flow5

340 Comments

    • ON: Sun Oct 12th 16:16 PM
      Commented on:
      Greenspan Is to Blame for Today's Problems
      Greenspan wasn't soley responsible. It was the FEDs technical staff & their Keynesian training that said the money supply could be regulated using interest rates. That is a fallacy.

      Milton Friedman lacks a great deal of knowledge about money & central banking. I don't consider him a monetarist.

      Monetary policy objectives should not be in terms of any particular rate or range of growth of any monetary aggregate. Rather, policy should be formulated in terms of desired roc’s in monetary flows (MVt) relative to roc’s in real GDP. Note: roc’s in nominal GDP can serve as a proxy figure for roc’s in all transactions. Roc’s in real GDP have to be used, of course, as a policy standard.

      Bubbles are impossible to miss as is any signifant change in GDP.

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    • ON: Sun Oct 12th 16:07 PM
      Commented on:
      Crocodile Tears and the LIBOR-OIS Spread
      I've always thought it was a pseudo-economic relationship. But I'm not schooled in it's workings or uses. It just seems that one expresses an international interest rate of funding vs the banks buying their liqudity domestically. Whatever is purchased in the Foreign-Dollar market wouldn't change the assets or liabilities for the member commercial banks because that market is controlled exclusively by the New York's "trading desk" or the money and credit expansion is otherwise "sterilized"... I.e., some banks win & some banks lose.
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    • ON: Wed Oct 8th 13:49 PM
      Commented on:
      How Bad Is the Fed's Balance Sheet?
      This was the operating procedure used extensively by Treasury-Reserve authorities during WWII. And back then, legal reserves stood (as of Oct 21, 1943) at 83.1%, of deposit liabilities. The Treasury's balances piled up in anticipation of the need for further funding, in the financing of the war. This ultimately became the rational, for the long-standing exclusion of the Treasury's General Fund Account, from the assets included in the money stock.

      The source of alarm and confusion is that there’s no unique price effect of federal outlays as compared to state and local government outlays, or expenditures by the private sector. The shifting of funds to and out of the Federal Reserve has a dollar for dollar effect on member bank reserves, but that problem is dealt with through open market operations. Whenever excessive reserves are pumped into the System because of "support" operations, the Manager of the Open Market Account sterilizes the System’s legal reserves, after the need for the support operation has passed.

      I believe that there is another example? that during WWI,I the member banks could have converted their IBDDs into the entire amount of Federal Reserve bank notes (National Currency $660 mill) without the necessity of any expansion of Reserve Bank Credit.
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    • ON: Wed Oct 8th 12:09 PM
      Commented on:
      It's the Capital, Not Liquidity, Stupid
      Under the Financial Services Regulatory Relief Act of 2006 Capital ratios are already scheduled /legislated to decrease. Congress issued in payment of reserves early, why not a reduction in capital ratios?

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    • ON: Mon Oct 6th 14:02 PM
      Commented on:
      Relax Basel II's Bank Capital Adequacy Requirements
      That is, the lending capacity of the money creating depository institutions is dependent upon monetary policy. It is not restricted by the volume of bank capital. And the trend rate of the ratio of bank capital to bank liabilities will continue to decline. And there is no magic governing ratio.

      The liquidity and solvency of the banks should be based credit worthiness of the loan or investment and not the adequacy of bank capital. Contrary to Sheila C. Bair, chairwoman of the Federal Deposit Insurance Corporation, this is the most important determination of the banks soundness.
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    • ON: Mon Oct 6th 13:57 PM
      Commented on:
      Relax Basel II's Bank Capital Adequacy Requirements
      The Financial Services Regulatory Relief Act of 2006 already provides for the reduction of bank capital.
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    • ON: Mon Oct 6th 13:42 PM
      Commented on:
      Bailout Backfire and the Ticking Debt Time Bomb
      Ray Lopez:

      THE MONEY SUPPLY CAN NEVER BE MANAGED BY ANY ATTEMPT TO CONTROL THE COST OF CREDIT.
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    • ON: Mon Oct 6th 13:38 PM
      Commented on:
      Bailout Backfire and the Ticking Debt Time Bomb
      The significant economic purposes for which a debt was contracted, or the manner in which it was financed, is of inestimatable value in evaluating it's impact.

      For example if the debt was acquired to finance the acquisition of a (new-security), the proceeds of which are used to finance plant and equipment expansion, rather than the purchase of an (existing-security) to finance the construction of a new house, rather than to finance the purchase of an existing one (as will Paulson's planned $700 bill bailout), or to finance (inventory-expansion), rather than refinance (existing-inventories)...

      The former types of investment are designated as "real" as contrasted to the latter, which constitute "financial" investment (existing homes). Financial investment provides a relatively insignificant demand for labor and materials and in some instances the over-all effects may actually be retarding to the economy. Compared to real investment,it is rather inconsequential as a contributor to employment and production. Only debt growing out of real investment or consumption makes an actual direct demand for labor and materials.
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    • ON: Mon Oct 6th 13:37 PM
      Commented on:
      Bailout Backfire and the Ticking Debt Time Bomb
      It should be recalled that the charges on debt are related to a cumulative figure; and since the multiplier effects of debt expansion on income, the ingredient from which the charges must inevitably be paid, is a non-cumulative figure, it would seem that the time will inevitably arrive when further debt expansion is no longer a practical or possible expedient, either to provide full employment or to keep debt charges with tolerable limits.
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    • ON: Mon Oct 6th 13:37 PM
      Commented on:
      Bailout Backfire and the Ticking Debt Time Bomb
      Those who are wont to minimize the ill effects of the deficit are prone to compare the size of the deficit with nominal GDP, as if the volume of nominal GDP were independent of the size of the deficit.

      Unprecedentedly large deficits “absorb” a disproportinoately large share of nominal GDP

      Present deficits are unprecedented no matter how measured, and the past gives us no reliable guide to the future effects of deficit financing, beneficial or otherwise.

      To appraise the effect of the federal budget deficit on interest rates, it is necessary to compare the deficit, not to GDP, but to the volume of CURRENT SAVINGS made available to the credit markets. The current deficit is absorbing about 24% of gross savings.

      The more alarming aspect of the deficits is not the effect on interest rates but the effect of high interest rates on the level of taxable income and the volume of taxes required to serve a cumulative debt now exceeding $10+ trillion. Both high interest rates and high taxes induce stagflation, thus eroding the tax base and increasing the volume of futures deficits.

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    • ON: Mon Oct 6th 13:36 PM
      Commented on:
      Bailout Backfire and the Ticking Debt Time Bomb
      Any deficit, by definition, creates a demand for loan-funds. The larger the deficit, the higher interest rates will be, or the less they will fall.
      Any given deficit should be evaluated in terms of: (1) the size of the deficit in the context of the size of future deficits, and the accumulated debt relative to the means and costs of financing the whole: (2) how the deficit is financed: (a) from savings or (b) commercial bank credit, i.e., newly created money; and (3) the purpose for which the deficits are incurred.

      Prorating the federal deficits over the entire spectrum of federal expenditures, it can be said that virtually all of the current deficits are attributable to defense spending, military and civil service pensions, interest on the debt, and welfare and unemployment benefits. Social security for now is not include in the above list since only a very small proportion of social security benefits are financed from non-social security taxes. From an economic standpoint, only interest is “untouchable”.

      If current projections of Federal Deficits materialize in this, and the next few years, interest rates (both long and short-term) will be driven up sharply by the increased demand for loan funds. I.e., any recovery in the economy will present a “Catch 22” situation. An upturn in the economy will add increased private demand for loan funds to the insatiable demands of the Federal Government. The consequent rise in interest rates will effectively abort any recovery.

      Raising taxes to accomplish a reduction in the deficit would be counter-productive. Most of this debt is short-term. Combine this with the factor with the constant roll-over of some of the long-term debt and it becomes obvious that the burden of higher interest rates will be compounded.

      The burden becomes a function of the major portion of the debt, not just the current deficits. The burden, in fact, becomes exponential. In other words, if the trend is not stopped, the debt inevitably has to be repudiated.

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    • ON: Mon Oct 6th 13:35 PM
      Commented on:
      Bailout Backfire and the Ticking Debt Time Bomb
      It would seem that somewhere, somehow, if total net debt (not just Federal Debt) keeps rising faster than production (Real-GDP), the burden of interest charges at some point now indefinite and unknown, but nevertheless real, will become too great to carry.
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    • ON: Mon Oct 6th 13:23 PM
      Commented on:
      Relax Basel II's Bank Capital Adequacy Requirements
      How does the FED follow a "tight" money policy and still advance economic growth.? (obviously not by lowering reserve requirments and presage another burst of inflation followed by another recession-depression).

      What should be done? The commercial banks should get out of the savings business - gradually (REG Q in reverse-but leave the non-banks unrestricted). What would this do? The commercial banks would be more profitable - if that is desirable. Why? Because the source of all time/savings deposits within the commercial banking system, are demand/transaction deposits - directly or indirectly through currency or their undivided profits accounts.

      Money flowing "to" the intermediaries (non-banks) actually never leaves the com. banking system as anybody who has applied double-entry bookkeeping on a national scale should know. The growth of the intermediaries/non-ban... cannot be at the expense of the com. banks. And why should the banks pay for something they already have? I.e., interest on time deposits.

      Instead of lowering reserves, as the proportion of deposits shifted from time/savings to transactions) would force bank credit contraction by the reduction of excess reserves (exactly the OPPOSITE proposal expoused by Jan VanDenBerg).

      Bank credit contraction means, of course, reduced loan volume and reduced bank earnings, but if this is accoomplished by an even greater reduction in bank expenses, bank profits will obviously increase. And it is profits, not size, that is presumably the primary objective of bank managements.

      As the proportion of time/savings deposits to transactions deposits is reduced, there would be an immediate increase the supply of loan-funds to the non-banks, and lower long-term interest rates (which would feed back to short-term rates), and the health and vitality of the whole national economoy would improve. The aggregate demand for loan-funds would expand, the volume of "bankable" loans would grow, and so will the banking system -- the FED being willing.

      This commentator is Keynesian inspired disciple of voodoo economics and she doesn't have the foggiest idea of what she is talking about.
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    • ON: Tue Sep 30th 16:05 PM
      Commented on:
      What Credit Crunch?
      The point is that deregulation was forced by commercial bankers (actuallly it was literally a conspiracy) and added nothing to economic sustainability..
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    • ON: Tue Sep 30th 16:03 PM
      Commented on:
      What Credit Crunch?
      Commercial banks enlarge the money supply when they make loans

      Financial intermediaries lend existing money (from saver to borrower)

      You cannot take money out of the commercial banking system by channeling loan-funds to the intermediaries.

      If REG ceilings were imposed on the CBs (not the non-banks) there would be an immediate increase in the supply of loan-funds, decreases in both short-term & long-term interest rates, the elimination of disintermediation in the non-banks, and the impetus to generate an economic recovery. - This is above the talking heads.
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