Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
There is no initial monetary inflation. The banking system profits during inflation and contracts during deflation. Later inflation is as good as early inflation except for the axiomatic reality that it is nearer to an impending deflationary period.
Of course there is "initial monetary inflation" and thanks for repeating yourself. Its this some sort of induction? The may you say it the more true it becomes?
Quote:
Originally Posted by gwynedd1
If you look at bank suffering from inflation, it is typically because it is not making loans while other banks are.
I stated exactly in which way a bank can get hurt from inflation. Any given bank will have a bunch of long term loans on its balance sheet most of which will be of fixed rates. It borrows short from from a number of sources, such as commercial paper, depositors, etc. Now, these people will demand higher rates as the result of the inflation (don't tell me I'm equating rates with inflation) or they will run. If they run the bank is insolvant, if the bank pays it out than it will hit its profit (Because the margin between what it is borrowing at and what it is lending at skrinks).
Quote:
Originally Posted by gwynedd1
Bank loans are money and money supply expands almost exclusively by them. If inflation were bad for banks, then the first loan they make would be bad since it is by definition bank credit that creates money and inflation.
Oh geez, this is just a word game. A bank loan does not necessarily result in inflation (in any sense of the word). You seem to be operating under a rather vague notion of the money supply. Please, define inflation. And don't say "an increase in the money supply". What is the money supply? There are numerous different measures.
The problem with not having private ownership is land is typically not improved. Adam Smith went into this in great detail. I don't really need the reference since I am well aware that I would not have improved my property if i did not benefit from it.
Yes because if Adam Smith said it, it is true. Oh oh...wait better yet because you know it would be true of you, its true!
Needless, to say many have argued against (real estate) property rights. They were fully aware of what Adam Smith had to say about the matter.
Quote:
Originally Posted by gwynedd1
I have tended to find them traceable to finance. Biddle for example purposely caused an economic crash to ruin Jackson. Demonetizing silver did the job in 1870. JP Morgan was behind the 1907 panic. The Great Depression was a deliberate contraction of credit.
Hahaha....Gotta love the sequence of highly controversial statements given as matter of fact! That's when you know someone's a nutter, when they mistake their views for established facts.
Dude...what you're saying is just not true. During a recession not all businesses are in "defense mode", hell not even most. Every recession is unique, in this recession the businesses that are heavily leveraged with debt have been caught with their pants down. They are doing poorly, but there are a number of businesses that are cash rich. These businesses are able to buy assets from the failing businesses on the cheap. Realize, that large corporations are owned by a large body of people/groups. These people/groups are sitting on hundreds of billions.
You believe the banks are making a killing buying assets and then selling them. But how do the banks magically know which assets are going to be worth their salt in the future? They don't. This is not want banks do, this is what businesses do.
Lastly, the auto industry did NOT start this recession with a good balance sheet! GM bonds for example have been rated as junk for almost 5 years! The foreign autos still have good balance sheets, they have a crap load of cash/near cash assets. Toyota is not even close to being insolvent, because they started the recession with a great balance sheet. The American autos have been doing poorly for some time now.
The state borrows from future revenue. But the state is not going to take my car because they can't pay their bills. They will just default.
You are asking me a stupid question then. Each depression/recession is unique in character. There have been other episodes in US history that were just as bad as the great depression. The great depression is just the most recent many of us had parents/grandparents that lived threw it.
Incidentally, one of the events (crisis in 1873) was in part caused by problems created from a certain ahem...legal tender....that was created. It lasted nearly 30 years and although you did not have the sudden collapse seen in the great depression you have a rather long period of stagnant growth with multiple recessions.
Anyhow, asking for another event in US history that exactly matches the great depression makes little sense. There are a number that match it in severity though.
The depression ended around 1934, before the war. The government started to stop supporting the economy in 1936 and there was a recession in 1937 as a result. But even the recession of 1937 ended before the US entered the war.
Firstly, there is no depression now. And major recessions are almost always preceded by credit expansions regardless of whether there is a central bank or not.
No, not really. It was simply a catalyst. The increase in home prices was the result of a classic financial mania, brought on by financial engineering and and an intoxicated public.
Only in your grandmas dreams. Journalism has always been and always will be a tool of the state. In fact the internet (wait...darn "the world wide web") has freed up information more than has ever been seen in the past. Now, a nutter in his basement can get a global audience for the cost of an internet connection.
Bringing down a president? Do people learn nothing from Rome? Politics is always filled with competition. Did the media bring down the president or his political competitors?
Really, then how did they supposedly create one during the recession earlier this decade? You're not being consistent.
Banks do not create bubbles, they partaken in them. I suggest a reading of "Extraordinary Popular Delusions and the Madness of Crowds". The problem is Humans. Financial manias, witch burning, crusades, etc all have the same basis - human psychology. An observation made brilliantly over 150 years ago by Charles MacKay.
I guess we will just have to leave it at we disagree. You really should do some more research on your positions though, especially if you are using these points of view to invest by. Reality does not care if you believe in it or not, it rewards you if you do and takes from you if you do not.
Of course there is "initial monetary inflation" and thanks for repeating yourself. Its this some sort of induction? The may you say it the more true it becomes?
Hi user_id,
You don't seem to address the issue I raise. So I say it again. There is nothing communicated by initial monetary inflation. When banks loan there is inflation or a relative increase in the money supply. When an individual bank makes a loan , barring incompetence, it should benefit. This will cause inflation however the amount will be minuscule compared to the value of the asset. Only banks that cannot make new loans have a problem. During inflation most banks benefit because it is a side effect of their loaning process.
Quote:
I stated exactly in which way a bank can get hurt from inflation. Any given bank will have a bunch of long term loans on its balance sheet most of which will be of fixed rates. It borrows short from from a number of sources, such as commercial paper, depositors, etc. Now, these people will demand higher rates as the result of the inflation (don't tell me I'm equating rates with inflation) or they will run. If they run the bank is insolvant, if the bank pays it out than it will hit its profit (Because the margin between what it is borrowing at and what it is lending at skrinks).
Its not relevant to this discussion. This thread is about the Federal Reserve which is the system and its member banks. Inflation does not hurt all banks but the exceptions I cited except a real loss in goods and services.
A bank can be hurt by inflation. That is granted and I provided some explanation that it is usually because other banks are thriving. Since the subject is related to the banking system its not really relevant. If you were trying to point out that banks have risk when making loans they certainly do if they decide to be stupid. It is after all a speculative driven system which is why I dislike it. However that is their choice. With secured loans they can't lose unless they are completely corrupt or incompetent in the assessment of the collateral.
Quote:
Oh geez, this is just a word game. A bank loan does not necessarily result in inflation (in any sense of the word). You seem to be operating under a rather vague notion of the money supply. Please, define inflation. And don't say "an increase in the money supply". What is the money supply? There are numerous different measures.
Why do I seem to be operating under a vague notion of inflation? I explained why I don't consider a general rise in prices to be a good metric of inflation. If you are educated in economics you would also recognize it as an Austrian school definition precisely. Most people who discuss economics should know what the metrics are being M0, M1 and M2.
I stated exactly in which way a bank can get hurt from inflation. Any given bank will have a bunch of long term loans on its balance sheet most of which will be of fixed rates. It borrows short from from a number of sources, such as commercial paper, depositors, etc. Now, these people will demand higher rates as the result of the inflation (don't tell me I'm equating rates with inflation) or they will run. If they run the bank is insolvant, if the bank pays it out than it will hit its profit (Because the margin between what it is borrowing at and what it is lending at skrinks).
Interesting.... so doesn't this mean that in an inflationary environment (monetary/credit expansion)... all banks would have to lend or suffer fewer deposits (as depositors demand higher rates)? or are unable to increase interest rates because they refuse to lend out more? Thus, the banks that don't give out more loans during an inflationary period faces the possibility of a run on creditors/depositors and potential close down because they can't match interest rate increases?
Thus, if your competitor loosens up lending and lends more, ultimately, you'd have to loosen up lending in order to compete and maintain deposits/creditors? Loan, inflation, match competitor, loan, inflation... rinse and repeat, until there are no more "viable" borrowers? And then collapse.
I guess we will just have to leave it at we disagree. You really should do some more research on your positions though, especially if you are using these points of view to invest by. Reality does not care if you believe in it or not, it rewards you if you do and takes from you if you do not.
Don't give me this hogwash. You stated a number of things that are rather easily demonstrated false, yet you tell me to do research. Its inane.
When someone tells you to "do research" as way of demonstrating you're wrong (or that they are right), you can write them off.
You don't seem to address the issue I raise. So I say it again. There is nothing communicated by initial monetary inflation.
Of course there is. When the FED expands the monetary base it communicates something.
Quote:
Originally Posted by gwynedd1
When banks loan there is inflation or a relative increase in the money supply....
You've get to define "money supply" without such a definition what you are saying is meaningless. There are numerous measures, I have no idea which one you are operating under. For example, M0 or M1 will not increase when a bank makes a loan. M2 may not increase either.
Tell me, if a bank borrows $1 billion in the commercial paper market and loans it out, in what way does this create inflation?
Quote:
Originally Posted by gwynedd1
Its not relevant to this discussion.
Yes it is.
Quote:
Originally Posted by gwynedd1
Why do I seem to be operating under a vague notion of inflation? I explained why I don't consider a general rise in prices to be a good metric of inflation.
Because you've yet to define what you mean by "money supply".
In general "inflation" is ambiguous though because people use it to refer to both a monetary expansion and increases prices. But, I know how you are using the term.
Thus, the banks that don't give out more loans during an inflationary period faces the possibility of a run on creditors/depositors and potential close down because they can't match interest rate increases?
The banks have a limit on the amount of leverage they can take , so as investors and depositors leave there is no money left to lend. It obviously depends what exactly is on the bank's balance sheet. It is only fixed rate loans that cause problems, if the majority of the banks loans were variable there would be no problem.
Personally, I think long term fixed rate loans cause a lot of instability in the banking system. Nobody can project matters that far, so why are banks giving 30-year fixed rate loans?!
Quote:
Originally Posted by chuck22b
Thus, if your competitor loosens up lending and lends more, ultimately, you'd have to loosen up lending in order to compete and maintain deposits/creditors?
Banks can't make loans whenever they wish, they have to have available capital (or available leverage if you will). Once they are near 1/10 leverage they can't lend anymore.
During this expansion, it was the non-bank financial institutions that were able to increase their leverage and essentially keep going. They were operating with 1/30 leverage. This is of course why they failed first and harder than the banks.
Financial panic seem to be almost always caused by non-banks financial engineering. The panic of 1907 was similar in some ways, but it was the trust companies that were engineering matters. But today's crisis was much longer and as you know there are other issues involved.
Of course there is. When the FED expands the monetary base it communicates something.
Hi user_id,
Been out in the good weather which was just as well. Laying off I hope will dispense with my role in the escalations of a personal nature.
If what you mean by initial inflation as being the expansion of the monetary base then yes that means something. I understand that rather than "initial inflation".
Quote:
You've get to define "money supply" without such a definition what you are saying is meaningless. There are numerous measures, I have no idea which one you are operating under. For example, M0 or M1 will not increase when a bank makes a loan. M2 may not increase either.
Monetary expansion does certainly have different effects when speaking of which one. M0 may have a pronounced effect on the black market while M2 may have more of an effect on real estate. I would still guess M2 would be a more important number. Still the expansion of any one of them is going to have an inflationary effect assuming the same circulation and given amounts of the other.
Quote:
Tell me, if a bank borrows $1 billion in the commercial paper market and loans it out, in what way does this create inflation?
I was under the impression banks usually sell commercial paper. They do this frequently by backing it with their loan assets. The original loans assets certainly do add to the money supply. This is what hammered a good deal of their liquidity since commercial paper was back by (some)junk.
Quote:
Yes it is.
Well then its just something I don't understand then. The money supply is expanding then banks are making loans. The only way this could be bad for a bank is if its not the one making any of the loans which does not seem to apply to the Fed system as a whole or to banks in the aggregate. Historically one can also observe bank failure occurs when the inflation stops.
Quote:
Because you've yet to define what you mean by "money supply".
Any M will do for the sake of argument. M2 and M3 generally seem to be large enough to have more potential impact I suppose rapid movement to more M1 and M0 will have its effects on the actual goods that usually transact in the particular form. If they tend to expand then I consider that inflation.
Quote:
In general "inflation" is ambiguous though because people use it to refer to both a monetary expansion and increases prices. But, I know how you are using the term.
Agreed, and they are both valid depending on the context.
I think your avg person would be shocked to learn how fractional reserve banking works.
most of us were taught that you put money in a bank, and THAT money is loaned out.
not that the banks can create money out of nothing.
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
