A gross oversimplification, but what can one expect? For a more in-depth look, let's listen to Steve Keen (http://www.businessspectator.com.au/article/2012/10/22/commodities/myth-money-multiplier).
(I know, I know, Krugman won a Fauxbel and therefore is higher on the scrotum pole than Keen, so why do I bother? Because Keen's theories better describe the empirical reality. That's all. Darn that heterodoxy and its reality-based bias!)
To Keen, with a focus on a rebuttal to your first question:
But what if Buyer Bank doesn’t have enough Reserves – if it’s at its Reserve Requirements limit already, or worse still, if its reserves are zero? Will the Central Bank refuse to transfer funds that Buyer Bank doesn’t really have?
I hope the answer to that question is now obvious: of course it won’t. The Central Bank will either give Buyer Bank time to find the Reserves, or lend them to it. To do otherwise – to refuse to transfer Reserves from Buyer Bank to Seller Bank – would void the purchase made by the Buyer from the Seller (and note that this could happen with the Cash purchase just as easily as with the Card one). The system of commerce would break down. We’d have an interesting social system the instant after the Central Bank did such a thing, but it wouldn’t be called capitalism.
The grace period given the banks is (according to what I remember from Keen's book) two weeks from over-draw of reserves to requirement to make reserves (or borrow them).
Yes but assets are similarly limited.
Assets are used to back lending, you'll agree? They may be limited in the bank's allowed ratio of cash to non-cash assets, but they are used. My point in pointing out assets was to note the uselessness of assets not tethered to actual value, not to deny that they are but a part of a bank's reserves.
That's why I mentioned the unsecured loans from the bank employees. I did it not to seemingly fail to see that these were loans made without collateral requirements as you seem to imply (duh), but to note that the assets were in reality quite empty of real value when the crash came. Likewise, derivatives are great as long as no event (or, more likely, chain of events) shows many derivatives to be just empty promises of money, not legally-binding stores of value as everyone hoped.
I point these things out to note that non-cash assets on the balance sheets allow banks to lend real money in (as Keen points out) their endogenous manner: ". . . 'endogenous money': bank lending creates deposits, so the decisions of banks to provide loans determine the level of money, and reserves are largely irrelevant." That word "largely" might help you save some face in this disagreement, since eventually the reserve requirements might make the bank slow spurious lending down a tad, especially if the Fed gets a bit uppity.
Exogenous seems to imply that a central authority holds the leash. I disagree. Right now, from everything I see the banks doing and the Fed doing, it looks quite clear that the Fed is but the banksters' bitch.
I have a question: Yes, you are pursuing an advanced degree in econ, and you seem quite well versed in its dogma. Given your insistence on being right here, have you considered a non-econ perspective, perhaps by taking a course in actual finance?
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timeasmymeasure
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Date: 2014-04-25 12:15 am (UTC)(I know, I know, Krugman won a Fauxbel and therefore is higher on the scrotum pole than Keen, so why do I bother? Because Keen's theories better describe the empirical reality. That's all. Darn that heterodoxy and its reality-based bias!)
To Keen, with a focus on a rebuttal to your first question:
The grace period given the banks is (according to what I remember from Keen's book) two weeks from over-draw of reserves to requirement to make reserves (or borrow them).
Yes but assets are similarly limited.
Assets are used to back lending, you'll agree? They may be limited in the bank's allowed ratio of cash to non-cash assets, but they are used. My point in pointing out assets was to note the uselessness of assets not tethered to actual value, not to deny that they are but a part of a bank's reserves.
That's why I mentioned the unsecured loans from the bank employees. I did it not to seemingly fail to see that these were loans made without collateral requirements as you seem to imply (duh), but to note that the assets were in reality quite empty of real value when the crash came. Likewise, derivatives are great as long as no event (or, more likely, chain of events) shows many derivatives to be just empty promises of money, not legally-binding stores of value as everyone hoped.
I point these things out to note that non-cash assets on the balance sheets allow banks to lend real money in (as Keen points out) their endogenous manner: ". . . 'endogenous money': bank lending creates deposits, so the decisions of banks to provide loans determine the level of money, and reserves are largely irrelevant." That word "largely" might help you save some face in this disagreement, since eventually the reserve requirements might make the bank slow spurious lending down a tad, especially if the Fed gets a bit uppity.
Exogenous seems to imply that a central authority holds the leash. I disagree. Right now, from everything I see the banks doing and the Fed doing, it looks quite clear that the Fed is but the banksters' bitch.
I have a question: Yes, you are pursuing an advanced degree in econ, and you seem quite well versed in its dogma. Given your insistence on being right here, have you considered a non-econ perspective, perhaps by taking a course in actual finance?