Excuse me, I speak Bumper Sticker.
He said; " I don’t know the first thing about the financial system so here’s a catchy slogan I was told to spread around."
AIUI, it began with a proposal pushed by Rand Paul.
I thought it might have been Ron Paul, maybe it was Rand. But what the hey, everything they base their decisions on is pretty well documented. There are standard ways to determine the money supply, industrial output, employment, corporate debt, and so on. They use that info to make their decisions. They tell us why they do what the do. Where is that supposed lack of transparency?
The ‘Audit the Fed’ people like the Pauls are liars.
They are using a false slogan to appeal to populists. The bill lets Congress step in on FOMC matters - a breach of the independence of the Fed.
Interestingly Bernie Sanders supports this atrocious bill - proving he is as economically ignorant as any Tea Party person.
Thanks for that bit of information. Not sure what they hope to find, but damn it seems like an extremely silly thing to put in your platform. Not saying the Fed is perfect, but they’ve done a damn good job overall in keeping another Depression from happening.
Let me ask this question:
Does every country in the world have a central bank, even communist countries? (How exactly does central banking work in communist countries?)
Did the United States pioneer the central bank idea?
So if understanding correctly, the problem with banking arises when the people who deposited money into the bank, demand their deposits AT THE SAME TIME. The bank relies on the assumumtion that not all depositors will demand their deposits the same time.
So basically banks take money and invest it/give loans, charging interest and making a lot of $$$$$.
What excactly happens when the depositors demand their deposits and he bank doesn’t have it (because they spent/invested/loaned it out?
What happens when a run in the bank occurs? The depositors are shit out of luck and must accept the loss of their $$$. Or the central bank steps in and saves the day?
Thanks for all replies.
There was an audit-the-Fedder who posted here for a while. One thing that infuriated him was a huge dollar amount, published by the right-wing Forbes.Com machine, of loans the Fed had made to private banks. It was Hellestal that exposed the trick Forbes used: Many of the loans in question were structured as very short-term loans. A $1 billion loan for one week that was “rolled over” for an entire year was counted as $52 billion in loans!
Funny thing was: He never acknowledged Hellestal’s explanation; and continued to call for the auditing of the Fed, based on the preposterous number printed in Forbes.
Another concern is that the Gold owned by the Fed has been diluted with tungsten. (Most of the physical gold is held for the Fed in vaults at Denver, West Point, and Fort Knox — the Fed’s Manhattan vault is mainly used as safe-deposits for gold belonging to other central banks.) How many of Fort Knox’s gold bars marked ‘999.9 fine’ really are 99.99% pure? Every single one of the 330,000+ gold bars needs to be checked I guess. There are non-intrusive ways to determine if a gold bar has a lot of tungsten, but apparently Ron Paul is concerned that someone has implanted small amounts of tungsten in many of the bars, and each one will need to be drilled! Such a thorough “inspection” would be a 200 man-year project. (My concern would be: The gold is all there now, but won’t be after outsourcing the audit to Blackwater Goldbar Drilling Is Us.) The first visit to the Vault by outsiders since 1974 was an “inspection made by Kentucky Congressmen on August 21, 2017, led by Secretary of the Treasury Steven Mnuchin.”
From the trivia desk: The nation’s gold was delivered to Fort Knox in 1937 as registered U.S. postage. (Yes, U.S. postal inspectors carry big guns.)
Most do.
this was already covered in this thread.
Kha. NO. no. no. You were far behind in this idea.
the concept emerged in Europe.
The practice arose from the observation of primitive banking that this rarely happened.
No. The net profit on the basic lending is not a lot of money, the net profit from interest in most circumstances is usually not extremely high in adjusted percentage.
In normal times it borrows from another banking institution to cover the cash short fall. Or it can borrow usually from the central bank.
This is the Deposit insurance fund. this was already covered in this thread. It is sometimes like in the USA separate from the central bank sometimes it is under the central bank.
I do not think I had a simulation to represent that scenario, the cost to extract more metal went down overtime as technology and exploration located new sources. Some locations had better density as well so different costs of extraction at two otherwise comparable sites.
Metal extractors did get a lot of boom/bust with metal based currencies, demand did not always match supply and when they boosted extraction to get rich and it coincided with a demand lull they basically flood the market at the same point they are bidding down to find buyers, so your basic deflationary crash results.
All of this basically taught me that most hard money scenarios linked to resources are sub-optimal. The obsession with currency is actually a weakness, trade and efficiency seem to be much more important (currency lubricates transactions that make both sides better off in value).
I will not state that the Fed has the greatest central bank policy, but it seems central reserve banking is a stronger concept overall than gold standard. Of course government fiat itself can be weak when you have situations like Venezuela or Zimbabwe.
Having worked at a bank, on a very large portfolio of loans the cut going to the bank itself can be quite small, like a percentage point to profit. I think a lotnof the Great Recession was banks chasing profits when they should have kept to boring banking business (loan a trillion and one percent is ten billion dollars).
The danger to me is bailing out banks that increase the risk from defaults (AIG and the CDS mess in general is frightening). Banking depends on most of the principle getting paid back, so instead of the Fed we should be more concerned about regulating what the banks are doing (in a way that does not just annoy everyone but actually defends feom abuse).
A question occurs to me. If a Merrill-Lynch-type company borrows M3 from the Fed, makes a bunch of flawed investments and goes completely under, with billions on loan from the Fed, do those instruments have to be sold and satisfied, or can M3 just evaporate due to poor judgement? Is this why it was so critical to bail out the huge financial institutions?
What is M3?
i believe this company is a securities market company. Such things can not borrow directly from a central bank. Normally only the licensed banks under the central bank regulation can access any central bank lending facility. The securities markets entities do not fall into such category.
you can not borrow “M3” from a central bank, it is not a “thing” it is a measurement. the concept M3 is just a measurement of certain kinds of things like cash.
the european definition is
You do not “borrow M3” (it is like saying “I am going to borrow some meters” in a way) - it is a measurement of a stock of certain types of almost cash financial instruments. some may be used by a central bank with its licensed banks in operations.
the 2008 crisis had large amounts of the lending and the credit exposure between large financial entities, some regulated, some non banks - the large bank failures that did occur threatened to bring down by domino effect the rest of the system. As this has been seen in other crises including the infamous great depression where the chain failures starting with a single Austrian bank brought down by series in the panic following the european banking system by the cross exposures and the panicked loss of confidence.
and indeed the margins in the standard credit are narrow. It is a business of the volumes.
Then how do bankers become rich? Why do bankers make so much $$$$$? Why do many excecutives at banks make 6 or 8 figure salaries?
Banking is considered a rich mans game, not a poor mans game.
How did JP Morgan become so rich?
Pierpont Morgan did more than just borrow a dollar for a nickel and lend it out for a dime. At age 24 he helped finance a Civil War arms deal where, though it is much disputed, he may have helped defraud the Union Army.
He want on to help create or save several companies including U.S. Steel, General Electric, Int’l Harvester, and the N.Y. Times.
Several of Morgan’s contemporaries were wealthier than he was. And according to J.D. Rockefeller, Morgan “wasn’t even a rich man” ! :—
Not all do. I am not rich.
You are confusing the salaries of the senior executives of large banks with the salaries of “bankers.” The senior executives of large companies tend to have salaries like this. . Of course many things people think of as banking are specifically not the commercial banking based on the deposit taking and the fractional reserve.
of course many things called banking in the popular language are not the fractional reserve commercial banking you are asking about. the investment or merchant banking for example that is much more profitable, it is not based on this - the fractional reserve deposit banking - and is another business in fact. it causes confusion.
indeed to have the volume of capital to start a bank, you need already to be not poor, to establish the entity that can attract deposits.
If you want to get a sense of what might happen if we ended the Fed, read up on the economic policies of Andrew Jackson and his war over the 2nd Bank of the United States. To be sure, there are probably some differences between the economy of 2018 and 1837, but the lack of a central bank to deal with the banking panic of 1837 led to a severe economic recession that lasted for (I believe) 5 years or more.
The primary cause of the Great Recession was not monetary disequilibrium - it was credit disequilibrium and poor risk assessment.
Millions of loans were made based on stated income, lies, NINJA loans, risky ARMs, and pushing paper through the system to collect fees. Then they were packaged into MBS and falsely labeled as AAA. Add to that the myth that “home prices never go down” and the system was destined for failure.
Could proper regulation have prevented this? Sure, but it would have to be done at the transaction level and not at the macro level.
Why don’t we have a system based on creating REAL WEALTH, not imaginary wealth. Credit is not real wealth.
Let’s say I have a machine inherited from god that is capable of cutting 10 large logs per day. These are the nicest logs in the world, cut from the best trees.
It only costs $500 a day in fuel to run the machine, but the logs are worth much more, maybe $50,000
I have created real wealth, I have a machine that can be run very cheaply and can generate assets worth a great deal, that can help everyone.
I can do many things with these logs. I can use them to make a bridge, a house, a building, a hospital. Or I can save the logs for later. It only costs maybe one log a day to keep the machine running, and I can easily make 10 logs a day.
The logs are the real wealth. Taking the logs from me and loaning them out to somebody while collecting interest does nothing, except make the person who loaned them out rich.
Loaning my logs does not make the country wealthier, it does not create schools, roads, or bridges.
The real wealth was created by the people in my log plant who cut the logs so masterfully. They are the real heros who created real wealth.
Thanks for the story time.
We can take it to the next steps about how the man was educated in public schools and ships the logs on publicly maintained roads and his machine runs on government-subsidized energy but this thread isn’t about all of the dumb things Libertarians believe, just one specific one.