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Growth per capita in % of GDP has held constant for a very long time. The time spent above the curve has been balanced by time spent below the curve. The post WWII economic boom has set up a long time/area to be spent below the curve.
If you look at the post WWII economic boom you had an initial high top marginal tax rate that fell over time. You had a low total debt load that rose over time. You had a high minimum wage the fell over time.
If you want to post WWII economic boom all over again you need that mix again. But this time we need to have the rest of the world play along. More or less willingly.
large reserves held by banks in excess of what is required is not good.
Here are the reasons that I've been able to come up with for doing it.
In no particular order.
1. No one to loan to. A lack of qualified borrowers.
2. An expected increase in the amount of money being withdrawn. (Holding excess reserves because you are scared of a bank run is bad)
3. You have on your books assets that you think will mature at less than face value and you are preparing for a loss.
4. the best return you can get is that paid by the Fed on the money you hold there.
Now if you feel that you need to hold excess reserves then you would not roll over maturing loans into new ones you would be keeping the money to increase your reserves. So the Fed's QE efforts have stopped a contraction in the money supply from happening.
The Assets the Fed is buying are riddled with Fraud and are not going to mature at full face value. So the Fed is reducing a loss that the banks would otherwise take. These two things together argue for2 and 3 being the reason for holding the large reserves.
Personal debt at 100% of GDP in the mid 2000's argues for there not being enough qualified borrowers.
Excess reserves are simply a side effect of QE. QE and the reserves have little effect on the money supply in the general circulation. They have altered the relative debt/money holdings within the banking system.
Yes, there are few good borrowers out there. Part of our economic slump.
No, there is no risk of any bank run.
Yes, the banks have been able to slough off a bunch of their crap debt holdings.
Yes, the banks make some useful returns just sitting on all the excess money.
"On Tuesday, WND reported margin debt, the loans made by stock brokers to permit investor clients to buy stocks on credit, has reached a record high of $466 billion, approaching for the first time half a trillion dollars. "
When I was young My mom talked about how buying on margin is what lead to the great depression. This is all kinds of not good. margin calls could trigger a market crash.
ya more doom and gloom but not without cause.
Except stocks didn't dive. Today, the Dow is up 25+. NASDAQ is down 40+ and S&P is down < 4.
You might try reading some real financial news, as in any drop in the stock market today is related to concerns about Bank of America and a tech stock sell off.
It's wishful thinking on the part of Right Wingnut ideologues once again attempting to scare the bejesus out of people. That it doesn't work says that either a) WND is an irrelevant joke to anybody smart enough to invest in something other than a hole in his/her mattress or b)WND readers don't have enough money to invest and live vicariously through dreams of everybody else losing all their investments.
Excess reserves are simply a side effect of QE. QE and the reserves have little effect on the money supply in the general circulation. They have altered the relative debt/money holdings within the banking system.
Yes, there are few good borrowers out there. Part of our economic slump.
No, there is no risk of any bank run.
Yes, the banks have been able to slough off a bunch of their crap debt holdings.
Yes, the banks make some useful returns just sitting on all the excess money.
looking at this one step at a time.
Quote:
Originally Posted by Hoonose
Excess reserves are simply a side effect of QE.
The money that was printed has just sat where it was put and didn't move. It wasn't loaned out, why? If there was demand for new debt it would have moved.
Quote:
Originally Posted by Hoonose
QE and the reserves have little effect on the money supply in the general circulation.
This is not entirely true. About 15% has been loaned out, this means an expansion. Back in 2009 M2 had a little blip where it was contracting. That 15% has been loaned out reversed this little blip. For M2 to be contracting is deflation. Deflation is an economy killer. Think in terms of someone with a major artillery bleed. Pumping in enough liquid volume to keep the BP up will keep them alive. But if you loose enough red blood cells then you don't move enough Oxygen and the patient dies. Worker pay is the red blood vessels. The oil boom is at OPEC's sufferance. If they flow enough oil then we can't keep producing yours and your economy will contract. The growth in output is in the oil sector not general, that is my understanding.
Quote:
Originally Posted by Hoonose
They have altered the relative debt/money holdings within the banking system.
True but why? Are they expecting more losses? There are a lot of people that are upside down in there houses. they are making payments. What if they all walk away from their houses? In that case those reserves wouldn't be excessive they mint not be enough.
Quote:
Originally Posted by Hoonose
Yes, there are few good borrowers out there. Part of our economic slump.
few but not many. A lot of jobs have gone away. The ranks of those too sick too work has swelled.
Quote:
Originally Posted by Hoonose
No, there is no risk of any bank run.
My friend pulled his retirement money out of the US when sequestration went through. If too many people did that it would be a bank run. There are a lot of scared people out there and they are scared for a reason.
Quote:
Originally Posted by Hoonose
Yes, the banks have been able to slough off a bunch of their crap debt holdings.
And those losses that they've avoided taking have reduced the chances of those banks failing and of bank run.
Quote:
Originally Posted by Hoonose
Yes, the banks make some useful returns just sitting on all the excess money.
Low risk returns in a high risk market. Not bad not bad at all, for them...
Except stocks didn't dive. Today, the Dow is up 25+. NASDAQ is down 40+ and S&P is down < 4.
...
I read a joke some time ago. It went like this:
The Dow hit a new high today, what economic indicator missed its mark?
There is a lot of truth in that Joke. The market has been moving in the wrong direction to bad economic news. Could it be a result of the plunge protection team?
Quote:
Originally Posted by Hoonose View Post
They have altered the relative debt/money holdings within the banking system.
True but why? Are they expecting more losses? There are a lot of people that are upside down in there houses. they are making payments. What if they all walk away from their houses? In that case those reserves wouldn't be excessive they mint not be enough.
Quote:
Originally Posted by Hoonose View Post
No, there is no risk of any bank run.
My friend pulled his retirement money out of the US when sequestration went through. If too many people did that it would be a bank run. There are a lot of scared people out there and they are scared for a reason.
Reserve holdings are altered primarily due to central economic policy measures, most importantly QE. QE is done to help reduce interest rates, and would hopefully increase lending. But it has not been effective for this. Equities have gained though.
I would assume that banks in general are looking at less losses moving forward, as the bulk of the unsustainables have already been culled.
Your friend is not smart IMO. Sequestration is but a pimple compared to something like 2008. Just where are millions of American investors going to put their investment money outside of the USA? This is lunacy!
yes reserve holdings are required. Those above what are required are excess. Those are able to be loaned out.
Quote:
Originally Posted by Hoonose
are altered primarily due to central economic policy measures,
reserve holdings are a function of law. Those in excess of what the law requires are up for grabs.
Quote:
Originally Posted by Hoonose
most importantly QE. QE is done to help reduce interest rates,
No. QE is printing money. They make up new money and put it on banks books. That money can be done with as the banks see fit.
Quote:
Originally Posted by Hoonose
and would hopefully increase lending. But it has not been effective for this.
Lower rates is not the objective of QE. Getting more money loaned out is.
Quote:
Originally Posted by Hoonose
Equities have gained though.
Why?
Quote:
Originally Posted by Hoonose
I would assume that banks in general are looking at less losses moving forward, as the bulk of the unsustainables have already been culled.
Here is where you and differ on our take on things. Money is being loaned out on houses. So values are recovering. If you are still upside down in your house then you can see the day coming when you wont be. Why do a strategic default? That is in part due to the effects of QE. The banks are in a position to loan out some money as they have off loaded some bad paper and have large excess reserves. With the bad paper on their books and without the excess reserves then they wouldn't be in a position to loan out any money and the bad loans wouldn't all be culled, as they wouldn't be driving house prices up by loaning more money into the market.
Quote:
Originally Posted by Hoonose
Your friend is not smart IMO. Sequestration is but a pimple compared to something like 2008. Just where are millions of American investors going to put their investment money outside of the USA? This is lunacy!
Ya he didn't listen to me. But... A bank run is a panic. He panicked. He who panics first panics best.
You want to see those excess reserves loaned out? Up the minimum wage. that will get the money moving.
yes reserve holdings are required. Those above what are required are excess. Those are able to be loaned out.
reserve holdings are a function of law. Those in excess of what the law requires are up for grabs.
No. QE is printing money. They make up new money and put it on banks books. That money can be done with as the banks see fit.
Lower rates is not the objective of QE. Getting more money loaned out is.
You want to see those excess reserves loaned out? Up the minimum wage. that will get the money moving.
Reserves usually have nothing to do with a loan these days. Loans create reserves.
I agree that more private debt creation is a function of QE. Ineffective as it has been.
And raising the minimum wage might increase lower class consumerism. But whether significantly effective I don't know. There would be a lot of trade offs.
I agree that more private debt creation is a function of QE. Ineffective as it has been.
And raising the minimum wage might increase lower class consumerism. But whether significantly effective I don't know. There would be a lot of trade offs.
As I understand it. Loans are sold, packaged and resold. No buyers for loans means no loans written. Unless the loan originator intends to hold the loans on their books. But if their is no buyer for the loans then why should the originator want to keep them for themselves? It is called a liquidity trap. Excess liquidity does nothing. Well what it does do isn't very visible. It stops the ball from rolling down hill.
In order for upping the minimum wage to have much effect it would have to be a large increase.
In your business you have an intimidator between you and the consumer of your services. That is the insurance companies. They limit what you can charge. There would be a lag for them to be willing to up the amount of money they were willing to pay out. But with more income comes the ability to charge more premiums and so they could then pay more to you.
In airplanes there is something called the back side of the power curve. It comes from having two kinds of drag. The first is from skin friction and behaves normally. The faster you go the more drag you get. the second is from lift. The slower you go the more drag from lift you have. On the front side of the power curve pulling up on the nose cases the plane to trade airspeed for altitude and then the plane has less drag and so climes.
On the back side of the power curve pulling back on the stick gets you some trading airspeed for altitude but you don't have much airspeed to trade. What happens next, if you don't stall is a mushing decent at a faster rate. If you want to stretch your glide on the back side, you push the nose down and get more speed and it reduces your drag and flattens your decent.
We are on the back side of the power curve economically. More debt slows the economy it doesn't speed the economy up. We need to trade altitude for airspeed to get on the front side of the power curve. We need more wage to get more debt, the dead weight loss of the higher minimum wage be put behind an earthen dam.
But if their is no buyer for the loans then why should the originator want to keep them for themselves? It is called a liquidity trap. Excess liquidity does nothing. Well what it does do isn't very visible. It stops the ball from rolling down hill.
In order for upping the minimum wage to have much effect it would have to be a large increase.
In your business you have an intimidator between you and the consumer of your services. That is the insurance companies. They limit what you can charge. There would be a lag for them to be willing to up the amount of money they were willing to pay out. But with more income comes the ability to charge more premiums and so they could then pay more to you.
Many loans are of course reliable and profitable for the lenders. So they may keep them on their own books.
If HC insurance is to pay me more, they will have to charge the consumer more for premiums. There are a lot of trade offs with raising the minimum wage.
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