Economists have their blinders on. See Dr. Philip George's "The Riddle of Money Finally Solved".
“For nearly a century the progress of macroeconomics has been stalled by a single error, an error so silly that generations to come will scarcely believe that it could have persisted for as long as it has done.” & “The logic was that such precautionary holdings are not intended to be spent and hence do not qualify as money.”
Actually banks don't lend deposits, as Richard Werner says.
Powell: “When times are good in the economy, banks and other lenders tend to have a lot of money to LEND. And in case you didn’t realize, banks are in the business of making money off of loans. So if they can LEND to more people who they believe will pay them back on time, they’ll make more money.
But right now it’s costing banks more to get the funds they need to make loans. Part of that goes back to the Fed’s interest rate hikes. But the other part comes from the recent bank failures. Since many depositors withdrew money from mid-size and regional banks, these banks have less money to LEND.”
Never are the commercial banks intermediaries in the savings/investment process.
Powell should never have eliminated reserve and reserve ratio requirements. The only tool, credit control device, at the disposal of the monetary authority in a free capitalistic system through which the volume of money can be properly controlled is legal reserves. As I said "The FED will obviously, sometime in the future, lose control of the money stock." May 8, 2020. 10:38 AMLink
The effect of the FED’s operations on interest rates (now largely via the remuneration rate), is indirect, varies widely over time, and in magnitude. What the net expansion of money will be, as a consequence of a given injection of additional reserves, nobody knows until long after the fact.
The consequence is a delayed, remote, and approximate control over the lending and money-creating capacity of the payment’s system.
Link: Fiscal Dominance and the Return of Zero-Interest Bank Reserve Requirements (stlouisfed.org)
“imposing high reserve requirements for zero-interest paying reserves may seem quite attractive to a policymaker interested in reducing the inflationary consequences of fiscal dominance.”
The NIMs of large banks typically range from 2.5 to 3.5 percent. It’s higher for smaller banks, 3.5 to 4.5%. But with the IOR at 4.4 percent, there’s not much reason for expanding commercial bank credit.
QT, while paying interest on interbank demand deposits at the FED, has heretofore restricted the growth of the money stock. Powell needs to hold his ground. The longer the FED remains tight, the lower the inflation premium, and the lower interest rates will go.
In the 70s, both inflation and market rates rose, not for fiscal dominance reasons but for inept monetary policy ones.. The S&P rose 16% between 1966 and 1982 while the price level rose 3 fold!
David, I just watched your interview on Forward Guidance, was extremely educative. Keep up the good work
David, I took the liberty to cross post your post.
https://marcusnunes.substack.com/cp/168417866
Thanks. I am still figuring out this whole Substack thing. Like notes, cross posting, etc.
re: "where “borrowing from others” means borrowing not merely nominal but real savings—savings that banks aren’t capable of creating themselves."
see: working-paper-80.pdf (cato.org) Banks are Intermediaries of Loanable Funds
All monetary savings originate within the system. They are just shifted from DDs.
What's driven GDP has been the shift in DDs from TDs. The ratio has doubled.
Economists have their blinders on. See Dr. Philip George's "The Riddle of Money Finally Solved".
“For nearly a century the progress of macroeconomics has been stalled by a single error, an error so silly that generations to come will scarcely believe that it could have persisted for as long as it has done.” & “The logic was that such precautionary holdings are not intended to be spent and hence do not qualify as money.”
Actually banks don't lend deposits, as Richard Werner says.
Powell: “When times are good in the economy, banks and other lenders tend to have a lot of money to LEND. And in case you didn’t realize, banks are in the business of making money off of loans. So if they can LEND to more people who they believe will pay them back on time, they’ll make more money.
But right now it’s costing banks more to get the funds they need to make loans. Part of that goes back to the Fed’s interest rate hikes. But the other part comes from the recent bank failures. Since many depositors withdrew money from mid-size and regional banks, these banks have less money to LEND.”
Never are the commercial banks intermediaries in the savings/investment process.
Powell should never have eliminated reserve and reserve ratio requirements. The only tool, credit control device, at the disposal of the monetary authority in a free capitalistic system through which the volume of money can be properly controlled is legal reserves. As I said "The FED will obviously, sometime in the future, lose control of the money stock." May 8, 2020. 10:38 AMLink
The effect of the FED’s operations on interest rates (now largely via the remuneration rate), is indirect, varies widely over time, and in magnitude. What the net expansion of money will be, as a consequence of a given injection of additional reserves, nobody knows until long after the fact.
The consequence is a delayed, remote, and approximate control over the lending and money-creating capacity of the payment’s system.
Link: Fiscal Dominance and the Return of Zero-Interest Bank Reserve Requirements (stlouisfed.org)
“imposing high reserve requirements for zero-interest paying reserves may seem quite attractive to a policymaker interested in reducing the inflationary consequences of fiscal dominance.”
The NIMs of large banks typically range from 2.5 to 3.5 percent. It’s higher for smaller banks, 3.5 to 4.5%. But with the IOR at 4.4 percent, there’s not much reason for expanding commercial bank credit.
QT, while paying interest on interbank demand deposits at the FED, has heretofore restricted the growth of the money stock. Powell needs to hold his ground. The longer the FED remains tight, the lower the inflation premium, and the lower interest rates will go.
So what does the individual investor do in an era of fiscal dominance, where inflation and market interest rates would both rise?
In the 70s, both inflation and market rates rose, not for fiscal dominance reasons but for inept monetary policy ones.. The S&P rose 16% between 1966 and 1982 while the price level rose 3 fold!