Taking on the currency cranks
- Thread starter Jean-Luc
- Start date
love detective
there's no love too small
of course it matters, when you and free spirit try to claim that it was the bank run on northern rock that prompted the stepping in of the state. When it transpires that the stepping in of the state happened before the bank run, it kind of blows that assertion to smithereens. it's like saying that the appearance of firemen at a fire is a strong indication that it was the firemen who started the fire - cause & effect completely turned around on themselves, but you claim it makes no difference
well make up your mind, first you are saying it makes no difference what way round it is
and as for your stupid logic that it completely negates my point - that is outstanding logic from you, absolutely oustanding. You clearly have no understanding, nor a desire to understand, the reality of the situation here (a common theme developing throughout most of your posts). I'll go through it once again slowly for you. When it became clear on 13th September 2007 that Northern Rock was no longer able to continue as a viable independent entity due to it not being able to fund itself in the markets, the state had to step in to plug the gap, from that point onwards it lost its independent company status and became a ward of the state. As a result of this news being made public, customers panicked and starting withdrawing some of their deposits. The bank run did not put NR under, the bank run did not result in NR being put into state ownership. NR going under and being put under effective state control, happened before the first person had withdrawn their first quid.
I know you are not interested in knowing or even understanding the reality of what happened however, as reality tends to get in the way of your fuckwited theories
please stop putting words into my mouth.
I've no need to put absurd words & phrases into your mouth, they literally pour out of it with no help whatsoever from me
You've argued consistently on here that banks don't have to fund their lending because they just magic the money out of thin air, so why are you getting uptight when I remind you of what you have argued? If you now agree you were wrong and that banks do have to fund their lending, meaning that they can't just magic money out of thin air, then fair enough, but you should at least have the decency to point out that you no longer believe your previous fuckiwttery
Two things in response to this:-
1. A few pages ago, I told you I was no longer going to waste my time engaging in your abstract/detached theory, and instead I was going to focus on how well your theory could explain real world events. Your initial attempt to use your theory to explain real world events was one of the most absurd things I have ever heard on this discussion board. This shows that you don't care about understanding the real world, you only care to twist real world events out of all attachment with reality so that you can attempt to explain them with reference to your daft theory.
2. You have consistently dodged further requests by me to explain real world events with reference to your theories of money & credit. This is probably a sensible move by you, given how badly your first attempt to do this went. However, until such a time that you respond to the various questions I have put to you, which point out the wide gap between how the world should work according to your theories and how the world does actually work, I have zero inclination to spend any time or effort responding to your questions, where there is a backlog of things that you consistently dodge, due to the inability of your theory to even go anywhere near explaining what actually happens in the real world
love detective
there's no love too small
these questions have already been answered in the reply to happie chappie
and it's absurd to say that the only reason banks hold cash is because it's a legal requirement - the implication being that if that legal requirement was removed banks would have no reason to want to get access to money/cash? of course not
but anyway, i admire your ability to consistently dodge the crux of the discussions and come in with weird incomprehensible shit like this on a consistent basis
love detective
there's no love too small
Your initial point was that QE was to do with 'meeting the banks existing liabilities'
The only way banks could get access to QE money was if they already had sufficient assets on their books that they could sell to get cash to then fund any upcoming liability payments. So in that sense the liabilities are already 'covered' through the fact that there are sufficient assets to cover them. That's the key distinction between a liquidity problem/issue and a solvency/capital issue - your initial posts seemed to mistake the former for the later
If a bank did not have sufficient assets (in any form) to cover its liabilities then it would be insolvent and no amount of QE would be any use to it in 'meeting the banks existing liabilities'
Likewise a bank who did have sufficient assets to cover its liabilities could just as easily sell some gilts in the market to other buyers to get liquid cash to pay off any upcoming liabilities or they could use one of the myraid of funding schemes run by central banks (or other repo market participants) where they put the gilt up as collateral in return for funding for a set period.
So my point in response to your original point was that QE is nothing to do with what you claimed it was for. The reasons the state indulges in QE is that they think they can stimulate real activity in the economy purely through monetary shenanigans, and part of this reasoning is that by pushing down the yield on gilts (through artificially driving up the price of gilts through QE/Central bank purchases) and therefore pushing down market interest rates in general it will encourage people to 'do stuff'. All this is bullshit of course, but it is the driver behind it. The other, less publicised driver, is of course making sure there is plenty demand for state debt to ward off any 'market vigilantism' and whatever. But all in all, QE is not primarily something that is done to help the banks (although they clearly benefit from it) - there's plenty other non-qe avenues for banks to get any cash they need (if they have the sufficient collateral, and if they don't they go under), so it's a mistake to see the motivations & drivers of the elites behind QE as being a bank led thing, that is far too narrow a focus to view this kind of thing in.
To properly understand the wider context of all of this, this narrow focus on everything being down to the banks needs to be loosened somewhat as it blocks the ability to see the wider structural/framework in which all this sites. This is why I rail so much against the likes of Jazz who are unable, due to their infatuation with banks & money, to see the big picture. How often do you hear Jazz talk about Capital & Labour for example, or Exploitation or Value? Never
SpineyNorman
Inappropriate content removed
littlebabyjesus
one of Maxwell's demons
Don't you think this is probably the main driver? Pretty important to the state short-term at the moment.
love detective
there's no love too small
i think it's the main unspoken/unstated driver yes (it is effectively monetising the debt, but they can't admit to this) - having a deep pocketed buyer in the market for state debt when state debt is having to be issued at ever increasing amounts because austerity is increasing not decreasing the deficit, is incredibly useful in the short term
which does explain why we keep seeing round after round of QE in both the UK and US (now in the US it's not even another round it's QEternity), even though it's not really doing anything when judged on its surface level reasons for doing it. it may well be forcing market interest rates down and the central banks point to that as a sign of success, but that is kind of missing the point. Loads of people not borrowing at a lower rate of interest rather than not borrowing at a higher rate of interest doesn't really do much. Not that if they did start borrowing it would necessarily do anything anyway mind
edit: and as you say, the main benefit of all this QE is the state itself (or the govt in particular in terms of being able to temporarily sustain unsustainable austerity policies), not the banks, as quite a few on here seem to always suggest
it all has to unwind at some point though - and it won't be pretty
SpineyNorman
Inappropriate content removed
WTF is this?
100% reserve = command economy? Technological innovation grew out of speculative capitalism? I don't even know where to start with that one. Internet = state developed. Computers = state developed. Nuclear power = state developed. In fact I challenge you to name a single major, revolutionary technological breakthrough that grew out of speculative capitalism. And I'd also be interested to hear why you think 100% reserves means a command economy.
Jean-Luc
Well-Known Member
Bank A makes a payment out (a loan) which is covered by a payment in from Bank B. Bank B makes a payment out (another loan) which is covered by a payment from Bank A. I imagine this is happening all the time as banks make payments out and receive payments in. In fact it happens every day when at the end of the day banks clear payments each owes each other. What's so special about that?
As not all payments out are loans, your scenario works equally if Andrew asks Bank A to settle an invoice for £1000 from Bertie who then pays it into Bank B while Bank B pays an invoice for £1000 which Bill owes Anthony who pays it into Bank A. Or, more likely, this will all be done by electronic transfers.
The Bank of England is not involved in either case (but would be if, at the end of the day, a bank found itself in the red, whether this was due to making a loan or settling an invoice).
As to the change in the "money supply", since the assumption is that bank loans are counted as part of it, in your example this has increased by £2000, but there's some double-counting going on. But why isn't the "money supply" increased when the payments out are not loans but settling invoices?
love detective
there's no love too small
that's the point, it is increased - but jazz can't understand that, because he doesn't understand circulation
1 unit of currency circulating at a fast rate is the equivalent in money supply terms to 10 units of currency circulating at a slow rate
in Jazz's world though money supply isn't a flow but it's a static stock - so all he has in his money supply world is 11 units - he can't see or understand the impact of that money circulating at various different speeds and the impact that has on money supply (and demand, prices etc..)
so in the real world, 1 unit of currency circulating 100 times a day is the same (in money supply terms) as 100 units of currency circulating once a day. In jazz's world though there is no distinction between these, no recognition of the impact of flows, circulation, movement - just a static stock that he stock takes on and says, here's your money supply, all stored up in a shed somewhere in a static fixed state scenario.
then to compound his idiocy, he claims circulation doesn't expand the money supply but fractional reserve lending does, even though fractional reserve lending is nothing more than circulation
1 unit of currency circulating at a fast rate is the equivalent in money supply terms to 10 units of currency circulating at a slow rate
in Jazz's world though money supply isn't a flow but it's a static stock - so all he has in his money supply world is 11 units - he can't see or understand the impact of that money circulating at various different speeds and the impact that has on money supply (and demand, prices etc..)
so in the real world, 1 unit of currency circulating 100 times a day is the same (in money supply terms) as 100 units of currency circulating once a day. In jazz's world though there is no distinction between these, no recognition of the impact of flows, circulation, movement - just a static stock that he stock takes on and says, here's your money supply, all stored up in a shed somewhere in a static fixed state scenario.
then to compound his idiocy, he claims circulation doesn't expand the money supply but fractional reserve lending does, even though fractional reserve lending is nothing more than circulation
Jean-Luc
Well-Known Member
So, suddenly, when "full reserve banking" is introduced, the money that is lent starts to circulate whereas it doesn't now!
Yes, that is what I'm saying, but I'd just call it "banking" as that's the principle on which banks operate.
Banking is based on the assumption that depositors will be leaving most of their money in the bank and not withdrawing it. This is why most money deposited can be treated as if it were a "time-deposit" and lent out. There is nothing dishonourable or dishonest about this. Actually, what happens is that all the money deposited, whether in a current account or a time-deposit, goes into one pool out of which a bank makes loans and other payments.
I imagine you think that any extra money needed will be done by the government or the central bank "printing" it. Hello (higher) inflation.
love detective
there's no love too small
to be fair there's nothing inherently more inflationary about govt/central bank creating money than the financial system increasing the money supply through circulation. In both these circumstances the money supply can increase far in advance of the ability of underlying value production to keep up with it,just as its also possible for value production to keep up with, or restrain, the creation of money (whether it's created internally within the system through frantic circulation or externally through base money creation pumped in)
look at QE as an example, hundreds of billions have been created but as it's not circulating in any great degree or doing that much it's not inflating anything (apart from perhaps some that have found its way into commodity speculation). Conversely look at the inflation in property prices that was caused by the increase in the money supply due to the internal extension of credit within the system and the frantic circulation of it around that system)
the money system left to itself without any central bank interference can have just as much disastrous inflationary (and deflationary) consequences as can one which is constantly 'interfered' with by the central bank/state
which brings it back to my wider point above that looking purely at money & credit is far too narrow a perspective to properly understand money & credits role in all of this
look at QE as an example, hundreds of billions have been created but as it's not circulating in any great degree or doing that much it's not inflating anything (apart from perhaps some that have found its way into commodity speculation). Conversely look at the inflation in property prices that was caused by the increase in the money supply due to the internal extension of credit within the system and the frantic circulation of it around that system)
the money system left to itself without any central bank interference can have just as much disastrous inflationary (and deflationary) consequences as can one which is constantly 'interfered' with by the central bank/state
which brings it back to my wider point above that looking purely at money & credit is far too narrow a perspective to properly understand money & credits role in all of this
Jean-Luc
Well-Known Member
i agree. It's just that, if it's left to the government to decide rather than to the spontaneous operation of economic forces, the chances of getting it wrong and issuing too much money are higher. Hope this doesn't sound too much like Hayek on BBC2 last night.
love detective
there's no love too small
i'd rather take my chances with the state than the 'spontaneous operation of economic forces'!
(cue pictures of wheel barrows of cash in zimbabwe & weimar germany etc. etc..)
(cue pictures of wheel barrows of cash in zimbabwe & weimar germany etc. etc..)
gosub
~#
the diesel engine, the jet engine- government actually blocked Whittle, the steam turbine Parsons had to have fun at Spithead to get that to work, the integrated circuit -state built computers ended up in bits, cant think of any state lead big pharmaceuticals. The internet is a great example spectulative over command, bare bones may have been there but none of DMU's saw the potential for the all singing and dancing internet we have to day, that took the imaginations and energies with as few roadblocks as possible.WTF is this?
100% reserve = command economy? Technological innovation grew out of speculative capitalism? I don't even know where to start with that one. Internet = state developed. Computers = state developed. Nuclear power = state developed. In fact I challenge you to name a single major, revolutionary technological breakthrough that grew out of speculative capitalism. And I'd also be interested to hear why you think 100% reserves means a command economy.
With 100% reserve, as outlined in Jazz's IMF working paper. For a new venture, you go and see your bank and they then act as advocates to a government bureaucracy that has final say on whether the money is printed for the venture to go ahead. How can that not be a command economy?
Nuclear is a point to you, though if it was unplanned we'd have thorium reactors by now
JimW
支那暗杀团
There's several technical innovations happened during the collective era in China to my knowledge - new strains of high-yield rice, various stuff in medicine etc. I can look them all up if you really insist, but really the point is you're spotting the need capitalism has for constant innovation to keep the cycle going, and while we celebrate the few useful things that have come with that the vast bulk is new flavours of toothpaste style waste.the diesel engine, the jet engine- government actually blocked Whittle, the steam turbine Parsons had to have fun at Spithead to get that to work, the integrated circuit -state built computers ended up in bits, cant think of any state lead big pharmaceuticals. The internet is a great example spectulative over command, bare bones may have been there but none of DMU's saw the potential for the all singing and dancing internet we have to day, that took the imaginations and energies with as few roadblocks as possible.
With 100% reserve, as outlined in Jazz's IMF working paper. For a new venture, you go and see your bank and they then act as advocates to a government bureaucracy that has final say on whether the money is printed for the venture to go ahead. How can that not be a command economy?
Nuclear is a point to you, though if it was unplanned we'd have thorium reactors by now
littlebabyjesus
one of Maxwell's demons
That's not a command economy, though. In a command economy, there is no space for individuals to ask banks for loans for new ventures - new ventures are decided upon by the government.
What you describe above is not very different from what happens now, except that you've substituted 'government bureaucracy' for 'private bureaucracy'. In our current system, you can only borrow money if you can convince the lender that you're good for it - and if you ask for a business loan, you have to present a business plan, etc.
But I'm not exactly clear what this '100% reserve' is really getting at. It seems an odd idea that negates many of the genuinely positive aspects of money as a concept.
gosub
~#
You've added an extra tier, and while you can ask banks aren't going to put stuff forward they know is going to get regected. Take the jet engine, UK government had examined the idea and dropped it in 1929 before Whittle went hang on this might work and got private investors to fund a prototype the government didn't know it wanted. The other difference this tier makes is funneling, still using the jet engine, Whittle could apply to a multitude of investors some of whom were more taken than others but were able to take their own investment decision. Under this new system they may be taken with the idea but they have to apply to the same Deptartment of Investment: Aeronautics who can tell them ALL to fuck off, or let say HBOS do the Whittle route, so that when Lloyds turn up looking for funding for the Beryl route say we already have something similar going on. (Modern jet engines owe more to the Beryl than the Whittle)
littlebabyjesus
one of Maxwell's demons
Ok. Still not a command economy in the sense of the old Soviet Union or present-day Cuba.
gosub
~#
Agriculture is an odd one, states have always prioritized seed devlopment, but I don't think the likes of Monsanto came up with GM cos they were told to, I don't know anything about Chinese medicine.
I'm equally cynical that most development is inane and I'm sure any dept tasked with yay or naying would end even more so. But the sharper the bottleneck, the more Beatles you don't sign
gosub
~#
In terms of ownership, no, not intially. But then you'll need a mortgage, ok'd of course by the Deptartment of Investment: Housing
littlebabyjesus
one of Maxwell's demons
But again, where is the essential difference between this and what happens now? We currently have mortgages cleared by the Department of Making the most amount of money out of us (the Bank) - and this operates in such a way as to rip us the fuck off. Housing and its financing is something eminently suitable to collective control, imo - involving as it does the distribution of an essential, limited resource.
I actually think state-controlled finance is an eminently sensible idea. Not nationalising the means of production, necessarily, but certainly nationalising the means of producing money.
free spirit
more tea vicar?
you're misrepresenting my point.
I was specifically talking about their cash liabilties, not whether on paper they had enough long term investments to match up with their customers bank balances or not.
Unless you think people would readily accept being paid in a torn off strip of a government bond, or promisary note backed by interest payments on a loan they've made etc, the credit crunch was largely about lack of access to actual hard currency, both partly caused by the risk of, and at risk of fuelling the potential for a run on the banks of sufficient size for them to actually run out of the means to pay out in cash on request.
Also from a government and banks point of view, the situation would have rapidly got pretty dire if all the banks had tried flogging off a significant proportion of their government bonds / gilts on the open market at precisely the same time as the government was trying to release huge volumes of new bonds and gilts onto the same markets. It'd have resulted in interests rates rising massively for government borrowing, and the banks having to flog their lower yielding gilts and bonds off at a significant loss, which would then have impacted on their reserves ratio requirements.
Quantitative easing was therefore a win win for both sides, but the ultimate driving force for it IMO was the recognition of the need to inject huge quantities of hard cash into the banks, and that without QE the banks would be forced to achieve this in ways that would negatively impact on government's ability to borrow at low interest rates. I entirely acknowledge the potential that the politicians aren't even aware of this, and believe their own bullshit about getting the banks lending etc, but it is largely bullshit, as the figures on the ground clearly demonstrate.
The figures speak for themselves, with £275 billion QE injected upto the end of 2011, resulting in £100bn additional lending to business vs 2009, but still at only 2/3 of the rate in 2006... and 2012's lending rate currently running not that much above 2009.
The other £175 billion went on boosting the cash reserves, and helping to pump up the commodities market (and that's ignoring the multiplier affects discussed previously, and working on the basis that they actually did lend out £100 million on cash).
http://www.bankofengland.co.uk/publications/Documents/other/monetary/trendsJuly12.pdf
happie chappie
Well-Known Member
I think (and LD is probably the best person to give a definitive view on this) is that there is a danger of placing too much emphasis on how much “cash” a bank holds at any particular time at the expense of looking at the overall state of its balance sheet.
As LD pointed out, Northern Rock sought BoE help before the run on the bank. The problem wasn’t caused because it didn’t have enough cash to pay out to customers (the run was simply a symptom) but because of the dire state of its balance sheet which meant it was technically insolvent. The root cause of this was a bad mortgage book emanating from its policy of lending to home buyers based on ridiculous multiples of their income (in some cases, self-certified).
It wasn’t the BoE increasing liquidity that saved NR in the long-term, but the Government’s takeover which allowed the “toxic” loans to separated out, taken off the balance sheet, and then placed into a “bad bank”. NR then became solvent again and continued to trade with the taxpayer owning both the “good” and “bad” parts of the bank as separate entities, with the “good" bit later sold off to Virgin at a loss. (I assume the Govt still owns the “bad” bit, btw).
The BoE pumping liquidity into NR wasn’t just to enable NR to pay out to any depositor queuing at the door, but to deal with the short-term problem of preventing a run spreading to all banks and the chaos that would have ensued. There was an argument that NR should have been allowed to go under as warning to other institutions not to be so reckless (hence the discussion about moral hazard and banks being "too big to fail").
The credit crunch wasn’t caused so much by how much “cash” any particular bank had at any particular time (which changes minute by minute, if not second by second) but by the banks collectively being unwilling to lend to each other as they couldn’t be sure whether the institution they were lending to was actually solvent. Who would want to lend to an insolvent firm? Under such circumstances NR would not have been able to raise cash on the wholesale markets at anything like a sensible interest rate, if at all.
If NR's balance sheet had been incredibly strong, but it had a short-term liqudity problem, it could have gone to the markets to borrow. But it wasn't, so it couldn't. In effect its solvency problem caused its liquidity problem, not the other way round.
Then the BoE stepped on a short-term basis as a “lender of last resort". But this did not deal with the bank's longer-term structural problems, realting to the state of its balance sheet, which was sorted out by the Government at later date as outlined above.
But LD would be able to correct me if I’m wrong (please fell free to do so) and add in any other relevant info.
As LD pointed out, Northern Rock sought BoE help before the run on the bank. The problem wasn’t caused because it didn’t have enough cash to pay out to customers (the run was simply a symptom) but because of the dire state of its balance sheet which meant it was technically insolvent. The root cause of this was a bad mortgage book emanating from its policy of lending to home buyers based on ridiculous multiples of their income (in some cases, self-certified).
It wasn’t the BoE increasing liquidity that saved NR in the long-term, but the Government’s takeover which allowed the “toxic” loans to separated out, taken off the balance sheet, and then placed into a “bad bank”. NR then became solvent again and continued to trade with the taxpayer owning both the “good” and “bad” parts of the bank as separate entities, with the “good" bit later sold off to Virgin at a loss. (I assume the Govt still owns the “bad” bit, btw).
The BoE pumping liquidity into NR wasn’t just to enable NR to pay out to any depositor queuing at the door, but to deal with the short-term problem of preventing a run spreading to all banks and the chaos that would have ensued. There was an argument that NR should have been allowed to go under as warning to other institutions not to be so reckless (hence the discussion about moral hazard and banks being "too big to fail").
The credit crunch wasn’t caused so much by how much “cash” any particular bank had at any particular time (which changes minute by minute, if not second by second) but by the banks collectively being unwilling to lend to each other as they couldn’t be sure whether the institution they were lending to was actually solvent. Who would want to lend to an insolvent firm? Under such circumstances NR would not have been able to raise cash on the wholesale markets at anything like a sensible interest rate, if at all.
If NR's balance sheet had been incredibly strong, but it had a short-term liqudity problem, it could have gone to the markets to borrow. But it wasn't, so it couldn't. In effect its solvency problem caused its liquidity problem, not the other way round.
Then the BoE stepped on a short-term basis as a “lender of last resort". But this did not deal with the bank's longer-term structural problems, realting to the state of its balance sheet, which was sorted out by the Government at later date as outlined above.
But LD would be able to correct me if I’m wrong (please fell free to do so) and add in any other relevant info.
love detective
there's no love too small
I'm sorry but i'm not misrepresenting anything. Im trying to make sense of what you are saying and respond to it accordingly. You've already admitted in a previous post that you were using terms that did not describe what you were trying to say, and even prior to that I pointed out that your posts on this matter come across like someone speaking authoritatively about something they have barely a tenuous grasp off.
what do you think a cash liability is?
you mean whether someone would accept one bit of paper (a pound sterling note for example), issued by the govt and backed by the govt's fiscal & monetary ability to stand behind it, or another bit of paper (a gilt), issued by erm the govt and backed by erm the govt's fiscal & monetary ability to stand behind it?
no it wasn't - the credit crunch was, as its name suggests, a crunch on the ability of banks to fund their lending (see Northern Rock, HBOS, etc.) - hence a contraction on lending activity by banks, which in turn caused a contraction in economic activity which in turn turned the financial crisis into an economic and sovereign crisis as tax revenues plummeted while things like unemployment benefit soared due to the doubling of unemployment etc... The issue of bank runs by customers withdrawing their deposits is largely irrelevant to the credit crunch, as stated earlier if anything they were a symptom after the big bang had happened, something of many times less the order of magnitude than the freezing up of the international money markets. Which banks went under or nearly went under due to actual or the risk of bank runs by customers by the way? None.
QE brought about this very situation - everyone lined up to flog their gilts to the state who had deep pockets while the state was also issuing huge volumes of new gilts to fund the deficit
So what actually happened was the reverse, the flogging off of gilts to the central bank pushed down interest rates
also you are mixed up when you say the banks would have 'lower yielding gilts' - if gilt prices fall because of say a glut on the market, then yields on them rise (the yield moves inversely to prices). you're also wrong when you say they would have to 'flog them off' - why would they have to flog them off? and which reserve ratio requirement are you talking about? liquidity, capital, other?
QE was win win for both sides (in the short term anyway, once it has to be unwound it won't look so clever). But you're simply wrong about the driving force being about it injecting huge quantities of hard cash into the banks in order that they could then 'meet the banks existing liabilities'. QE was not about swapping gilts for cash with the banks to give banks cash to meet their liabilities, it was about swapping gilts for cash with the banks in the hope that they would then create new assets in the shape of loans to customers/business with that money. This is where your focus on it being something to do with bank's liabilities is wrong. the focus was not about ensuring bank's could meet existing liabilities, it was about (on the surface) trying to get them to create new loans, in other words create new assets, and (unstated) about ensuring there was an ongoing demand for the issuance of state debt to give a fake credibility to the state's austerity programme.
The state has put in a place a myriad of various schemes other than QE which are there to prop up the banks liquidity & cash requirements (in addition to the schemes that already existed for this very purpose pre-crisis), if you've picked one of these and said what you are saying about QE I would have agreed with you, but you're way off with what you're saying here about QE.
This is another example of why I get so frustrated with this sole focus on the banks by so called radicals. It suggests that if that nasty banking system could just be sorted out then everything would be hunky dory. Which is bullshit. What we've seen since 2007 is the symptoms and manifestations of a deeper more structural crisis that goes way deeper than anything banks in particular do. That folk focus in on the banks as the cause of all evils takes away from the bigger picture. everything in the crisis is a symptom of the crisis in capitalism. Attempts to explain what went on with reference just to money & finance alone, is like trying to explain and understand the symptoms of cancer without recourse to the actual cancer that gives rise/life to those symptoms. This bank focussed approach barely manages to give an outline of a single tree, let alone see or have any ability to explain the existence of the forest.
The impacts of what was done don't give that good an indicator of what the reasons for doing it was. For example the impacts of a couple of hundred years of full scale capitalism has been to degrade the resources that keep the planet alive. To simply point to that outcome and say, see that was the intention behind it, doesn't tell us much.
You are correct that most of the money that was created by QE hasn't done much - i've said this countless times myself. But if you think that bank's are hoarding that money (and taking a significant loss on doing so - see the links to the extraordinary profits made by central banks as a result of the QE exchange) because they think they will need it when Mr & Mrs Smith appears at their door asking for the contents of their current account in cash, then you are wrong. Banks are hoarding it because they are scared to lend it and no one really wants to borrow it - the state through QE have chucked a big ball of money into the system that no one really wants or has any need for (which proves that monetary policy can't magic value production out of nowhere). That's why it's not inflationary, because it's not doing anything, not circulating, not stimulating anything. The only thing it's doing of note is artificially keeping demand for govt debt high, ensuring the price of govt debt remains high and it's yield/cost low - giving years and years of scope to continue with fuckwited austerity policies without it having an immediate devastating impact on society. yet.
love detective
there's no love too small
Will come back to you on this tomorrow, spent too much time on here today
Although I disagree with your initial premise about it being solvency and not liquidity which did it for NR - it was very much about funding or the lack of it that did it. NR had some toxic stuff on its books, but no more than many other banks (based on a percentage of their total mortgage book), and certainly not at the level that meant it had an unsustainable solvency problem.
NR's downfall (at the time) was more due a perfect storm between its somewhat cavalier balance sheet structure & approach to its funding mix which left it utterly exposed when international money markets froze up and were closed off to pretty much everyone in September 2007 (there was nothing specific that the market knew about NR at the time, it was more the case that everyone in the market had the total fear and didn't have a clue as to which banks would be impacted the most by the coming storm, so they froze up to everyone.
NR got caught out because their approach to funding its lending book was very aggressive & risky (in terms of huge reliance on money markets with no diversification of other funding methods, plus the way they funded very long term mortgage lending with very short term money market funding), which meant that they were much more exposed when the music stopped. Other banks weren't impacted to the same extreme because they had a much more conservative and diversified approach to their funding. The state had to take over because it was clear that without the state funding the bank was not a viable stand alone entity. It wasn't because it was insolvent in terms of it's capital adequacy or capital base at the time.
In general though you're right about the focus shouldn't be purely on just how much cash a bank has, but the focus should be between both liquidity & solvency/capital adequacy.
And in general I think you gave a pretty logical & structured overview of the situation (especially the description of the credit crunch), just the initial premise I don't agree with (NR balance sheet at the time was pretty strong in comparison with others who didn't go under, a few years late the 'bad bank' took quite a few write downs on some positions but no more than other banks did, and this was mainly due to the deterioration in the wider economy over those years rather than anything specifically chronic to NR in 2007, and the 'bad bank' is making healthy profits at the moment), which then filters through into your conclusions which I don't really agree with also. But you still got a lot of relevant and decent/correct points in there all the same
free spirit
more tea vicar?
do you also believe in the tooth fairy?
eta - well ok, as I think I already acknowledged, this was one part of it, but it's a particularly inefficient means of achieving this, with only 40% of it making it back out of the banks as increased business loans, so I'd contend it'd be naive to say that this was the only, or even main reason for QE, even if it was the public justification used.
free spirit
more tea vicar?
I beg to differ btw.
You quoted part of a sentence out of context, the rest of which made it clear that the point I was making was different to the point you were saying I was making, and I'd just explained the point I was making again in the post you were replying to.
Well indeed. There is an extra £2000 in circulation : £1000 in Bertie's account in Bank B, and £1000 in Anthony's account in Bank A.
No central bank money passes between the two banks. The two transactions negate each other during clearing.
The money supply has risen by £2000, simply created by the loans that the banks made.
The point of this example is to highlight the nature of the banking system as a whole. When you consider the high st banks as one, it is clear that they create money through loans, and that it is created from nothing.
Because in that instance the total sum of the four client's bank accounts is exactly the same as before.
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