3 ms·

And since when is this news? Congress lowered the minimum reserve requirements to 0 during the Bush bailout bill. The current minimum, as set by the fed, last t

by teilo 17y ago

And since when is this news? Congress lowered the minimum reserve requirements to 0 during the Bush bailout bill. The current minimum, as set by the fed, last time I checked, was around 8-10%, depending upon the type of reserve, but there is nothing stopping the Fed from dropping the rate to 0. Of course, that would mean hyper inflation, but since when does Bernanke care one whit about the buying power of the dollar? The Fed is the biggest tax and spender of them all. Inflation is their tax, and it is not progressive. It steals the money of poor and rich alike, and in return the Fed provides the US Government nearly a blank check to spend that stolen wealth. I honestly don't understand how anybody can be surprised at this.

dfranke 17y ago
There's a huge difference between 10% and 0%. A 10% reserve requirement means the credit supply can expand to 10x the amount of the original deposits (100% + 90% + 81% + 72.9% + 65.61% + ... = 10). A 0% reserve requirement means it can expand infinitely (100% + 100% + 100% + 100% + ...). Edit: here are the current minimums: http://www.federalreserve.gov/monetarypolicy/reservereq.htm http://www.federalreserve.gov/monetarypolicy/reservereq.htm They're indeed 10% for all but the tiniest banks.
- teilo 17y ago
  In practical terms, a 10% reserve really equates to more like an 8-fold increase. To say that a 0% reserve means that the reserve could expand infinitely is a bit overstating the matter. There are practical limits purely based upon how many times a given loaned dollar can be deposited and re-loaned by a series of banks. Furthermore, the loans are not made at zero interest. The interest charged in the loan also serves as a break for monetary expansion. Of course, the issue here with a fractional reserve system of ANY kind is that it's impossible for the country to get out of debt without erasing the money supply. Without debt, there is no money. But the point I am making is that the Fed has had this power since the end of the Bush administration. Bernanke does not need to ask permission. The directors can lower the reserve requirement whenever they wish.
anigbrowl 17y ago
Not necessarily. You could introduce some other mechanism than reserve deposits to limit leverage, I'm just unsure what that might be, and Bernanke's failure to explain that is evidence of a colossal tin ear. Mind you, people who argue for abolishing the fed never seem to have an answer for this either, other than asserting that gold has mystical properties which can ward off fiscal Armageddon.
- dfranke 17y ago
  Bernanke's proposed mechanism is to make use of the fed's newly-granted power to pay banks interest on their reserves, as incentive to maintain them. Edit: In other words, print money in order to pay the banks not to print money.
- teilo 17y ago
  My rather unpopular proposal is not necessarily to return to a gold standard, although a fractional gold standard would certainly not hurt. Rather it is this: First, to eliminate fractional lending entirely. If money is to be loaned, then only that money may be loaned that has been deposited for the express purpose of loaning it out. In other words - think CD's as the standard mechanism for the funding of loans. Essentially, this would mean that banks have no more lending ability than any private citizen or institution. Currently, only a bank is allowed to lend money that does not exist. When an individual does this, it is a crime. Second: To allow congress to create a fixed percentage of fiat currency in any given year. This would remove from the banks the ability to expand the money supply, and leave it in the hands of congress, and congress alone. They would accomplish such expansion, essentially, by printing money and spending it.
  - anigbrowl 17y ago
    I appreciate your non-snarky reply to my snarky comment. Isn't this a solution just as bad as the problem, though? It would destroy liquidity, and do little to alleviate risk, since bankers would not be assured of making sufficient income to offset the cost of bad debt. Furthermore, profits from banking would be so low as to fall below the level of transfer earnings, that is to say banks and bankers might well be able to make more money doing something else and would have no incentive to operate, and the economy would go the way of North Korea (unless this system were implemented and enforced globally). Since people always want money to do stuff, the demand for credit would likely be filled by illegal lenders charging usurious rates (although there's a reason I cut up all my credit cards...), and profiteering would ensue. Such illegal lenders would probably not bank their gains starving the system further of liquidity - a case of bad credit driving out good, so to speak. I imagine the likely result would be that the government would become the biggest guarantor of loans and cronyism and other kinds of corruption would become endemic. Doubtless you don't intend for this outcome, but I can't help feeling your proposal would rapidly result in a soviet-style economy, which I can attest from first-hand experience does not work very well. Incidentally, not only is it illegal for an individual to lend money that does not exist, it is illegal for them to lend more than a certain sum of their own money at interest, I believe under the same laws that require investor accreditation.
jackowayed 17y ago
Actually, inflation is progressive because the rich in general have more in savings than the poor. But it also punishes behavior that is "good" (though worse for the economy). For 2 people of the same income, if one saves a lot of his money and the other spends most of his, thus getting tangible assets (maybe a nicer house) instead of money, the spender will be a lot less affected by inflation than the one who has a lot of money in savings. (Though if most of his money is in stocks, it should roughly grow with inflation.)
- startuprules 17y ago
  the rich already escaped from dollar to tangible goods such as gold/silver/food/water supplies/farm/private island/'protection' the rest of us have electronic 0s and 1s stuck in 401k and propped up real estate prices
- teilo 17y ago
  That is non sequitur. A tax is not progressive simply because some people pay more takes than others. Inflation lowers the value of any give dollar in a wealthy man's bank account as equally as the same dollar in poor man's account.
  - jackowayed 17y ago
    The definition of a progressive tax is that as one's income goes up, the percentage of one's income that one pays in that tax goes up. This tax isn't perfectly progressive because it depends on people's exact behavior and by investing rather than just having it in a savings account, the rich can sort of have their wealth increase in value with inflation, but it is the case that extremely poor people with no savings barely feel it, while rich people will see some of their money (money in checking accounts, savings accounts, etc) lose its value.
    - anamax 17y ago
      > but it is the case that extremely poor people with no savings barely feel [inflation], while rich people will see some of their money (money in checking accounts, savings accounts, etc) lose its value. Poor people's wages don't necessarily increase as fast as the cost of things that they buy. If their wages fall behind, they lose. BTW - "rich people" don't keep an appreciable fraction of their money in checking and savings. They keep their "cash equivalents" in things that have higher yields during times of inflation. (I think that TPS bond funds already exist, providing both liquidity and the inflation-protection of TPS bonds.) Money market interest rates were fairly high during the last time of significant US inflation.

by teilo 17y ago

dfranke 17y ago

There's a huge difference between 10% and 0%. A 10% reserve requirement means the credit supply can expand to 10x the amount of the original deposits (100% + 90% + 81% + 72.9% + 65.61% + ... = 10). A 0% reserve requirement means it can expand infinitely (100% + 100% + 100% + 100% + ...). Edit: here are the current minimums: http://www.federalreserve.gov/monetarypolicy/reservereq.htm http://www.federalreserve.gov/monetarypolicy/reservereq.htm They're indeed 10% for all but the tiniest banks.

teilo 17y ago
In practical terms, a 10% reserve really equates to more like an 8-fold increase. To say that a 0% reserve means that the reserve could expand infinitely is a bit overstating the matter. There are practical limits purely based upon how many times a given loaned dollar can be deposited and re-loaned by a series of banks. Furthermore, the loans are not made at zero interest. The interest charged in the loan also serves as a break for monetary expansion. Of course, the issue here with a fractional reserve system of ANY kind is that it's impossible for the country to get out of debt without erasing the money supply. Without debt, there is no money. But the point I am making is that the Fed has had this power since the end of the Bush administration. Bernanke does not need to ask permission. The directors can lower the reserve requirement whenever they wish.

anigbrowl 17y ago

Not necessarily. You could introduce some other mechanism than reserve deposits to limit leverage, I'm just unsure what that might be, and Bernanke's failure to explain that is evidence of a colossal tin ear. Mind you, people who argue for abolishing the fed never seem to have an answer for this either, other than asserting that gold has mystical properties which can ward off fiscal Armageddon.

dfranke 17y ago
Bernanke's proposed mechanism is to make use of the fed's newly-granted power to pay banks interest on their reserves, as incentive to maintain them. Edit: In other words, print money in order to pay the banks not to print money.
teilo 17y ago
My rather unpopular proposal is not necessarily to return to a gold standard, although a fractional gold standard would certainly not hurt. Rather it is this: First, to eliminate fractional lending entirely. If money is to be loaned, then only that money may be loaned that has been deposited for the express purpose of loaning it out. In other words - think CD's as the standard mechanism for the funding of loans. Essentially, this would mean that banks have no more lending ability than any private citizen or institution. Currently, only a bank is allowed to lend money that does not exist. When an individual does this, it is a crime. Second: To allow congress to create a fixed percentage of fiat currency in any given year. This would remove from the banks the ability to expand the money supply, and leave it in the hands of congress, and congress alone. They would accomplish such expansion, essentially, by printing money and spending it.
- anigbrowl 17y ago
  I appreciate your non-snarky reply to my snarky comment. Isn't this a solution just as bad as the problem, though? It would destroy liquidity, and do little to alleviate risk, since bankers would not be assured of making sufficient income to offset the cost of bad debt. Furthermore, profits from banking would be so low as to fall below the level of transfer earnings, that is to say banks and bankers might well be able to make more money doing something else and would have no incentive to operate, and the economy would go the way of North Korea (unless this system were implemented and enforced globally). Since people always want money to do stuff, the demand for credit would likely be filled by illegal lenders charging usurious rates (although there's a reason I cut up all my credit cards...), and profiteering would ensue. Such illegal lenders would probably not bank their gains starving the system further of liquidity - a case of bad credit driving out good, so to speak. I imagine the likely result would be that the government would become the biggest guarantor of loans and cronyism and other kinds of corruption would become endemic. Doubtless you don't intend for this outcome, but I can't help feeling your proposal would rapidly result in a soviet-style economy, which I can attest from first-hand experience does not work very well. Incidentally, not only is it illegal for an individual to lend money that does not exist, it is illegal for them to lend more than a certain sum of their own money at interest, I believe under the same laws that require investor accreditation.

jackowayed 17y ago

Actually, inflation is progressive because the rich in general have more in savings than the poor. But it also punishes behavior that is "good" (though worse for the economy). For 2 people of the same income, if one saves a lot of his money and the other spends most of his, thus getting tangible assets (maybe a nicer house) instead of money, the spender will be a lot less affected by inflation than the one who has a lot of money in savings. (Though if most of his money is in stocks, it should roughly grow with inflation.)

startuprules 17y ago
the rich already escaped from dollar to tangible goods such as gold/silver/food/water supplies/farm/private island/'protection' the rest of us have electronic 0s and 1s stuck in 401k and propped up real estate prices
teilo 17y ago
That is non sequitur. A tax is not progressive simply because some people pay more takes than others. Inflation lowers the value of any give dollar in a wealthy man's bank account as equally as the same dollar in poor man's account.
- jackowayed 17y ago
  The definition of a progressive tax is that as one's income goes up, the percentage of one's income that one pays in that tax goes up. This tax isn't perfectly progressive because it depends on people's exact behavior and by investing rather than just having it in a savings account, the rich can sort of have their wealth increase in value with inflation, but it is the case that extremely poor people with no savings barely feel it, while rich people will see some of their money (money in checking accounts, savings accounts, etc) lose its value.
  - anamax 17y ago
    > but it is the case that extremely poor people with no savings barely feel [inflation], while rich people will see some of their money (money in checking accounts, savings accounts, etc) lose its value. Poor people's wages don't necessarily increase as fast as the cost of things that they buy. If their wages fall behind, they lose. BTW - "rich people" don't keep an appreciable fraction of their money in checking and savings. They keep their "cash equivalents" in things that have higher yields during times of inflation. (I think that TPS bond funds already exist, providing both liquidity and the inflation-protection of TPS bonds.) Money market interest rates were fairly high during the last time of significant US inflation.