The Creation of the Federal Reserve System (Part 4)

In the situation you are describing where a bank gets run on, the Fed creates more base money to satisfy the demand for withdrawal. While that does distinguish deposits and increases cash by the exact same amount, that cash eventually goes back into the banking system as deposits and gets multiplied by a factor of 10. Which means that the Fed creating base money for that purpose does in fact create more money in the end.

Proven in post 116, which you conveniently ignored.

 

IF there was a link between reserves and loans. But I have shown you that there isn't...

So the cash being deposited back in to the banking system would not give the banks more money to lend. We have been over this 1 billion times. You are still living in the 1700s.

And there is no better proof then right now... Upon your logic, the $1.8 trillion increase in excess reserves would have created $20 trillion in loans. Where are the loans?

 

You said we were focusing on an old system in which "cash and reserves mattered", implying that they somehow don't matter today.

Which renders your claim that "solvency risk does not exist these days" completely inaccurate.

Then why is it that you are being proven wrong around the turn of every corner?

I always provide sources when they're necessary.

I'm not calling you names.

Becuase it doesn't matter how much capital a bank has, the only thing that matters is its equity. Established thousands of posts ago.

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

Business insolvency is defined in two different ways:

Cash flow insolvency
Unable to pay debts as they fall due.
Balance sheet insolvency
Having negative net assets – in other words, liabilities exceed assets.

Please explain how a bank with positive equity is insolvent.

Gross misrepresentation and mischaracterization of my position. Not even worth addressing.

Proven wrong by wikipedia again, akphidelt.

Please explain how capital reserves are not reserves. This will probably be as good as your explanation of how the Fed creating more money is not creating more money.

http://lmgtfy.com/?q=capital+reserves

And what might that be?

See post 126.

 

It does not imply that they don't matter today. It implies that they don't matter to make loans. Our conversation is about banks making loans.

I haven't.

Now the only thing that matters is equity? I thought the only thing that matter were reserves and deposits? LOL!! Move those goal posts buddy, keep moving em.

Capital reserves have nothing to do with bank reserves that satisfy reserve requirements with the Fed. Your entire theory is based on the Fed creating reserves so the banks can lend. Now you are saying banks use "capital reserves"... which is exactly what I have said the entire time, lol. You realized that you were 100% wrong and instead of admitting it, you are just changing your position.

 

That doesn't disprove what I said in any way. Absolutely nothing in your source says that banks don't lend to almost maximum capacity on their deposits during times of high velocity. In fact your own graph of excess reserves only proves my point:



Banks only held onto $1.5 billion worth of exess reserves. They could have gone up to $445 billion for loans on deposits but they didn't. They kept an effective 10.35% reserve ratio instead of pushing it down to the minimum of 10%. So let's re-examine my example in post 116 using the real-life effective reserve ratio of 10.35% that banks kept in 2007.

If a bank starts out with $10, then it loans it out until it turns into $96.62 worth of deposits. If there is a run on the bank, then the Fed has to create $86.62 worth of cash to satisfy everyone. Now there is $96.62 cash circulating outside of bank vaults, which all come back into the bank as deposits. That $96.62 then turns into $933.53, which very much creates more money.

Please explain how the $86.62 of cash being created and then deposited back into the system to create $933.53 worth of deposits does not amount to money creation.

You know that banks create money when the velocity of money is high, and now you are back tracking by trying to cite the Fed as a source of saying that banks don't create money when the Fed creates base money and it ends up in circulation outside of the vaults....which they are not saying at all. This new contradiction in your opinion totally conflicts everything we have gone over in this thread.

I guess that means we're again back to square one with educating you. LOL

The velocity of money is slow right now. Established thousands of posts ago.

 

LOL!!! You are still talking about deposits??? Now you are talking about velocity??? Your stubbornness is absolutely humorous. Just admit you have absolutely no clue what you are talking about.

Lol, but they made $6.25 trillion in loans. You are just talking about reservable deposits. Please explain how they can make $6.25 trillion in loans with $44.5 billion in reserves. Thanks!

No it doesn't!! Hahahaha, this is the whole point of this conversation. Read the paper from the FED. There is absolutely no correlation between reserves and loans. More reserves does not equal more loans, less reserves does not equal less loans. Please apologize immediately for not understanding this.

Please explain how banks can make $6.25 trillion worth of loans with only $44.5 billion in reserves. Thanks!

What? Please explain this one, hahaha.

Who cares!!! Hahahahahahahahaha

It is absolutely humorous watching you try to backtrack out of this one. Now you are making even less sense than you did before. Keep moving those goal posts buddy!!

 

Mischaracterization of my position. Again.

I never said that the "only thing that mattered were reserves and deposits." We established hundreds of pages ago that equity is the determining factor in a bank's solvency. If a bank doesn't have enough equity to satisfy demand deposit withdrawals, it is insolvent. None of your spins can disprove this fact.

This is true. But capital reserves are part of excess reserves.

Excess Reserves = Capital Reserves + Excess Deposit Reserves

I said no such thing. You are mischaracterizing my position again. I said that banks need reserves so that they can loan, which is 100% true. It doesn't matter if the Fed creates its reserves or not. But whatever the Fed does create will get loaned out, provided the velocity of money is high.

 

You just said that if the Fed created more cash that when it was deposited back in to the banking system they would create more loans. When you deposit money in to a bank it does not change their equity. So now you are saying equity is the determining factor. You mean the factor that I have said the entire time? Lol, thanks for finally agreeing with me.

Capital reserves are not part of excess reserves. Stop lying!

It is 100% false. Banks do not need reserves so they can loan. If they do then how can they make $6.25 trillion in loans with only $44.5 billion in reserves.

Banks don't lend reserves, lol!! You are so stuck in the 1700s that it is embarrassing. You just honestly can not grasp what reserves are in our system. There is no such thing as the money multiplier effect in our system any more.

 

No, I'm proving that your claim that the Fed creating more base money for the purposes of satisfying a bank run does not affect M1 or M2 is completely incorrect.

Empty rhetoric, fluff; not worth addressing.

Please explain how banks didn't make $430 billion in reservable deposits out of the $43 billion in required reserves.

Repetetive and irrelevent.

Wrong. Read the paper from the FED. Absolutely nothing in it says that banks don't lend to almost maximum capacity on their deposits during times of high velocity.

Agreed.

Depends on the velocity of money.

Depends on how you define "reserves".

Absolutely nothing in your source says that banks don't lend to almost maximum capacity on their deposits during times of high velocity.

I'll take the fact that you're dodging the question as an admission that you completely contradicted yourself when you said that the "Fed creating more money is not creating more money".

You claimed "So the cash being deposited back in to the banking system would not give the banks more money to lend."

You know this is completely untrue. Why are you saying this?

You know what the effect that a slow velocity of money has on bank lending, and yet you're trying to pretend like it doesn't exist. When I called you out on it, you resorted to this response. I'll take that as an admission that you were completely wrong about the fact that "cash being deposited back in to the banking system would not give the banks more money to lend."

You're only digging yourself in a deeper hole, akphidelt.

It is absolutely humorous watching you try to backtrack out of this one. Now you are making even less sense than you did before. Keep moving those goal posts buddy!![/QUOTE]

I'm not the one making erroneous claims like "Deposits don't give banks more money to lend" or "the Fed doesn't create more money when it creates more money" or "your sandwich existed before you made it".

It's fun watching you self-destruct under the weight of your own inconsistencies.

 

Lol, but it is not incorrect. More reserves does not equal more loans. So your premise that more base money = more loans = more M1/M2 is 100% incorrect.

Please explain how they made $6.25 trillion in loans out of $44.5 billion in reserves. Thanks!

They lend to whoever meets their lending standards. What does this have to do with our conversation?

This is the first day you have brought the velocity of money in to play. What exactly are you trying to say about the velocity of money and banks needing reserves to make loans?

The reserves we have been talking about the entire time are reserves created by the Federal Reserve. Now you are moving goal posts again.

Once again, please explain why you are all of a sudden talking about this, hahaha.

Depends what you mean by more money. More base money yes, more money for you and I, no.

Because it is 100% true. When you deposit money in to a bank it does not increase their ability to lend.

This is the first day you have mentioned velocity. I still do not get what you are trying to prove here. Please explain what the velocity of money has to do with banks making $6.25 trillion of loans with only $44.5 billion in reserves. Thanks!

You are just making stuff up now. Lol, "velocity". That's a new one.

Deposits don't give banks more money to lend and the Fed doesn't create "more" M1/M2 money when it creates reserves. Please apologize for continuously lying.

I know how the system actually works. So there is no insults you can throw my way that makes me really care. You are the one that has proven that you have absolutely no clue what you are talking about. Now you are talking about velocity, lol!!!

Keep it up buddy.

 

you know....it truly amazes me how some people seem to think that the laws of economics dont apply to the USA. Its like saying that printing alot of money is bad for zimbabwe but is good for america LOL!

 

And many more in other threads. Akiphidelt is the only perpson with this bizarre concept that the US Govt creates money and insults and calls liars and demands apologies from those who show proof he's wrong. It's a waste of time.

 

like I said before if it were that simple then all the central banks would be doing this flooding their banks with money and then all is fine LOL......but we all know that all is not fine as this is how hyper-inflation is born!

 

It's amazing how people compare Zimbabwe to America. Why not compare America to the other 190+ countries that use fiat money? You are using nothing but logical fallacies to discredit our system. So since the Weimar and Zimbabwe failed by printing too much money, America will? Yea, great reasoning.

And it's not like I'm advocating for some new theory. This is the theory America has used now for the past 80 years. Let me know when it is supposed to crumble, lol. You guys are the ones going against academia and everyone throughout the world who understands economics. I'm just a person on a forum and I can tell how uneducated you guys are. Imagine if you had to talk to a professor or someone who makes economic policy decisions. They would laugh at you guys even harder than I am.

 

I am not the only one who believes this. Here is a list of professors and economists all across the world that believes what I do...

http://moslereconomics.com/support/

These people believe...


Government $deficit = non government $surplus (net financial assets)

Operationally, government spending is not inherently revenue constrained.
Any such constraints are necessarily self-imposed.

In the banking system, the causation runs from loans to deposits, that is,
‘loans create deposits.’

The Fed is the monopoly supplier of net reserves to its banking system, and, therefore has no option but to set at least one interest rate.


I'm sure these professors would love to hear your very educated opinion of how our monetary system works. Lol!!!

You guys are embarrassing.

 

exactly.....even in the inflation of the 70's actually started by the fed monetizing the vietnam war starting in the late 60's and continued until the oil embargo of 1974 or there about.......but the inflation did not begin until 1974 I think and didn't really explode until 1978. So as you see it can take 5 years or more for the bulk of inflation to show up. It all has to do with velocity of money......the more confident people get then the more they spend.....the more they spend the quicker the velocity.......the quicker the velocity the higher the rate of inflation!


Simple no?

 

If the velocity of money is high enough to warrant that. When I explained that, you simply laughed. I don't see what's so funny about the affects the velocity of money has on bank lending.

I never claimed otherwise.

"Now"? I've been saying it for hundreds of pages. Go back and read the thread.

In determining a bank's solvency. Determining whether a bank fails or not is a different story. A bank can be insolvent but not fail.

Contradicts your previous statement:

So no, you haven't been saying it "the entire time".

I'm doing no such thing.

Prove it.

Why do you automatically assume that I'm lying? Just because you disagree with somebody like Iriemon or myself in a discussion does not mean that we're "lying". That's not a very mature way to have an intelligent discussion with somebody.

Sure they do, they need either excess reserves or required reserves to loan.

Repetetive. Already answered. Time to move on.

You know that this statement is not true and yet you continue to say it because you're a troll. If bank's don't need reserves, then why does the Fed mandate it? Why do banks keep excess reserves? The gaps in your logic astound me.

If you keep repeating yourself it will be funnier each time.

I'm not the one claiming that banks don't lend reserves.

Baseless claim.

 

Don't fall for Akiphelt's mistakes. The $43 billion in reserves claim he makes is a classic case of Akphidelt stumbling upon something he doesn't understand, and then misusing it to argue his position.

The total reserves outstading are $1.6 trillion.

http://www.federalreserve.gov/releases/h3/current/

That doesn't include vault cash, but alone could support a theoretical $14.4 trillion in loans with at 10% required reserve.

 

We are now at the point in our discussion where he is saying things like "the Federal Reserve creating more money does not create more money". Kind of reminds me of sandwiches existing before they exist.

 

Another lie from Iriemon. When did I say reserves are $43 billion today? I said in 2007 there was $6.25 trillion in loans and $43 billion in required reserves.

Please apologize immediately for such a blatant lie.

 

Another example of what I referred to in my previous post.

 

uhhmmmm in case you did not know inflation is nothing new....it has destroyed probably hundreds of currencies throughout history yet still you have this notion that somehow uncle ben has discovered a new way to use the printing press...if it were that simple dont you think other nations would of tried it by now?

 

Go (*)(*)(*)(*) yourself.

 

There's nothing you guys can say that changes how the system works, lol. The Fed creates base money. They do not create more money that you and I have.

I need a group apology from you, Iriemon, and bacardi. Thanks!

 

You know you lied, that's why you resorted to your childish response. No way kimosabe... you need to apologize immediately!!