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Old 11-15-2008, 08:44 PM
 
Location: Charlotte, NC
2,193 posts, read 5,037,594 times
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Quote:
Originally Posted by Humanoid View Post
No, the $100 is the reverses. The loan for $400 is based on having $100 in high powered money. On the other hand the bank can only loan out 80% of deposits (with a ratio of 8:2).
Shoot, I thought you'd finally say yes, hehe.

Ok, what is a reverse? I thought that $100 was the initial deposit.
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Old 11-15-2008, 10:58 PM
 
Location: Sitting on a bar stool. Guinness in hand.
4,428 posts, read 6,486,412 times
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[quote]
Quote:
Originally Posted by chuck22b View Post
I think the government has a limit on the amount of debt it can issue in the form of treasuries/bonds/US Notes. And, if treasuries/bond debt = money... then the government can only create so much money even if they wanted to create more. Ultimately, a Country also has a credit rating. In terms of Countries, it's their production to debt ratio or GDP to debt ratio. The US was around ~61% in 2007 amongst its' peers of Germany (63%), Canada (65%), UK (43%), etc. Of course 2008 would show a huge leap as GDP slows while US public debt goes up.
So chuck what is your guessimate to the production to debt ratio or GDP to debt ratio that will be for 2008? What would be the bottomline for the U.S. to a huge leap?

Quote:
But, on another note... if ALL countries increase their GDP to debt ratio... then in a sense it's alright for the US to increase that ratio as well. In a global economy... all things are relative to each other among peers.
Do you feel that a majority of other countries will do such a thing this year or perhaps next year? Or better yet do you feel that the majority of other countries will raise their GDP to debt ratio to the levels that the U.S. probably will for 2008 and 2009?


Quote:
List of countries by public debt - Wikipedia, the free encyclopedia

Once things improve, the government can take in taxes, increase reserve requirements to reel in it's notes... just as long as the private sector is likewise able to expand its' credit (or bank money) to fill the void. It's a see-saw...
But aren't we giving/lending reallly cheap money to encourge the banks to lend? Yet they are hording the money instead of lending...right? So let me ask. What in your opinion will it take to get the banks to start lending again.........to fill the void? I mean the cash it there for the banks if I'm not mistaken......Yes????????

Quote:
And this leads me to believe why I think gwynedd1 is saying that he/she prefers that only the government issues debt/notes rather than the banks issuing their own (through the fractional reserve system) by requiring banks to have 100% reserve requirement, banks therefore can not lend or create their own IOUs.
Well gwynedd1? is it true?

Quote:
At least then there would be only one entity able to essentially create IOUs (US fiat money) therefore supposively eliminating or reducing rapid (multiplier) expansions and contractions (credit destruction) in the credit/money supply.


The thing is though, if only the government is able to issue "debt" or notes... then the government would have to carry ALL the debt or collateral that all the banks are currently holding... which... at it's fullest extent would be 10 times whatever the banks currently hold at the Federal Reserve as reserve. So, if we want 100% Reserve requirement, then the Fed has a lot of debt issuing and printing to do.... and essentially the government would destroy it's credit rating... while all the banks would have pristine credit since it issued zero IOUs. Otherwise... like we are seeing now... major deflation/contraction... the government can't print and issue debt fast enough.
-chuck22b
Do you feel that the Fed is heading in the direction of destroying our credit rating? Or do you think we are OK at this point? Also let's just say the government credit rating does get destroyed. I'm not sure how domestic U.S. bank that have pristine credit would make out overall? could you please explain?

Thank You

Baystater.
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Old 11-16-2008, 02:13 AM
 
Location: Los Angeles Area
3,306 posts, read 4,135,860 times
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Quote:
Originally Posted by sheenie2000 View Post
Ok, what is a reverse? I thought that $100 was the initial deposit.
Reverses are physical currency stored in the vault or money that is deposited with the FED. Basically this represents the monetary base, which is used as a basis for money creation from the banks. Small increases in the monetary base are greatly amplified with fractional reverse banking.

On the other hand the banks can only loan out a fraction of the deposits they take in. In this case you aren't really creating new money because someone has to first decide to park their money with your back in order to loan it out. The only problem here is runs on the banks.

I think most people understand that banks loan out their deposits, its what they do with the reverse that is largely unknown. If you have a dollar, you can loan out the dollar just like the bank. Its really do different (Except of course its your money, not a clients). But given a dollar bill, you can't magically create $9 dollars and loan it out to someone. But this is exactly what a bank does.
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Old 11-17-2008, 12:15 PM
 
Location: Chino, CA
1,458 posts, read 3,274,650 times
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Quote:
Originally Posted by baystater View Post
So chuck what is your guessimate to the production to debt ratio or GDP to debt ratio that will be for 2008? What would be the bottomline for the U.S. to a huge leap?
Actually the figures are there... our current GDP (Q3, 2008) is running at around 14.4 trillion. Our current public debt is at 10.6 trillion... so that gives us currently running at around: 73.6% debt to GDP ratio. With all the bailouts... I think they extended the public debt cap to 11 or 12 trillion? So that amounts to 76.4% - 83.3% or about another 10-25% rise from '07.

Public Debt figures:
Debt to the Penny (Daily History Search Application)

GDP figures:
BEA National Economic Accounts

Quote:
Do you feel that a majority of other countries will do such a thing this year or perhaps next year? Or better yet do you feel that the majority of other countries will raise their GDP to debt ratio to the levels that the U.S. probably will for 2008 and 2009?
The UK has significantly increased their debt to GDP ratio as have Japan and other industrialized nations. UK was 43% but they will be closer to 50%. Japan was already really high over 100%... and they may increase up to 180% (debt to GDP ratio). From what I've read most of the Eurozone is facing similar pressures... the exception being France fairing the best out of them.

France:
France's GDP Grows By 0.1% In 3Q, Avoiding Recession | AHN | November 17, 2008 (http://www.allheadlinenews.com/articles/7013040274 - broken link)
UK:
Public debt 'set to rise to 50% of GDP' - mform
Japan:
Investment Week - Morning Markets: Japan next into recession -

Because it is a Global economic crisis, I feel many of the "industrialized"/"western" nations will likewise try to spend their way out. Even China is increasing spending with a close to 600 billion dollar "stimulus" plan.

Quote:
But aren't we giving/lending reallly cheap money to encourge the banks to lend? Yet they are hording the money instead of lending...right? So let me ask. What in your opinion will it take to get the banks to start lending again.........to fill the void? I mean the cash it there for the banks if I'm not mistaken......Yes????????
They can't lend because for each default in mortgages, CDOs, MBSs, Credit Default Swaps etc. they have to fill the hole with tax dollar recapitalization. I don't really think they are hording... it's not like they are stock piling cash... they are filling their obligations and reserve requirements with tax dollars... but that still isn't enough as we can see with their continuous downsizing and liquidation of both labor and capital. Banks, IMO, aren't in any position to lend... the only entity that can somewhat do that (since they have the power to create money)... is the Fed.

Banks can create bank IOUs like many have said (credit expansion - but requires "seed" money)... but they are currently overly swamped by all the defaults that has to be filled by either tax dollars or liquidation - they are already doing both and still struggling. Money/Credit is just as easily destroyed as it is created in the Fractional Reserve system.

Quote:
Do you feel that the Fed is heading in the direction of destroying our credit rating? Or do you think we are OK at this point? Also let's just say the government credit rating does get destroyed. I'm not sure how domestic U.S. bank that have pristine credit would make out overall? could you please explain?
I don't think what they are currently doing is going to totally "destroy" the USA's credit rating. Our peers are doing the same things. It will however increase the credibility of Countries that don't have to increase their debt holdings as much (aka, countries with high currency reserves like China). Back in WWII our debt to GDP ratio went way above 100%. Currently we're fighting two wars, have military deployed throughout the world, have an economic crisis with bailouts and we're still under 100%. All this says is that the US economy is significantly larger than it was in the 1940s and of course our current wars aren't as big.

The scary thing is FUTURE obligations that the US government owes to the retirees coming up in the Very near future. The debt to GDP ratio doesn't include the "mandatory" obligations the US has toward medicare, medical, social security, etc. If these things were counted, ie future obligations, the US's debt to GDP ratio would be above 360%. Future obligations + current debts = 52.7 trillion / 14.4 trillion = 3.6 or 360%. That's what is scary. The US may be able to deal with pumping debt for the next couple years... but, the obligations to the retirees is going to kill US. Of course... the USA can try to break their contract (hence why Gen X, Y and onward can't count on the Gov for retirement).

http://upload.wikimedia.org/wikipedia/en/thumb/c/c7/Unfunded_commitments.png/450px-Unfunded_commitments.png (broken link)
Read through the Wiki:
United States public debt - Wikipedia, the free encyclopedia

Your right... I guess if the USA's rating is destroyed it doesn't matter if banks hold 100% reserve requirements since the dollar would have collapsed. I don't really think the USA's rating would be destroyed. The US will just have to break its' promise to retirees. Not like they've been changing the terms all the time.. pushing back the age requirement, etc.

-chuck22b

Last edited by chuck22b; 11-17-2008 at 12:43 PM..
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