim $1000 of its reserves. With cash, I could always buy the TV no matter what is going on with my bank.

You requested a transfer by swiping your debit card. The bank instantly approved your request and transferred the money. Any logical person understands this and would have given up trying to contradict this simple fact long ago. You are simply trolling.

Your strawman is noted. You are simply trolling.

Savings can be investments, as has been proven to you. You are grasping for straws now, the sign of a desperate loser.

Step 6, MMM. Cited billions of times.

You have shown no such thing. Prove that banks need to "pay a fine" to the Fed if their reserves are deficient.

Step 6, MMM. Cited billions of times.

It's likely that would happen. But it won't happen if your bank is insolvent.
The difference is that I can directly transfer cash to Best Buy in exchange for the TV. You have to request a third party (the bank) to transfer the money to Best Buy's account. Sometimes the request gets approved, sometimes it gets denied. There is no guarantee you will walk out of Best Buy with a TV. With cash, there is always a guarantee that I will walk out of Best Buy with a TV.

You are transferring nothing. You are requesting the transfer. Gone over this billions of times.

 

A troll akphidelt is exposed again. It's beyond embarrassing now.

 

So yes, there isn't any difference between the two? Thanks for agreeing with me. It is amazing how you can take your debit card right now purchase an item, bring it home, and you don't consider that transferring anything or spending money. Lol!! I wish I didn't have to spend money to purchase goods.

They didn't instantly transfer reserves like you claim. You are simply trolling.

Savings accounts have never been considered investments. Go back to school... this is embarrassing.

And been wrong billions of times

Sure I have multiple times. You don't even read or research anything you say. You simply just make things up. Stop trolling my friend... it's embarrassing.

http://www.clevelandfed.org/banking/credit_risk_management/reserves/calculation_of_reserves.cfm

Billion times wrong

Do we both walk out with a TV or not?

So then why do I need money if I don't transfer anything? Why can't I just walk in to best buy and take a TV. Why do they make me go through the step of swiping my debit card if I'm not giving them anything in return?

 

What financial school did you go to? You should ask for a refund kid. Savings accounts are not investment? LMAO!!!

Thanks for the laughs

 

Does anyone here take this troll seriously??? By belly is hurt so bad from laughing

I assume my savings investment can grow interest on its own without banks having to use it as a lending facility eh. LMAO!!!!

 

Duplicate post.

 

I never said any such thing. Putting words in my mouth is the sign of a desperate troll.

I never said any such thing. Putting words in my mouth is the sign of a desperate troll.

I never said any such thing. Putting words in my mouth is the sign of a desperate troll.

I never said any such thing. Putting words in my mouth is the sign of a desperate troll.

Saying that "a financial instrument that is insured by the pledge of assets from a third party, such as a deposit in a financial institution insured by a government agency may be considered an investment" may not be considered an investment is the sign of a desperate troll.

Claiming that the Fed's explanation of how money is created is wrong is the sign of a desperate troll.

The word "fine" appears nowhere in your source. Fabricating things is the sign of a desperate troll.

Claiming that the Fed's explanation of how money is created is wrong is the sign of a desperate troll.

Not if your transaction is declined by the bank - a question easily answered by somebody who is not a desperate troll.

Illogical questions that bear absolutely no reference to anything I've said - the sign of a desperate troll.

 

The dude is scary weird. I've never seen someone so obsesses with his fallacies like this kid.

This statement came from self-proclaimed Modern Monetary Theorist. Oh dear, we might just need to change it to Modern Fantasy Monetary Cluelessness uses exclusively by Alaskan residents.....

Thanks for for the laughsssssss..... LMAO!!!

 

The troll may finally be gone.

 

Start making coherent statements. I literally do not even understand what you are arguing about any more. You just love to argue to argue. Please explain to all of us what your point of all this rambling is again, lol.

And if you guys honestly think savings accounts are investments there is no reason to even talk to you guys, lol. "Savings accounts are investments"... hahahahahaha. No one invests in savings accounts. They save money by putting it in savings accounts.