PeakOil is You
THE Fractional Banking Thread (merged)
Re: fractional banking and the gdp
by MrBill » Thu 25 May 2006, 07:12:15
$this->bbcode_second_pass_quote('CARVER', 'I')f we look at the equation of exchange: M * V = P * Q , then does it matter whether we see what the banks are doing as (temporarily) creating additional (credit) money supply, or as increasing the velocity of (high powered) money?
Too be honest, I think it is stuff like that which give econometrics a bad name? There are so many relationships that trying to explain a complex system's behavior, given so many internal and external feedback loops, with a few variables is next to impossible. And what may explain past performance if you use multiple regression analsysis may not hold true for the future or breakdown as you try to apply it to another economy with a different mix of businesses and consumers.
Sorry I am just thinking about The City of London and Frankfurt as banking centres right now. Very similar environments if measured externally. Some differences in incomes, however, superficially the same. But on closer inspection very different risk taking cultures and subject to laws and regulations that make risk taking more or less profitable for the entrepreneurial minded. I do not want to bore you, but this has profound effects on investment decisions, risk taking, lifestyle choices, etc. which no model could accurately capture in my opinion. That is the realm of behavorial finance which is to most purists voodoo economics.
Arcane example I know, but the best one that was fresh in my mind after being in London last week on business, and seeing my well-educated, experienced-engineer German brother-in-law struggle with long-term unemployment both because he is unable/unwilling to accept certain risks, like relocation and changing professions, and the German economy's inability to re-integrate older workers with valuable experience into the economy, due to restrictive labor practices that favor young, inexpensive workers and those who are already employed over those who are unemployed. That explains their spending/saving behavior patterns better than simple measurements of money supply, inflation or the velocity of money.
You want to see velocity in action, go to London after the traders get their yearly performance bonuses! ; - )
The organized state is a wonderful invention whereby everyone can live at someone else's expense.
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Re: fractional banking and the gdp
by CARVER » Thu 25 May 2006, 21:42:31
$this->bbcode_second_pass_quote('MrBill', '.').. That explains their spending/saving behavior patterns better than simple measurements of money supply, inflation or the velocity of money.
I agree with that. But I was not referring to explanations of spending/saving behavior. I meant to refer to the idea that increasing the (credit) money supply by banks is seen as bad. If we were to look at it as increasing the velocity of (high powered) money, would we still see it as bad? I mean anybody with money can increase the velocity of money (for whatever reason), that's not something only banks can do (help facilitate). Would it still be seen as bad then, should it not be allowed, because it can reduce the value of your money? (Of course if it is used to increase productivity then it could also increase the value of your money).
For example, say you have saved some money over time. Now some other people start increasing the speed at which the buy things, they spend money faster and faster (increase demand), prices go up, but so do their wages (assumption) so they can continue this and keep prices high. You however are retired, and (ignorantly) used money as a long term store of value. Since prices are higher now, your savings will buy you less goods and services now.
You could do the same for the supply, if we produce less and it causes prices to go up, then your money is worth less as well. So the productivity of other people has an effect on the value of your money.
So not just banks, but basically everybody can do things that will affect the value of your money. Should we not be allowed to do these things? Is it the job of the Central Bank to keep the value of the money stable, no matter what/who is causing the change in value?
If people start getting loans to increase their current consumption, then that might cause prices to go up. Since these people need to pay back these loans in the future, it would reduce future demand which might cause prices to be lower then they otherwise would have been. Others might be able and willing to change their behavior to profit from this: low consumption and a high paying job when demand is high, no job and high consumption when demand is low.
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Re: fractional banking and the gdp
by MrBill » Fri 26 May 2006, 02:15:08
$this->bbcode_second_pass_quote('', 'S')o not just banks, but basically everybody can do things that will affect the value of your money. Should we not be allowed to do these things? Is it the job of the Central Bank to keep the value of the money stable, no matter what/who is causing the change in value?
Let me turn it around. Wages translated into money or currency and then saved have to be invested. The cost of money is the interest rate earned. The difference between present value and future value. With no difference between PV and FV no incentive to save, only to consume now.
Now let us say the central bank decides in its infinite wisdom to make PV = FV as you suggested. No more velocity. Is that inherently fair now to everyone?
I would argue not. Let us say we both earn the same income, but you are a generation older than I am. You bought a nice home near city center where we both work. As you got there first, by definition, that home is not available for me to buy. I have to either buy a home farther from my work and spend time and money everyday commuting which is a tax on my time and savings; or I have to buy a smaller, inferior home nearer to work, which you could argue is also inequitable.
As we both earn the same wage and investment is not possible because there is no time value of money, you have a permanent advantage over me by being born sooner, and you can pass that advantage along to your children. Not only that, but because I spend time and money commuting and you do not, your advantage over me grows with time. I hardly call that equitable.
Your decision to buy a house impacts on my quality of life, just as my decision to save and invest may have impacted on the value of your savings.
So you see, everytime some proposes some simple solution to make things fairer it inevitably is exactly the wrong thing to do. You have to allow savings and investing, so that people have the chance to save to buy a better house, closer to their work, or pursue whatever interests and hobbies they may have with their freetime.
It is about their decisions and not up to some all knowing central bank or government to tell citizens how they can spend their freetime and savings. Otherwise we really would be wage slaves.
The organized state is a wonderful invention whereby everyone can live at someone else's expense.
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Karzai Demands US Bail Out Fractional Reserve Bank He Owns
by mattduke » Thu 02 Sep 2010, 23:00:23
$this->bbcode_second_pass_quote('', 'H')amid Karzai's older brother wants the U.S. to guarantee deposits at Afghanistan's largest bank to stop a developing bank run fueled by fears of fraud.
Mahmoud Karzai, Kabul Bank's third-biggest shareholder, told The Washington Post that "America should do something":
Action by the United States, said Mahmoud Karzai, would prevent a run on Kabul Bank and protect other banks, too. He said Kabul Bank is "stable and has money" but cannot withstand a stampede by panicked depositors.
"If the Treasury Department will guarantee that everyone will get their money, maybe that will work," said Karzai, who holds 7 percent of the bank's shares, making him the third-biggest shareholder. Karzai, who spends most of his time in Dubai - where he lives in a waterfront villa paid for by Kabul Bank - rushed to Kabul on Wednesday to join efforts to salvage the bank.
Mahmoud Karzai, Kabul Bank's third-biggest shareholder, told The Washington Post that "America should do something":
Action by the United States, said Mahmoud Karzai, would prevent a run on Kabul Bank and protect other banks, too. He said Kabul Bank is "stable and has money" but cannot withstand a stampede by panicked depositors.
"If the Treasury Department will guarantee that everyone will get their money, maybe that will work," said Karzai, who holds 7 percent of the bank's shares, making him the third-biggest shareholder. Karzai, who spends most of his time in Dubai - where he lives in a waterfront villa paid for by Kabul Bank - rushed to Kabul on Wednesday to join efforts to salvage the bank.
Too funny.
http://www.huffingtonpost.com/2010/09/0 ... 03682.html
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