Financial topics

[Reality Check]

Electronic money and printed money are equivalent. If the owner of electronic money wants to get printed money they can. If this is a bank getting money from the Fed the Fed might have to print up some more. The key issue of making more money will eventually lower the value works the same even if some part of the money supply is electronic.

True in theory, but not in practice.

For whatever reason, fractional reserve banks are not loaning out "excess reserves". This flies in the face of history, common sense and theory; but it is, what it is.

The U.S. Fed, the U.S. Treasury and the "too big to fail" banks are no longer independent players in a free market, pursuing their own self interest. Economic theory's that assume they are independent players simply with independent self interest no longer apply.

[vincecate]

Electronic money and printed money are equivalent. If the owner of electronic money wants to get printed money they can. If this is a bank getting money from the Fed the Fed might have to print up some more. The key issue of making more money will eventually lower the value works the same even if some part of the money supply is electronic.

True in theory, but not in practice.

It is really true, except for when it is not true. As Higgie has pointed out, when the banking system is in big trouble they may not let you get your money out. So you may not be able to convert your electronic money to paper. Or they may just take 60% of what you have in the bank but the paper money under your matress does not get taken. But in normal times you really can convert between the two and they are equivalent.

[vincecate]

For whatever reason, fractional reserve banks are not loaning out "excess reserves". This flies in the face of history, common sense and theory; but it is, what it is.

Bernanke started paying interest on excess reserves and that makes them just like government debt really.

http://howfiatdies.blogspot.com/2013/02 ... -debt.html

[aedens]

Vin noted the repression tax for the insiders as we have for some time. Translated as class theft in perecent.
The monetary base has a big strange jump up when they start paying interest on excess reserves as he noted correctly.

The question is other than hookers and blow and penmanship lessons to treasury officials how much goes to FDIC
for the debt serfs in the self licking ice cream cones insider club only members. Inflation is theft period. The monetary base
phenomena is a separate book entry for input pricing "inflation targeting" and the hidden tax agenda that crucified
the red pills in the last election cycle on the forty seven percent who do pay hidden taxes. I hope they both make the
same mistake and get some sound money thinkers back in leadership instead of the current insider malinvest churning cult.
As we are correct to note the cost basis going forward is supporting dead sectors in the economy anyway.
As we also note the taxpayer has already paid over 250k per electric car anyway. Still waiting for my malinvest upfront
paid electric car from the dumbocracy movement we paid for. We all know if we took delivery of acountability they would
cease to exist, as then the economy can move ahead clearing out the dead wood. Goes back to the work or eat thingy we are
kinda stuck at in the real world. My Senator mails me we need to reform tax code. Ok we all pay twenty perecent and you leave us alone
since it pays the parasites not one cent more and we can watch them eat each other. This twenty percent covers federal state and local
and not a percent more. But wait they are so numerous now and drain so much without the abilty to do math it would implode.
Ok reset, and clean house since we did our duty, now do yours. This IRS crap is a red herring and controlled opposition so wake up.

Old news for us here: met d “No one should underestimate the severity of the financial crisis,”
He called his report "a sobering wake-up call about the dire financial straits the city of Detroit faces."

No we called this out a long, long time ago here. Everybody knows....
https://www.youtube.com/watch?v=ihWhTvHVLAM

[Reality Check]

For whatever reason, fractional reserve banks are not loaning out "excess reserves". This flies in the face of history, common sense and theory; but it is, what it is.

Bernanke started paying interest on excess reserves and that makes them just like government debt really.

http://howfiatdies.blogspot.com/2013/02 ... -debt.html

What I failed to notice, in the linked article or in your post, and I may have just missed it, was any mention of the interest rate being paid on excess reserves.

It is sort of like the argument that illegal aliens costs the government nothing because they pay taxes. Taxes are a quantitative thing, not a qualitative thing.

If each illegal alien pays a few hundred dollars in taxes, on average, each year, and uses over $10,000 in government benefits, on average, each year, it means the point about paying taxes is just a smoke screen.

So the same question with interest rates on excess reserves, is the interest rate high enough to justify banks not loaning money at much higher interest rates to their customers ???

An even more important question is, why do the banks not convert the excess reserve into, required reserves, then thy could lend ten ( 10 ) times as much money to their customers ( assuming a 10% reserve requirement ) , and make the effective interest rate ten times higher, why let it sit as excess reserves and earn interest without a ten times multiplier ???

( FYI, I do understand that is an oversimplification of how the fractional reserve process works, but the effect is that same, simplified or not, the interest rate paid by customers is multiplied by a factor of approximately 10 times ).

[vincecate]

What I failed to notice, in the linked article or in your post, and I may have just missed it, was any mention of the interest rate being paid on excess reserves.

They have been paying 0.25% on excess reserves. Most of the time since Bernanke started paying interest on excess reserves the Fed Funds Rate has been less than this. So banks could make a profit by borrowing from the Fed and then leaving it at the Fed. Many people have said the Fed is "recapitalizing the banks" which is a fancy way of saying giving the banks money.

http://www.bloomberg.com/news/2013-04-1 ... e-day.html

fredgraph.png (15.24 KiB) Viewed 2683 times

[Reality Check]

The federal funds rate is the rate they charge, not the rate they pay.

But even assuming the 1/4 of 1% rate you suggested is correct.

Current business loans to bank customers are running between 3% and 7%.

Multiply that by a fractional reserve multiplier of 10 and you are comparing rates of:

Interest profit of 30% to 70% to 1/4 of 1%.

They can make an interest profit of between 120 times and 280 times larger if they loan to small businesses.

https://www.thinkbank.com/rates/business-rates.php

[vincecate]

The federal funds rate is the rate they charge, not the rate they pay.

But even assuming the 1/4 of 1% rate you suggested is correct.

They are paying 0.25% on excess reserves. They charge less than that on the Fed Fund Rate. So banks can make money by borrowing from the Fed and leaving it at the Fed. We are in the Twilight Zone.

[Reality Check]

The federal funds rate is the rate they charge, not the rate they pay.

But even assuming the 1/4 of 1% rate you suggested is correct.

They are paying 0.25% on excess reserves. They charge less than that on the Fed Fund Rate. So banks can make money by borrowing from the Fed and leaving it at the Fed. We are in the Twilight Zone.

Perhaps. But even if true it does not explain why they would settle for 1/4 of one percent on the hundreds of Billions ( over a Trillion ? ) in excess reserves just sitting in the Federal Reserve banks as excess reserves when they could be loaning out ten times that amount in fractional reserve loans and make between 120 Times and 280 times as much in interest profits on small business loans.

Again, since 1/4 of one percent interest on excess reserves represents not more 1/120th of the profit they could by making by conducting their normal fractional reserve banking business with that money; the 1/4 of one percent CAN NOT explain why the banks just leave it sit there as excess reserves.

[Reality Check]

.
Never mind about all the above.
.
John, you can shut this site down and retire now.

The U.N. has everything under control.

For example, the U.N. just solved the world hunger problem:


http://www.myfoxny.com/story/22233951/u ... re-insects