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You are conflating the value of real household income with the value of the dollar. Now I know you are not stupid, so stop being purposefully dishonest. The dollar has lost nearly all of its value since the start of the Federal Reserve system. That is an indisputable fact.Each individual dollar has lost the vast majority of its value. That you have more total dollars is irrelevant to the point that the value of the dollar has declined.
our standard of living has increased trememdously over the decades and we buy that increased standard of living with dollars which then must have huge huge value.
Why is the demand account $0? When the check is written, the account still reads $9000. It is not until the check is deposited at the bank that the account is deducted to 0. If Todd ripped up the check immediately after the bank wrote it, he would still have the money in his account.Who said anything about borrowing $180? You are really not following at all, because your assumptions about banking are wrong. If the bank has $200, it just creates loans and demand deposits up to $1800. No borrowing from other banks or waiting for deposits required.
As though these demand deposits would remain for any period of time.
Shackled Bank has a single deposit of $1000.
He thinks if he calls it reserves he can magically lend out $9000.
Todd comes to borrow $9000 to buy a car.
Shackled opens a demand deposit account for Todd and credits it $9000.
Todd requests a $9000 check, 10 seconds later, made payable to the car dealer.
Shackled thinks he doesn't need to borrow any money from other banks, or the Fed,
because he opened a demand deposit account for me, an account which now has $0.
Let us finish the scenario. Todd gives the check to the car dealer as payment. His account still reads $9000. The car dealer then goes to the bank and deposits the check. The car dealers account is credited $9000. Now Todd's account is zero...but so what? The bank balance sheet is still the same.
I knew you were going to bring another bank in--the response was completely predictable.Why is the demand account $0? When the check is written, the account still reads $9000. It is not until the check is deposited at the bank that the account is deducted to 0. If Todd ripped up the check immediately after the bank wrote it, he would still have the money in his account.As though these demand deposits would remain for any period of time.
Shackled Bank has a single deposit of $1000.
He thinks if he calls it reserves he can magically lend out $9000.
Todd comes to borrow $9000 to buy a car.
Shackled opens a demand deposit account for Todd and credits it $9000.
Todd requests a $9000 check, 10 seconds later, made payable to the car dealer.
Shackled thinks he doesn't need to borrow any money from other banks, or the Fed,
because he opened a demand deposit account for me, an account which now has $0.
Let us finish the scenario. Todd gives the check to the car dealer as payment. His account still reads $9000. The car dealer then goes to the bank and deposits the check. The car dealers account is credited $9000. Now Todd's account is zero...but so what? The bank balance sheet is still the same.
Now Todd's account is zero...but so what? The bank balance sheet is still the same.
Show me your bank balance sheet after the car dealer cashed the check.
His bank is Citibank.
I knew you were going to bring another bank in--the response was completely predictable.Why is the demand account $0? When the check is written, the account still reads $9000. It is not until the check is deposited at the bank that the account is deducted to 0. If Todd ripped up the check immediately after the bank wrote it, he would still have the money in his account.
Let us finish the scenario. Todd gives the check to the car dealer as payment. His account still reads $9000. The car dealer then goes to the bank and deposits the check. The car dealers account is credited $9000. Now Todd's account is zero...but so what? The bank balance sheet is still the same.
Now Todd's account is zero...but so what? The bank balance sheet is still the same.
Show me your bank balance sheet after the car dealer cashed the check.
His bank is Citibank.
$1000 cash. $10000 Deposit. $9000 loans.
You bring in another bank, so I'll bring in another transaction. Citibank has a single deposit of $1000. It took makes a $9000 loan, this time to Bob who decides to use it to buy a house. Bob has the bank write a check to the homeowner. The homeowner happens to be a customer at ShackledBank. He deposits the check there.
So here is our scenario. ShackledBank has a $9000 check from Citibank, and Citibank has a $9000 check from ShackledBank. What happens? The two cancel each other out. The appropriate accounts are credited. The balance sheet at both banks is fine.
Now of course it will not always work out so smoothly. In fact, it nearly never breaks even like that. But that is simply where the Federal Reserve and the Federal Funds Rate come into play.
Banks and other depository institutions maintain accounts at the Federal Reserve to make payments for themselves or on behalf of their customers. The end-of-the-day balances in these accounts (plus cash reserves at the banks themselves) are used to meet the reserve requirements mandated by the Federal Reserve. If a depository institution expects to have a larger end-of-day balance than it needs, it will lend the excess amount to an institution that expects to have a shortfall in its own balance. The federal funds rate thus represents the interest rate charged by the lending institution.
Federal Funds Rate Definition | Investopedia
So lets say that ShackledBank has only an $8500 check from Citibank, but Citibank has a $9000 check from ShackledBank. Shackled Bank has a $500 liability to Citibank. ShackledBank simply sends $500 in cash to Citibank (or, more commonly, the Federal Reserve Bank in the area deducts $500 from ShackledBank's account there and credits $500 to Citibank's account there). Problem solved. So we get this:
Assets: $500 reserves, $9000 loans. Liabilities: $9,500 in deposits. As you can see, ShackledBank is in trouble. It is currently only at 5.3% reserves! No worries. ShackledBank simply borrows money from another member bank via the Fed. Who has an excess? Citibank! Perfect. ShackledBank borrows $450 from Citibank, giving it reserves of $950. The profit it makes on the $9000 worth of loans will far exceed the interest it has to pay on the $950. And another day, it may be that Citibank has the excess reserves to lend, so in the long run it really wont be losing money.
Again, no problems. It all balances out.
Not funny at all, quite obvious. And guess what? The $9,000 loans came before the $9,000 deposits. Remember? There initially were only two deposits of $1000 at each separate bank. Between the two banks, $18,000 in loans were made, despite there being only $2000 in total deposits.I knew you were going to bring another bank in--the response was completely predictable.Now Todd's account is zero...but so what? The bank balance sheet is still the same.
Show me your bank balance sheet after the car dealer cashed the check.
His bank is Citibank.
$1000 cash. $10000 Deposit. $9000 loans.
You bring in another bank, so I'll bring in another transaction. Citibank has a single deposit of $1000. It took makes a $9000 loan, this time to Bob who decides to use it to buy a house. Bob has the bank write a check to the homeowner. The homeowner happens to be a customer at ShackledBank. He deposits the check there.
So here is our scenario. ShackledBank has a $9000 check from Citibank, and Citibank has a $9000 check from ShackledBank. What happens? The two cancel each other out. The appropriate accounts are credited. The balance sheet at both banks is fine.
Now of course it will not always work out so smoothly. In fact, it nearly never breaks even like that. But that is simply where the Federal Reserve and the Federal Funds Rate come into play.
Banks and other depository institutions maintain accounts at the Federal Reserve to make payments for themselves or on behalf of their customers. The end-of-the-day balances in these accounts (plus cash reserves at the banks themselves) are used to meet the reserve requirements mandated by the Federal Reserve. If a depository institution expects to have a larger end-of-day balance than it needs, it will lend the excess amount to an institution that expects to have a shortfall in its own balance. The federal funds rate thus represents the interest rate charged by the lending institution.
Federal Funds Rate Definition | Investopedia
So lets say that ShackledBank has only an $8500 check from Citibank, but Citibank has a $9000 check from ShackledBank. Shackled Bank has a $500 liability to Citibank. ShackledBank simply sends $500 in cash to Citibank (or, more commonly, the Federal Reserve Bank in the area deducts $500 from ShackledBank's account there and credits $500 to Citibank's account there). Problem solved. So we get this:
Assets: $500 reserves, $9000 loans. Liabilities: $9,500 in deposits. As you can see, ShackledBank is in trouble. It is currently only at 5.3% reserves! No worries. ShackledBank simply borrows money from another member bank via the Fed. Who has an excess? Citibank! Perfect. ShackledBank borrows $450 from Citibank, giving it reserves of $950. The profit it makes on the $9000 worth of loans will far exceed the interest it has to pay on the $950. And another day, it may be that Citibank has the excess reserves to lend, so in the long run it really wont be losing money.
Again, no problems. It all balances out.
So here is our scenario. ShackledBank has a $9000 check from Citibank, and Citibank has a $9000 check from ShackledBank. What happens? The two cancel each other out. The appropriate accounts are credited. The balance sheet at both banks is fine.
So your bank has $10,000 in deposits and $9000 in loans.
Funny how that works out.
Not funny at all, quite obvious. And guess what? The $9,000 loans came before the $9,000 deposits. Remember? There initially were only two deposits of $1000 at each separate bank. Between the two banks, $18,000 in loans were made, despite there being only $2000 in total deposits.I knew you were going to bring another bank in--the response was completely predictable.
$1000 cash. $10000 Deposit. $9000 loans.
You bring in another bank, so I'll bring in another transaction. Citibank has a single deposit of $1000. It took makes a $9000 loan, this time to Bob who decides to use it to buy a house. Bob has the bank write a check to the homeowner. The homeowner happens to be a customer at ShackledBank. He deposits the check there.
So here is our scenario. ShackledBank has a $9000 check from Citibank, and Citibank has a $9000 check from ShackledBank. What happens? The two cancel each other out. The appropriate accounts are credited. The balance sheet at both banks is fine.
Now of course it will not always work out so smoothly. In fact, it nearly never breaks even like that. But that is simply where the Federal Reserve and the Federal Funds Rate come into play.
Banks and other depository institutions maintain accounts at the Federal Reserve to make payments for themselves or on behalf of their customers. The end-of-the-day balances in these accounts (plus cash reserves at the banks themselves) are used to meet the reserve requirements mandated by the Federal Reserve. If a depository institution expects to have a larger end-of-day balance than it needs, it will lend the excess amount to an institution that expects to have a shortfall in its own balance. The federal funds rate thus represents the interest rate charged by the lending institution.
Federal Funds Rate Definition | Investopedia
So lets say that ShackledBank has only an $8500 check from Citibank, but Citibank has a $9000 check from ShackledBank. Shackled Bank has a $500 liability to Citibank. ShackledBank simply sends $500 in cash to Citibank (or, more commonly, the Federal Reserve Bank in the area deducts $500 from ShackledBank's account there and credits $500 to Citibank's account there). Problem solved. So we get this:
Assets: $500 reserves, $9000 loans. Liabilities: $9,500 in deposits. As you can see, ShackledBank is in trouble. It is currently only at 5.3% reserves! No worries. ShackledBank simply borrows money from another member bank via the Fed. Who has an excess? Citibank! Perfect. ShackledBank borrows $450 from Citibank, giving it reserves of $950. The profit it makes on the $9000 worth of loans will far exceed the interest it has to pay on the $950. And another day, it may be that Citibank has the excess reserves to lend, so in the long run it really wont be losing money.
Again, no problems. It all balances out.
So here is our scenario. ShackledBank has a $9000 check from Citibank, and Citibank has a $9000 check from ShackledBank. What happens? The two cancel each other out. The appropriate accounts are credited. The balance sheet at both banks is fine.
So your bank has $10,000 in deposits and $9000 in loans.
Funny how that works out.
Not at all. The loans came before the deposits. A refresher on what happened:Between the two banks, $18,000 in loans were made, because there were $20000 in total deposits.
Not at all. The loans came before the deposits. A refresher on what happened:Between the two banks, $18,000 in loans were made, because there were $20000 in total deposits.
Customer A deposits $1000 into Bank A, which creates a corresponding deposit account.
Customer B deposits $1000 into Bank B, which creates a corresponding deposit account.
Both banks have $1000 of reserves, $1000 of deposits, and $0 of loans.
The reserve ratio at each bank is 100%.
Bank A loans $9000 to Debtor A and creates a deposit account for him.
Bank B loans $9000 to Debtor B and creates a deposit account for him.
Both banks have $1000 of reserves, $10000 of deposits, and $9000 of loans.
The reserve ratio at each Bank is 10%.
Debtor A pays Salesman B $9000 from the loan via a check from Bank A.
Debtor B pays Salesman A $9000 from the loan via a check from Bank B.
Salesman B deposits his check (from Bank A) into Bank B.
Salesman A deposits his check (from Bank B) into Bank A.
Bank A and Bank B both have $9000 checks from each other. They cancel each other out.
Both banks still have $1000 of reserves, $10000 of deposits, and $9000 of loans.
The reserve ratio at each Bank remains 10%.
Each Bank created $9000 in loans even though each bank only had $1000 in deposits at the time the loan was created.
You are conflating the value of real household income with the value of the dollar. Now I know you are not stupid, so stop being purposefully dishonest. The dollar has lost nearly all of its value since the start of the Federal Reserve system. That is an indisputable fact.Each individual dollar has lost the vast majority of its value. That you have more total dollars is irrelevant to the point that the value of the dollar has declined.
our standard of living has increased trememdously over the decades and we buy that increased standard of living with dollars which then must have huge huge value.
You are conflating the value of real household income with the value of the dollar. Now I know you are not stupid, so stop being purposefully dishonest. The dollar has lost nearly all of its value since the start of the Federal Reserve system. That is an indisputable fact.our standard of living has increased trememdously over the decades and we buy that increased standard of living with dollars which then must have huge huge value.
So your're saying a basic real good or service in 1913 would be priced at 5 cents today. So what? The average earned income has increased over 6500% since 1913. The average earned income in 1913 was $750 per year, and today it's around $50,000 per year. Our average earned income has outpaced price inflation by roughly 230%.
Correct. The disagreement I think revolves around how large a loan the bank can make if the base money it has on reserve either in its vaults or with a Federal Reserve Bank is, say, $1000.I read through the thread, it's a landmine of confusion. I'd like to attempt to simplify some things.
When a bank gives a customer a loan, a bank deposit with new bank $$$$ in basically created. For the bank, the new bank $$$$ is a liability because its a deposit that the customer can use. For the bank customer, the new bank $$$$ is an asset, its essentially a claim on base $$$$. The loan contract, whether a car note, mortgage, business loan, etc (the borrower promises to repay any interest and the principal this is the banks claim on base $$$$) is an asset to the bank and liability for the borrower.
To clarify: you then agree with my scenario laid out in post #267?Not at all. The loans came before the deposits. A refresher on what happened:Between the two banks, $18,000 in loans were made, because there were $20000 in total deposits.
Customer A deposits $1000 into Bank A, which creates a corresponding deposit account.
Customer B deposits $1000 into Bank B, which creates a corresponding deposit account.
Both banks have $1000 of reserves, $1000 of deposits, and $0 of loans.
The reserve ratio at each bank is 100%.
Bank A loans $9000 to Debtor A and creates a deposit account for him.
Bank B loans $9000 to Debtor B and creates a deposit account for him.
Both banks have $1000 of reserves, $10000 of deposits, and $9000 of loans.
The reserve ratio at each Bank is 10%.
Debtor A pays Salesman B $9000 from the loan via a check from Bank A.
Debtor B pays Salesman A $9000 from the loan via a check from Bank B.
Salesman B deposits his check (from Bank A) into Bank B.
Salesman A deposits his check (from Bank B) into Bank A.
Bank A and Bank B both have $9000 checks from each other. They cancel each other out.
Both banks still have $1000 of reserves, $10000 of deposits, and $9000 of loans.
The reserve ratio at each Bank remains 10%.
Each Bank created $9000 in loans even though each bank only had $1000 in deposits at the time the loan was created.
Not at all. The loans came before the deposits.
Post #245.
It doesn't matter when they occur, before or after, as long as they occur.
Deposits are always bigger than loans.
Every loan is fully funded.
Both banks have $1000 of reserves, $10000 of deposits, and $9000 of loans.
See?
Do you have a source for that $750 figure? Regardless, I am not disputing that real incomes have risen since then, and especially not disputing that nominal incomes have.You are conflating the value of real household income with the value of the dollar. Now I know you are not stupid, so stop being purposefully dishonest. The dollar has lost nearly all of its value since the start of the Federal Reserve system. That is an indisputable fact.our standard of living has increased trememdously over the decades and we buy that increased standard of living with dollars which then must have huge huge value.
So your're saying a basic real good or service in 1913 would be priced at 5 cents today. So what? The average earned income has increased over 6500% since 1913. The average earned income in 1913 was $750 per year, and today it's around $50,000 per year. Our average earned income has outpaced price inflation by roughly 230%.
Do you have a source for that $750 figure? Regardless, I am not disputing that real incomes have risen since then, and especially not disputing that nominal incomes have.You are conflating the value of real household income with the value of the dollar. Now I know you are not stupid, so stop being purposefully dishonest. The dollar has lost nearly all of its value since the start of the Federal Reserve system. That is an indisputable fact.
So your're saying a basic real good or service in 1913 would be priced at 5 cents today. So what? The average earned income has increased over 6500% since 1913. The average earned income in 1913 was $750 per year, and today it's around $50,000 per year. Our average earned income has outpaced price inflation by roughly 230%.
The fact remains that the dollar has lost roughly 96% of its value since 1913. And that devaluation effects the entire economy--the global economy as well. Had the dollar retained more value, it could be higher than the euro at this point. The only saving grace is that other world currencies have been devalued by their own systems as well.
At the start of the 19th century, a poor man who saved $100 would still be able to buy the same goods with those $100 as before. Yet if the same man saved $100 in 1913, today in 2014 he would only be able to buy what $5 would have got him in 1913.
You can say that people invest money and interest is above inflation all you want, but you cannot ignore the changes this causes to the structure of the U.S. economy.
Yet if the same man saved $100 in 1913, today in 2014 he would only be able to buy what $5 would have got him in 1913.
You can say that people invest money and interest is above inflation all you want, but you cannot ignore the changes this causes to the structure of the U.S. economy.
Thanks for the source. I do not dispute that since 1913, the purchasing power of the average income has increased. What I am talking about is the purchasing power of the dollar, and that has decreased. I do not ignore that incomes have grown more than price inflation--well, at least until the 1970s. Since then, real wages for the mid and lower classes have been pretty stagnant. But overall, since 1913, of course.Do you have a source for that $750 figure? Regardless, I am not disputing that real incomes have risen since then, and especially not disputing that nominal incomes have.So your're saying a basic real good or service in 1913 would be priced at 5 cents today. So what? The average earned income has increased over 6500% since 1913. The average earned income in 1913 was $750 per year, and today it's around $50,000 per year. Our average earned income has outpaced price inflation by roughly 230%.
The fact remains that the dollar has lost roughly 96% of its value since 1913. And that devaluation effects the entire economy--the global economy as well. Had the dollar retained more value, it could be higher than the euro at this point. The only saving grace is that other world currencies have been devalued by their own systems as well.
At the start of the 19th century, a poor man who saved $100 would still be able to buy the same goods with those $100 as before. Yet if the same man saved $100 in 1913, today in 2014 he would only be able to buy what $5 would have got him in 1913.
You can say that people invest money and interest is above inflation all you want, but you cannot ignore the changes this causes to the structure of the U.S. economy.
It's actually $740 year. If we adjust for inflation, $740 in 1913 is $17,815.00 in 2014 dollars more or less. Again, it really doesn't matter since average earned income has increased by over 6500%, meaning you can buy more stuff with more dollars nowadays, as opposed to 1913. In reality, the purchasing power of Americans has increased by 230%. We cannot ignore the fact that average incomes and average savings beat price inflation year after year.
Depreciating your currency does make your export goods cheaper for foreigners to buy. However, it also makes it more expensive for you to buy imported goods. This helps to close a trade deficit and reduces foreign investment in your economy. However, if the goods you sell to foreigners are composed of many inputs that you have to purchase from foreigners the effect will be to drive up your cost of production.If the dollar "gained value", under current conditions, we'd be in a deflationary environment, and our exports would be even less competitive.
Of course not.Also, do you think Americans were better off in 1913?
Are you defining inflation the way it is currently defined (i.e. rise in general prices)? If that is the case, setting price controls would be a horrible idea that I do not agree with. I would support stopping the expansion of the money supply (which causes the inflation).Yet if the same man saved $100 in 1913, today in 2014 he would only be able to buy what $5 would have got him in 1913.
You can say that people invest money and interest is above inflation all you want, but you cannot ignore the changes this causes to the structure of the U.S. economy.
thats true but its not a significant point is it? If someone bought real estate or any commodities in 1913 today they would worth a fortune. I agree that inflation should be illegal and wish they would just pass a law to that effect but in the mean time its the least of our problems.
To clarify: you then agree with my scenario laid out in post #267?Not at all. The loans came before the deposits. A refresher on what happened:
Customer A deposits $1000 into Bank A, which creates a corresponding deposit account.
Customer B deposits $1000 into Bank B, which creates a corresponding deposit account.
Both banks have $1000 of reserves, $1000 of deposits, and $0 of loans.
The reserve ratio at each bank is 100%.
Bank A loans $9000 to Debtor A and creates a deposit account for him.
Bank B loans $9000 to Debtor B and creates a deposit account for him.
Both banks have $1000 of reserves, $10000 of deposits, and $9000 of loans.
The reserve ratio at each Bank is 10%.
Debtor A pays Salesman B $9000 from the loan via a check from Bank A.
Debtor B pays Salesman A $9000 from the loan via a check from Bank B.
Salesman B deposits his check (from Bank A) into Bank B.
Salesman A deposits his check (from Bank B) into Bank A.
Bank A and Bank B both have $9000 checks from each other. They cancel each other out.
Both banks still have $1000 of reserves, $10000 of deposits, and $9000 of loans.
The reserve ratio at each Bank remains 10%.
Each Bank created $9000 in loans even though each bank only had $1000 in deposits at the time the loan was created.
Not at all. The loans came before the deposits.
Post #245.
It doesn't matter when they occur, before or after, as long as they occur.
Deposits are always bigger than loans.
Every loan is fully funded.
Both banks have $1000 of reserves, $10000 of deposits, and $9000 of loans.
See?
I have. That is what this whole discussion is about. Now stop dodging my question. Do you agree with my scenario as laid out in post #267?To clarify: you then agree with my scenario laid out in post #267?Not at all. The loans came before the deposits.
Post #245.
It doesn't matter when they occur, before or after, as long as they occur.
Deposits are always bigger than loans.
Every loan is fully funded.
Both banks have $1000 of reserves, $10000 of deposits, and $9000 of loans.
See?
I'm still waiting for you to show the error in my post #190.
