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  #41  
Old 01-31-13, 06:35
Ferminal Ferminal is offline
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Originally Posted by meat puppet View Post
Say, are J.M. Keynes, Steve Keen, Yanis Varoufakis and Michael Hudson real economists? For all I know they all have had something to say abobut our subject, though none of them fits into the current mainstream.
Well the "mainstream" is the "consensus" which do not look "outside" thus may not consider alternative views relevant to their discipline because it's in their best interests to ignore rather than face reality.

Keynes as a disciple of Marshall and Pigou was mainstream. Then caused a few problems but they were able to incorporate what suited them whilst ignoring the harder questions so Keynesian/neoclassical/mainstream effectively meant the same. If you a Keynesian you are mainstream but that is not the case if you are post-Keynesian. Both are no doubt economists but the latter is small and heterodox, so easily overlooked.

Last edited by Ferminal; 01-31-13 at 06:50.
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  #42  
Old 01-31-13, 16:17
RetroActive RetroActive is offline
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It wasn't my purpose to address the fractional reserve banking system, I just wanted to make the point that as long as the capital reserve ratio is not absolute 0%, his narrative fails as a capital reserve ratio above absolute zero will mean that there is no unlimited paper money supply.

I agree with you that it is not perfect. For now, due to time constraints, I will leave it at this.
Back to this. First I think it`s important to realize that physical currency (notes and coins) makes up 3-5% of the total money supply.

When we`re talking about fractional reserve banking, we`re talking bread and butter commercial banking.

https://en.wikipedia.org/wiki/Fracti...eserve_banking
The relending model begins when an initial $100 deposit of central bank money is made into Bank A. Bank A takes 20 percent of it, or $20, and sets it aside as reserves, and then loans out the remaining 80 percent, or $80. At this point, the money supply actually totals $180, not $100, because the bank has loaned out $80 of the central bank money, kept $20 of central bank money in reserve (not part of the money supply), and substituted a newly created $100 IOU claim for the depositor that acts equivalently to and can be implicitly redeemed for central bank money (the depositor can transfer it to another account, write a check on it, demand his cash back, etc.). These claims by depositors on banks are termed demand deposits or commercial bank money and are simply recorded in a bank's accounts as a liability (specifically, an IOU to the depositor). From a depositor's perspective, commercial bank money is equivalent to central bank money it is impossible to tell the two forms of money apart unless a bank run occurs.[3]

At this point in the relending model, Bank A now only has $20 of central bank money on its books. The loan recipient is holding $80 in central bank money, but he soon spends the $80. The receiver of that $80 then deposits it into Bank B. Bank B is now in the same situation as Bank A started with, except it has a deposit of $80 of central bank money instead of $100. Similar to Bank A, Bank B sets aside 20 percent of that $80, or $16, as reserves and lends out the remaining $64, increasing money supply by $64. As the process continues, more commercial bank money is created. To simplify the table, a different bank is used for each deposit. In the real world, the money a bank lends may end up in the same bank so that it then has more money to lend out.

Further on

In addition to reserve requirements, there are other required financial ratios that affect the amount of loans that a bank can fund. The capital requirement ratio is perhaps the most important of these other required ratios. When there are no mandatory reserve requirements, which are considered by some economists to restrict lending, the capital requirement ratio acts to prevent an infinite amount of bank lending.

Don`t like Wiki...understandable, please correct it and help curtail disinformation. Begin by re-educating me as I want to go to the moon too.
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  #43  
Old 01-31-13, 17:01
RetroActive RetroActive is offline
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This makes for some interesting reading given everything that`s unfolded since it was written.

Basel II Will Trickle Down to Community Bankers, Consumers
http://www.stlouisfed.org/publicatio...ticles/?id=363
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  #44  
Old 02-01-13, 00:49
RetroActive RetroActive is offline
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Chris Whalen & Barry Ritholtz: 'The Derivatives Timebomb'
http://dailybail.com/home/chris-whal...-timebomb.html

"The fix is very simple," says Ritholtz, "repeal the Commodities Futures Modernization Act and suddenly this becomes like every other financial instrument."


Dang, why can't I delete this? My bad, do what you gotta do.

Last edited by RetroActive; 02-01-13 at 01:12.
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  #45  
Old 02-01-13, 13:08
AndyMMT AndyMMT is offline
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Retroactive. The wiki entry on FRB is fine but it has a problem in that is not how modern banks work as FRB is actually a bit of misnomer nowadays and why things like QE are misunderstood.
Banks do not lend out reserves they are only used for settlement between themselves (this is called outside money from "outside" the private sector or central bank money if you like). Banks actually do print the "money" we use (inside money as in "inside" the private sector or commercial bank money if you wish) when they make a loan they will use double entry bookeeping by entering on the asset side of their balance sheet the loan but also and this is important on the liability side a deposit.
Banks in all cases are Capital constrained NOT reserve constrained. In making a loan the banks if there is a reserve requirement (Australia,Canada for example do not set a reserve requirement) will either borrow them on the interbank market or from the Central bank ex post if needed, now as the central banks main role is to keep the system stable they will always provide the necessary reserves. Although to make it slightly more confusing its actually arguable that they are even capital constrained due to the implicit guarentees given by the state...of course they go down that route they end up nationalised, can you think of any cases of that happening lately?

In money creation terms its called endogenous http://en.wikipedia.org/wiki/Endogenous_money

Its standard for Post Kenyensian/MMT so if you starting reading Steve Keen for example you will need to know this as the model in that FRB wiki article uses an exogenous money model which is incorrect. Google Steve Keen V Paul Krugman

Last edited by AndyMMT; 02-01-13 at 13:11.
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  #46  
Old 02-01-13, 13:15
AndyMMT AndyMMT is offline
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You mean Neo-Keynesian Ferminal as in Neoclassical Keynesian synthesis, which really doesnt have that much Keynesian economics in it. Post Keynesians are the real Keynesians. I wont repeat Joan Robinsons description of the Neos
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  #47  
Old 02-01-13, 14:42
Ferminal Ferminal is offline
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Originally Posted by AndyMMT View Post
You mean Neo-Keynesian Ferminal as in Neoclassical Keynesian synthesis, which really doesnt have that much Keynesian economics in it. Post Keynesians are the real Keynesians. I wont repeat Joan Robinsons description of the Neos
Yes that's what I'm actually trying to say. But if you hear "Keynesian" in the mainstream people are generally referring to the neoclassical synthesis or New Keynesian types rather than the real Keynesians.
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  #48  
Old 02-01-13, 16:56
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rhubroma rhubroma is offline
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A Brief Crappy History of Money

In the Classical World the ancient Greeks began minting their first silver and bronze coins around 600 BCE, an idea they seem to have gotten from the Lydians in West Asia. Over the next centuries each polis was minting their own currency, such as the Corinthian coin with its flying Pegasus, or that of Athens with Athena's owl. Naturally the advent of money soon led to their continued opposition warfare, though arguably may also have contributed among the ancient Greeks to an unprecedented, and largely unsurpassed, period of philosophical, artistic and cultural efflorescence. Perhaps no more than today, given the financial malaise of modern Greece, should Western Civilization be reminded of the overwhelming indebtment it has to the peoples of Hellas. The idea of money (and war) was subsequently most useful to the Romans, who issued gold, silver and bronze coins with portraits of their emperors valid for commercial exchange throughout the entire Empire. The only problem was that most coin was horded by the aristocracy, while the plebian masses were increasingly overburdened and oppressed with taxes, mostly to finance the army, which was ever more necessary in keeping the barbarians out of Rome's vast territory.The aureus of a gluttonous Nero was particularly symbolic of the excesses and hardship this caused.

Yet, at the same time, the possibility of using identical coin from Britain to Mauritania and from Lusitania to Syria, did not come without its benefits. In facilitating the spread of classical culture and the State's institutions everywhere, the circulation of money for a long time helped achieve a universal pax in the region that has never been known since, nor has it not been sorely missed right down to today. It also guaranteed the unifying outcome of commercial trade, which, somewhat unexpectedly to the authorities (and initially to their great discontent), also ensured the circulation of new cult rights and spiritual ideas. More appealing than those associated with the traditional gods of the rich, in that they all claimed to offer an eternal prosperity in the next life; these new salvation religions were privately set against that which for most of the public was so grievously lacking in this one, being woefully deficient in coin as they were. Naturally they began to spread like wildfire, just as they would inevitably herald the end of the Classical World.

With the onset of Christianity, for a long time in our Western culture, money was equated with devil's dung. This was of course taught by the Catholic Church, under the pretext that wealth was bad and sinful, and that was it – “It’s harder for a rich man to enter the Kingdom of God, than it is for a camel to pass through the eye of the needle,” and so forth - and that poverty was in many ways a divine trial to be piously endured; while people naturally given to austerity demonstrated a saintliness that should be revered. This has always perplexed me though, given that the religious authorities were never in any shortage of funds. Indeed they often lived as most opulent princes.

At any rate throughout Medieval history, as had been the case in antiquity, money was generated by land holdings and by production (work on the feud was still paid in kind, or else laborors bartered what they had for what they needed, until eventually proletariats replaced serfs and so were remunerated), while coin was minted by the states: be they monarchial, republican, imperial, papal, etc. - states, which, it goes without saying, were constantly embroiled in intensive competition and antagonism that frequently resulted in war. However, at a certain point, the Renaissance burghers of Florence and Italy, as well as the Northern merchants of Flanders and the Netherlands began making long voyages to distant lands. They brought forth a new age of commercial transactions through issues of credit and check payments on-site between far off places, international banking and, eventually, the bourses. Tradable bonds as a commonly used type of security was another innovation, spearheaded by the Italian city-states of the late medieval and early Renaissance periods. Early modernism's New World discoveries, as well as those in the Far East, led to corporate stock being first traded. Some see the key event as the Dutch East India Company's founding in 1602, while others point to earlier developments.

Later men and machines, industrialization and colonialism - each embedded within an ever evolving capitalism - generated a production boom, though at the same time put thousands of people out of work, enslaved others who worked ceaseless hours for a pittance, while making a few exceedingly rich. This led to the sort of socialist action recommended by Karl Marx, the people of Germany and Austria having been particluarly destitute. The German intellectual's fierce opponent, Bismarck, however, believed that the only way to arrest the spread of socialism was to allay the worst hardships of the workers, so that they no longer wanted to turn the state upside-down.

Meanwhile the potential the stock exchanges offered investors under the alacritous resource and market development that industrialization and Western imperialism had caused, inevitably led to the great speculation boom, which was then followed by the Great Depression, but also two World Wars at both ends. Despite a myriad of concomitant causes, money, as has always been the case in the history of men’s catastrophic wars since being invented, was a central, if undisclosed, cause. At this point, however, the financialization of capitalism was implacably underway. Now money was no longer a fact of land ownership and production, as it had been in the Middle Ages, but under the forces of financial alchemy could apparently be self-generated (but also vaporized) in previously unfathomable quantities, according to the moods and sways of the markets.

During the Cold War such economic financialization resulted in unprecedented growth among the capitalist nations, which, of course, the communist countries could neither keep up with nor resist (if only through a nuclear Armageddon); though it also caused their state debts to skyrocket. At the same time rising workers' wages were held in check and mass credit was foisted upon the middle class to satisfy a need for consumer growth, while the lending banks profited from the interest repayments. In short there was great interest in maintining a salary cap, as there was great money to be made even among the modest wage earners by the banks. At this point money on the global scale and as a creature of finance, has currently led to considerations about the notion of communal goods and, as consort to our socio-economic model, about the serious consequences this has for soil consumption, environmental impact, food production and its relative shameful waste, in addition to future concerns over what will be left for subsequent generations. Lastly, according to the Brundland Commission, "we are taking financial loans out on future generations, without the intention or hope of ever repaying any of it back."

PS: The latest crisis of capitalism, which was of course provoked by an ungoverned financial apparatus, has recently triggered a renewed social discontent (especially among the emerging generation), with all the normal protest manifestations that this prompts. In keeping with the times, the contemporary organization of mass protest has been advertised through all the electronic social media and labeled under new brand names such as OWS and its affiliates, which claim to represent the struggle of the haggard and craving 99% of the lower pyramid, against the piggish rapacity of the 1% at the top. At the same time the emergence of the Asian economic powers, in addition to those of the southern hemisphere like Brazil, are causing the advent of a new global order that has inevitably placed at risk the prosperity and supremacy of the West. Such Western states are obviously not willing to part so easily with their wealth and omnipotence, however. Threatened by the possibility of epochal change, the great monetary authorities of the West have thus recently taken action to overhaul the traditional political classes with technocrats more versed in and congenial to all their monetary interests, which have been subtly grafted upon the normal tissue of the democratic institutions. The future of money has thus been assured. To further arrest decline, a new age of military deployment has also been engaged within all the vitally strategic zones, causing mounting tension between irreconcilable civilizations now faced off in a Herculean test of nerves. The case of Iran and the West is particularly problematical in this regard. Phenomena such as the Arab Spring and religiously (as well as economically) driven international terrorist groups have acted, not fortuitously, as the only possible alternatives to yielding submission and forms of resistance thus far.

Last edited by rhubroma; 02-02-13 at 12:35.
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  #49  
Old 02-01-13, 19:03
AndyMMT AndyMMT is offline
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Originally Posted by Ferminal View Post
Yes that's what I'm actually trying to say. But if you hear "Keynesian" in the mainstream people are generally referring to the neoclassical synthesis or New Keynesian types rather than the real Keynesians.
Firstly long time reader of these forums never commented or registered, but obviously using the nicname I have that this thread interested me

Yes agree with you, lets just say that the Post Keynesian schools are more than a bit peeved about it! But there does seem to be a bit of talking going on now, Krugman has been very interesting lately and also curious to note which University that Brad Delongs wife is currently teaching at (she teaches law) have a look at his blog and see who he has had coffee with.

Must ask though you said to keep politics out of this thread... erm how are you going to do that? It is after all a political economy, i am always suspicious when someone claims their economics isnt political.
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  #50  
Old 02-01-13, 21:40
RetroActive RetroActive is offline
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Originally Posted by AndyMMT View Post
Retroactive. The wiki entry on FRB is fine but it has a problem in that is not how modern banks work as FRB is actually a bit of misnomer nowadays and why things like QE are misunderstood.
Banks do not lend out reserves they are only used for settlement between themselves (this is called outside money from "outside" the private sector or central bank money if you like). Banks actually do print the "money" we use (inside money as in "inside" the private sector or commercial bank money if you wish) when they make a loan they will use double entry bookeeping by entering on the asset side of their balance sheet the loan but also and this is important on the liability side a deposit.
Quote:
Banks in all cases are Capital constrained NOT reserve constrained.
In making a loan the banks if there is a reserve requirement (Australia,Canada for example do not set a reserve requirement) will either borrow them on the interbank market or from the Central bank ex post if needed, now as the central banks main role is to keep the system stable they will always provide the necessary reserves. Although to make it slightly more confusing its actually arguable that they are even capital constrained due to the implicit guarentees given by the state...of course they go down that route they end up nationalised, can you think of any cases of that happening lately?

In money creation terms its called endogenous http://en.wikipedia.org/wiki/Endogenous_money

Its standard for Post Kenyensian/MMT so if you starting reading Steve Keen for example you will need to know this as the model in that FRB wiki article uses an exogenous money model which is incorrect. Google Steve Keen V Paul Krugman
I would suggest that we're having a problem with how "modern banks work", thus the QE.
I understand that reserves aren't lent out, my gross oversimplification a couple pages back could lead one to think I thought otherwise, my bad.

"when they make a loan they will use double entry bookeeping by entering on the asset side of their balance sheet the loan but also and this is important on the liability side a deposit."

What happens to this deposit. What effect does cash reserve requirements (or lach thereof) have? This is important, I agree.

"Banks in all cases are Capital constrained NOT reserve constrained."

This has not always been the case. At present they are only capital constrained, cash reserves also act as a restraint. There was a time when Canadian chartered banks not only had to have capital requirements + 10% cash reserves but also had to hold reserves with the Bank of Canada (nationalized) for the benefit of the Canadian people and for having the priviledge of credit creation. We've never been more in debt since the reserves were abolished.

"will either borrow them on the interbank market or from the Central bank ex post if needed"

They'll borrow the amount needed to shore up the reserve requirement, assuming there is one, sure.

Although to make it slightly more confusing its actually arguable that they are'nt even capital constrained due to the implicit guarentees given by the state

I assume that's what you meant. We could also get into what qualifies as tier 1 capital and question the value of those instuments as well, that would never end.

"In money creation terms its called endogenous" http://en.wikipedia.org/wiki/Endogenous_money

"exogenous money model which is incorrect"

Just because the endogenous side of the eqution has been amplified (open the lending window and they will borrow) it doesn't mean the exogenous side is incorrect or irrelevant. Surely the two work in relative harmony, or dischord (as the case may be) the way I'm understanding things. Thus the debate.

From the wiki link:

"This all adds up to the conclusion that participants have the power to affect the value of currency, albeit via less direct and potentially less effective mechanisms than simple printing of money by the central bank (exogenous money creation.)"

Supply (both the central bank and the commercial banks) still governs demand (which theoretically would know no end), or should in a world that can in any way be considered "real", imo. If the floodgates are opened, expect a flood.

"Given available credit, investment precedes and 'forces' the saving necessary to finance it."

How do you make credit more or less available? Interest rates and capital + reserve requirements? Zero interest rate policy certainly changes the definition of the word saving and does force investing, certainly.

"Proponents deny any practical impact of the money multiplier on lending and reserves."

I confess a relative ignorance as to the specifics of Keen vs. Krugman but is this not the nub of it? I see Steve Keen looking at foundation and saying "we have a problem here" and Krugman leaning out a window at the top of the tower and shouting back "I don't see anything, what are you talking about". I'm a simple man. Having built a few houses whom do I listen too?

I just read this:
http://www.businessinsider.com/paul-...ve-keen-2012-4
Sounds like a proper mess, the sort academics love.

"Mainstream (New Keynesian) economic theory states that the quantity of broad money is a function of the quantity of "high-powered money" or "government money" (notes, coins and bank reserves), and the money multiplier (the inverse of the reserve ratio)."

Someone's confused, that'd be me probably.

On Quantitative easing
http://en.wikipedia.org/wiki/Quantitative_easing

"A central bank implements quantitative easing by buying financial assets from commercial banks and other private institutions, thus creating money and injecting a pre-determined quantity of money into the economy"

Buying toxic assets and valuing them at 100% (however that's calculated, accounting fraud?) and directly purchasing gov't bonds and monetizing the whole mess to return to the banks that created the crap in the first place so they can create more speculative crap (they're not lending it). Rinse and repeat. Sounds like cannibalization to me, but what do I know.

I'm no academic, I'll happily wear the dunce cap here.

I have a feeling there's too much debt though, for a start.
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