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....interesting that the classic "10% reserve requirements" is still part of the university coursework in economic studies that our friend Pub-911 seems so fond of......
Fondness has nothing to do with it. Reality does...
Reserve Requirements
Liability Type ----------------- Requiremnt as % of liabilities
Net transaction accounts
$0 to $15.5 million ........................... 0
More than $15.5 million to $115.1 million ..... 3
More than $115.1 million...................... 10
Nonpersonal time deposits...................... 0
Eurocurrency liabilities....................... 0
...reality is that they still teach that nonsense....banks extend loans first and look for reserves later, not the other way around.
As noted, they teach it because it is reality. In the current environment, many banks have sizable excess reserves. But they are not lending so much anyway. Banks that are not sitting on excess reserves will need to borrow reserves at the end of any business day in order to cover their positions. That's what the overnight federal funds market is for.
As noted, they teach it because it is reality. In the current environment, many banks have sizable excess reserves. But they are not lending so much anyway. Banks that are not sitting on excess reserves will need to borrow reserves at the end of any business day in order to cover their positions. That's what the overnight federal funds market is for.
Read that piece...all of it.....it has all the evidence you need and everything will be clear....
The last big devaluation of the dollar happened when Nixon took us off the gold standard. The result was hyperinflation and the Arab oil embargo. The price of everything doubled and then doubled again. Our current dollar is worth about 10% of what it was worth at the beginning of Nixon's first term in 1967.
Nixon didn't just take the US dollar off the gold standard, he also hedged that bet by entering an agreement with Saudi Arabia to accept only US dollars for Saudi oil (in exchange for military protection and cooperation). That agreement was subsequently extended to the other Saudi Peninsula states.
That agreement--still in effect--forces all nations that purchase Saudi oil to first buy US dollars, which supports the value of the dollar.
So what would happen to the value of the dollar if that agreement were abrogated and the Saudi Peninsula producers began accepting other currency, specifically, how would US workers/consumers feel it?
That agreement--still in effect--forces all nations that purchase Saudi oil to first buy US dollars, which supports the value of the dollar.
Not so much in a regime of floating exchange rates and large volumes of major currencies trading in the global marketplace.
Quote:
Originally Posted by Ralph_Kirk
So what would happen to the value of the dollar if that agreement were abrogated and the Saudi Peninsula producers began accepting other currency, specifically, how would US workers/consumers feel it?
The Iranian Oil Bourse opened in early 2008 to shrieks of "The End Is Near!" from US Chicken Littles. The bourse has been so successful and influential that most people have never heard of it.
If you woke up one morning and an announcement was made that the US dollar was devalued by 10%, what would the practical application of this be to the average citizen?
Suppose someone had $10,000 in the bank. I understand they would still have $10,000 in the bank, and that this money would be worth 10% less (i.e. it takes more dollars to buy the same thing). But what would the average citizen be looking at for cost increases ? Will products made in the US not be affected as much as those imported? or visa-versa? What items are likely to be more sensitive to a devaluation than others?
Imported goods and, soon thereafter, domestically produced goods would become more expensive.
Mixed bag.
Benefits: makes US goods cheaper, encourages exports, maybe brings jobs.
Drawbacks: some products more expensive, the US becomes less attractive to investors, leading to less construction.
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