Fullwiler fives

  By Mystic | July 31, 2012 - 06:36 | ,

Here is a rough transcription of the presentation for people who are hard of hearing. Apologies for the lack of grammar, I am working to improve the automated transcriptions -
hello this is going to be her video on banking fives and doing its Linda but anybody is interested in banking fives Adam can listen along its from this got full Wyler am intervention into the Paul Krugman Steve keen debate whenever it was three months is also a go April 1 this was posted on seven Krugman’s flashing neon sign themselves are just rolling to it if you are interested in banking fives you’ll stick with it and if not you have problem already gone goodbye in his latest post in this debate which Keane replied to hear Krugman demonstrates that he has a very good grasp on banking as it is presented in a traditional money and banking textbook good recruitment unfortunately for him though there’s virtually nothing in that description of banking that is actually correct in other words the textbooks that is taught and two unfortunate undergraduates are basically wrong right way and it should I go into this list just go down to the yellow stuff is without will get into the banking fives not so much the argument between Keenan Krugman and is full Wyler’s intervention and okay we’ll just will will go in italics at the top is Krugman first of all any individual bank does in fact have to lend out the money it receives in deposits bank loan officers can’t just issue checks out of thin air like employees of any financial regional intermediary they must buy assets with funds they have on hand I hope this is an controversial although given what usually happens when we discuss banks I assume that even this report proposition will spur outrage And her for a while comes in with well in fact it wrong and in fact that is not controversial is not controversial is wrong because the people know about you just know it’s rock let’s start with the basic bank fives Hayley and its customer and her backdating bank and its customer and do the tea accounts what I call the books or all that you were bank creates a loan and the deposit out of the net I’m calling it Fountain pump and money and the customer now as a
ability the loan and an asset on the deposit as shown in figure 1 so figure 1 down the bottom lack of a figure under new name and number the different silence in numbers there figure 1 bank at a creates alone the customer one right now first thing to note bank ages not have any reserves rightly starting from zero tabula rasa over starting zero NK just makes alone Fountain pen loan and puts the deposit on the deposit side for customer one right on the liability side in the bank because customer one is liable to come and take it away yet so that’s plus deposit on bank a there and her customer one has signed credit agreement and that goes as plus loan on the asset side of bank a low left Where it says customer one Wigan to ignore customer one full Wyler’s made a full armed presentation of this and is presenting our little what the customer will at home would write our on his desk no EEG per note of what he has but we’re going to ignore completely customer one and just deal with the bank and note we got three lots of accounts that we could be pushing up with customers ones accounts that it keeping his desk at home bank a is OT accounts are that they would keep the bank and of course the central bank T accounts and they all should be doing the balancing thing and if there are out of balance that means its alarm going off and something then has to happen so are we happy with Donna Fountain pen loan or modern bit buyer alone fora typing it out of thin air loan we just slammed the deposit on the liability side and put the registered the signed credit document on the asset side of bank a gap gap nothing we haven’t done before but without brackets is no reserves right it’s just been done right readily we go to next we jump on slightly have cut a bit of argument at the we just don’t need à la read it all anyway Krugman says yes alone normally gets deposited in another bank power will read this although it’s what might be termed bit pernickety actually alone doesn’t get deposited in another bank deposit gets deposited in another bank right name I think that this is just word games none get lost in word games and I Wanna play word games but let’s just go on and get the loan is a banks asset will it’s all what’s full Wyler says is the way for while it puts it in his tea accounts his fives and he writes its always the same the way should be read below is a banks asset and the deposit is a banks liability deposit is what we call our deposit but really it is the banks doesn’t matter here we see the very beginning of the importance of remaining clear on accounting if one wants to truly understand the seat the basis of this argument was just a little expression loans create deposits and this is why there being a bit pernickety about what loans are and what creates means and what deposits are so even got three words so it’s fair enough to analyse exactly what they mean and for while is going to be consistent and show that am Krugman wasn’t being consistent at all if we assume as per Krugman example customer will though forget that that’s why it’s crucial to gets to sit a certain extent to get the vocab all your rewrite as well the words of got beat to some extent right so overweening now now is for Wyler is going to be very consistent about what he calls things so what Wigan have is customer Ray withdraws the proceeds from the loan so he’s been given a loan of five it’s on his deposit at the bank and deposited at bank be my way of saying it was that he’s bought a bicycle with it five for a bicycle and the bicycle seller has put it in his bank and his bank want paid a that’s just intermediary link but the shorthand is customer Ray withdraws the process and deposits in bank be it’s all the same Happy but the deposit is going to come out and it’s going to go in to a bank be right very certain customer one in the middle with crossing matter that silly in his desk at home and it can a lot draw we don’t get to see it somewhere only going to deal with bank a and bank be the top left of bank a plus loan plus deposit is where we left it last time Fountain pen in deposit five loan agreement five is the top left plus loan plus deposit out going down the loan plus deposit on bank a we have minus deposit because what we going to do now is deposit that in bank be as plus deposit I set the bicycle salesman but it’s plus deposit on bank be now on the top right So what we got is minus deposit bank a in the middle layer and plus deposit bank be that plus deposit causes in our little roundabout way Wigan come to it that plus reserves on bank B-side so how we can to get these reserves to bank be on bank bees asset side it is bank eight ain’t got no reserves right has seen the work the way Wigan do this okay the central bank the way setup to keep everything flowing and it goes into in chapter is the paragraphs after this it explains hammy trillions of dollars trillions of fives or trillions advise each day going through the central bank is it’s a 10 1520 sometimes 30% of GDP annual GDP is flying through the central bank every stinking dairy yet huge amounts of money I don’t quite and is then how it is that much money but it is huge amounts of money and the central bank can’t be going about their reserves so when I come to pass that it just block everything up so if bank a hasn’t got any reserves and it hasn’t the central bank will automatically give it an overdraft and that is accounted for by minus reserves on bank A’s balance sheet there to the underneath plus loan and to the left of minus deposit its balanced out that minus deposit wrong because it’s with minus reserves okay it’s it is its balanced out its unite everything should balance forget what’s on the bottom line that reserves and borrowings from among will come to that what we have on bank A’s top four fives are plus loans plus deposit minus reserves minus deposit all equal or gone it it it created a loan and it’s gone out and been accounted for him and hasn’t quite been accounted for because it’s in overdraft to the central bank but those minus reserves second down on the asset column of bank a are now the plus reserves for bank be that’s where it’s come from the central banks put that plus reserves in their four bank be Baker’s bank aiding have any reserves so that central bankers put it in So the central bank is taking care of bank be it’s got its deposit for the bicycle salesman and it’s got its reserves so it’s happy but when not quite happy with bank a yet because it’s let the deposit in the deposit gone out and it’s gone minus reserves but it’s hot hanging in overdraft as it can’t buy central banking law keeper overdraft going further than the end of the day by the end of the day it got been salted so it’s going to do borrowings could go to borrow let safe in the money market funds it can borrow from another bank can borrow money someone from somewhere so it just borrows money into it to transfer then it’s alone to bank a which goes on its liability side because it’s liable to pay that loan back so we didn’t fives or timeservers five is plus borrowings her let’s set comes from bank C doesn’t matter no complications really if it was banks able was set bank sake it owes bank C now five so it goes on its liability side just as though it’s a customer deposited because it got this bank C is liable to take it back but he’s got those reserves now those than back cash that it’s borrowed off bank C is accounted for as back in bank Quay is reserves it got them now so the central bank goes that my overdraft are paid off all we can say it authorises then the central bank to wipe its overdraft with the borrowings that he got from bank C so that minus reserves the overdraft is wiped out by the plus reserves the borrowings from bank C if you haven’t understood within a total everything up in bank a we know bank bees happy plus loan plus deposit has been wiped out and that will go from the bottom upwards that’s the best way plus loan her it’s still got lost and lost at plus borrowings okay I found myself again she Fountain pen loan has been wiped out by the deed plus deposit is that the deposit was created has been spent out so we know that gone the loan are is still the loan agreement is still on the books of the bank so that top left plus loan is still extent it still extant it still exists I so what haven’t we cover to cover so we’ve would wiped out the plus deposit in the minus deposit because we know that the money was put in and it was taken out the loan agreement is still on the banks books the minus reserves that was the overdraft with the central bank we note that has been paid off by the plus reserves and the minus and the plus on the two bottom left there on the bank a asset side fit themselves out there disappeared each other the Palm borrowings the created the reserves the reserves that plus reserves have wiped out the minus with visit reserves like and it’s gone to the central bank it’s gone so minus reserves and plus reserves is zero there are no reserves any more like where it started with no reserves is again got their reserves but it’s still got the liability to pay back bank C so the only things that are extant on bank A’s books now are the loan agreement from customer one and the liability plus borrowings it called their to pay bank C that all that is left on the banks books is plus loan and plus borrowings everything else is wiped itself out in the course of the days events so you got a bank sitting there with home alone on the asset side and liability balanced on the liability side and still no reserves it’s been through the day started the day with no reserves and it can start the next day with no reserves but during the day it has made a loan you make loans with no regard to reserves you sort the reserves at the double the reserves out later that it would dealt with bank be dealt with everything from bank four bank A I know it’s a lot longer than Boreas but I am hopefully one or two people might have hung on all the way through this naturally got some understanding from what shall we say is the most important and most important thing there is that banks can make loans and always make loans all the bones never make our Fountain pen loan is that a and banks are liable to have reserves that if they don’t they just get an overdraft from the central bank and sorted out later with other borrowings and at the end of the day it will all balance again in this case it looks a bit funny because you’ve got arm the loan on the asset side which is customer one’s signature bouncing off the borrowing from the money market market fund or in this case ain’t see and that’s the start of this article and if I have the month and if it arrives arises arm I’ll do more of this article that gets as far enough into it gets as further than Krugman never got put it that way by

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Written by: Mystic on July 31, 2012.
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  • Stevo

    Then you might ask why banks borrow from other banks to fund their lending? And why there is LIBOR at all. Or why they even concern themselves with calculating risk of loan defaults? Or why banks charge high interest rates for consumer credit cards? None of the above makes any sense if banks create customer loans out of thin air.
    Not that it really matters, because money has nothing to do with economics or economic growth.

  • lgrinaker

    Yep! I’m right there with you on that. It’s nice to have it in video form rather than just in writing form…

    ~~~~

    Well, all right then, so we can look at this post and comment thread as a place
    where I (or anyone) can work on my banking ABC’s?

    Kind of a “kiddie pool” for banking? ;-)

    ~~~~

    Okay, well, with that in mind, I’ll start with three very, very basic questions:

    1. I hear the term “the Central Bank” and “the Fed.” Do those two terms mean
    the same thing – can they be used interchangably, or is there any distinction to be made?

    ~~~~

    2. What are reserves?

    I’m currently using Prag-Cap’s primer to get a better feel for this:

    http://pragcap.com/the-treasury-and-central-bank-the-contingent-institutional-approach

    In it, the primer brings up the term, “currency” as the basic term at play:

    “It is important to be clear on the relevant scope for the definition of “currency”
    in the context of modern monetary operations. The term “currency” applies first to physical notes issued by the central bank. (It also applies to coins issued by Treasury, but this is a minor component in quantitative terms.) In a modern banking system, the idea of currency should apply as well to bank reserve balances at the central bank, since reserves are in effect an electronic substitute for physical notes.”

    And a bit later:

    “Thus, the central bank issues notes, reserves, and government deposit balances as liabilities, and the public, the banks, and the Treasury make use of these notes and balances as a uniform category of currency issued by the central bank.”

    And a bit later:

    “Banks do not use notes to settle transactions between each other and with the government. That is the purpose of their reserve balances held at the central bank.

    Accordingly, bank reserves in total consist of central bank issued notes as reserves with respect to public demand and central bank reserve balances with respect to interbank settlement requirements.”

    ~~~~

    The above is helpful, but also a bit confusing for me.

    For it starts off with a distinction between “physical notes” and “reserves,” with the 2nd being classified as an electronic version of the first.

    But later it talks of “total reserves,” which apparently includes *both* “notes” and “reserve balances.”

    But I think I get the idea:

    “Reserves” is the term used, I think, for overall “bank holdings” (of commercial banks) of national currency – in the U.S, reserves are in the form of USDs.
    If the currency is in physical form, for a bank’s purposes, it’s termed “cash reserves,” which is held separately – in a bank’s vault. Otherwise, it’s held by the bank as a “reserve balance” in the bank’s deposit account at the Fed (or is that “at the Central Bank”? ;-)).

    That balance maybe zero, but, as I currently imagine it – every commercial bank has a “reserve balance” via a deposit account at the Fed.

    ~~~~

    3. And finally, what are deposits?

    Tell me if I’m wrong, but I’m currently thinking of a customer’s deposit in a bank as taking the form of “credits.”

    This is how I imagine it working out:

    If a customer comes in with $5 of “cash” to set up an account…

    …the bank puts the cash into its vault, and the cash becomes part of the bank’s “cash reserves.”

    And for the customer, the bank “pens in” “5 credits” – as a record of deposit for the customer.

    Then, as I see it, those “credits” give the customer the right to “demand” up to 5 of the bank’s reserves at any point after the account has been set up – in the form of cash *or* in the form of an interbank transfer (by the way of the Central Bank as clearing house… to the account of the recipient of the transaction, the “seller” of whatever the bank customer has purchased).

    And since it’s simply “penning in” 5 credits, I can see that occurring when a loan is made too, that both the loan contract and the credits are “penned in” at the same time.

    The loan has in that instance given the customer the right to “demand” up to 5 of the bank’s reserves, which the customer can use at any time.

    But I can also see, with the above, that the customer could demand a transfer go to another customer in the same bank. And that could happen by simply moving credits from one customer’s account to another’s.

    (It’s only when the bank needs to *pay out* does the bank have to draw from it’s vault or its “reserve balance” at the Fed when a customer uses its right to demand reserves, or USD’s in some form.)

    Am I near or far from the mark on that (and/or any of the above)?

    Linda

    • http://overthepeak.com/wordpress/ Mystic

      The Fed is the central bank of US, so same same.
      Bank of England. Bank of Japan. Central Bank of Russia.
      European Central Bank.
      (they’ve all got one~!)

    • http://overthepeak.com/wordpress/ Mystic

      I don’t know a good definition of `reserves`.
      First thing must be to know it is not `folding money`, that is `vault cash`.
      Not being `the folding stuff`, it is purely `book entries`.
      It is an accounting number.
      It can represent different things at different times, for different people, looked at from different angles.
      But always it is scribblings in a book (or, of course, the modern computer equivalent).

      Some countries have `reserves` at a big number and therefore it is a more important consideration.
      In the Western world the `reserve` percentage is very low. It is kinda just hanging on in there as an old vestige that doesn’t really do much, but they don’t want to do away with it completely.
      It is a hang-over from fractional reserve banking.

      It serves as a pool of funds that the central bank can call on to balance out accounts between banks during the daily run of things.
      It always used to be kept to whatever the Fed said was to be the minimum.
      The minimum is the reserve requirement and that is what the banks held at the Fed, the minimum.
      Now they have 1.5 plus trillion dollars in `excess reserves` (over and above the Fed set minimum).
      This is `cash` the banks would normally find better things to do with, but, at the moment, just can’t think of anything, so park it at the central bank.

      Now we come to the tragic bit …… I said `cash` in the last paragraph, but opened up by saying that it is only book entries.
      So, we ask ourselves – If, as is always said, the banks all bank with the central bank ………. what exactly is it that they bank at the central bank~?
      The answer is, nothing but book entries. That is what `cash` is when it is not the folding stuff.
      The banks bank their book entries with the central bank~!

      • lgrinaker

        Yeah, I think one thing that makes “physical bank notes” confusing in terms of the word “reserves,” at least to me, is that there seems to be a more informal use of the word “reserves,” such as in “cash reserves.”

        ~~~~

        But for our purposes, I think it’s very similar to saying, I’ve got a “bank balance” – because it’s referring to my deposit kept at my bank.

        Banks, in turn (the ones we use as commercial banks in the U.S.), have their deposits with the Federal Reserve. And, as with my “bank balance,” it would make sense to talk in terms of that deposit as a bank’s “reserve balance” – because it’s held at the Federal *Reserve*.

        ~~~~

        “Credit” might not be the precise word that’s best to be used with deposits (although I think it’s not bad).

        But whatever the best word, I think the meaning is basically –

        …the right to exercise a demand for up to X amount of USDs (in the U.S., anyway) – X being whatever one’s level of bank balance is. We’ve been using 5.

        ~~~~

        There are some deposits that have timing rules that go with them, for how long one needs to wait before exercising the right to demand USDs, and some that don’t – the demand can be exercised at any time for any amount in one’s bank balance.

        ~~~~

        One can make a demand for USDs in either the form of physical notes, which I’ll call “cash,” or one can make a demand for electronic transfer. But the idea, I think, is that one is demanding USDs in one form or another.

        ~~~~

        And just as I don’t hold most of my money in cash, but via a bank deposit, I couldn’t directly pay someone demanding a significant amount of dollars from me. Instead, I’d use the banking system.

        With my bank deposit in mind (my “bank balance”), I’d exercise my right to demand USDs to the extent I needed them (to the extent I had the needed amount of “credits” in my bank balance).

        ~~~~

        And my demand, in turn (prompted by a written check or an order for an electronic transfer from my account, etc.), would be exercised by my bank from its deposit at the Federal Reserve.

        If my bank’s deposit with the Federal Reserve, or “reserve balance,” is similar to my “bank balance,” then I would assume it’s also made up of “credits” that give the bank the right to exercise its claim for a certain amount of USDs at any time.

        ~~~~

        Finally, I think it’s the Federal Reserve that is the *primary* “holder” of USDs, and yes, mostly in electronic form, in the Fed’s own account, with its own holdings – the bank of banks.

        ~~~~

        I don’t think that’s the only kind of asset that the Federal Reserves holds on its “books,” in fact, I know it’s not.

        But that’s the asset that I think is key for this particular discussion – USDs are the assets on the Fed’s own balance sheet that, as I see it, mark the “end of the line” for the the various lines of deposits (constituted of “credits,” or the right to demand X # of USDs at any time), from the banks’ deposits with the Federal Reserves, to our deposits with the banks.

        For, among other liabilities on the Fed’s own balance sheet, are the deposits of commercial banks, the banks’ “reserve balances.”

        Federal Reserve:

        5 USDs (in electronic form)/5 (deposit of Bank 1, or “reserve balance,” or “credits,” or “right to demand 5 USDs” – all ways to say the same thing, what “deposit” means at any level of the U.S. Federal Reserve banking system)

        ~~~

        But maybe at this point, because all the banks’ deposits are held with the Fed, it’s like tranferring deposits within the same bank – the assets of the bank don’t have to be touched in that case.

        So perhaps with inter-bank transfers, at the level of “reserve balances” with the Fed, the Fed’s liabilities can move around, while its assets stay untouched.

        I guess some exceptions would be “overdrafts,” or using the Fed as “lender of last resort,” in which case, the Fed’s assets would be needed, at least for a short time.

        ~~~~

        Linda

        • lgrinaker

          Further, like you say, overall “reserve balances” may rise or fall, depending on the asset mix of the banks.

          That also depends, perhaps among other things, on the monetary policy the Fed is working with at any one time – Is the Fed purchasing bonds from the banks? selling them to the banks? etc.

          My only asset, for example, isn’t my measly “bank balance” (although, for me, there’s not much of that, nor of anything else, especially now that I’ve paid my portion of my hospital bill, ;-)).

          Instead, I have a few dividend yielding stocks, a bit of PMs, etc, so depending on my spending needs at any one time, my assets vary in kind.

          Linda

          • http://overthepeak.com/wordpress/ Mystic

            No. `Reserve` balances only rise and fall on the dictates of the central bank. If the Fed wants a higher reserve ratio, then the banks will have to make sure there is more `liquid` in there to cover that amount.

            `Excess reserves` will rise if banks put in more than the central bank dictates (as now).

            • lgrinaker

              Yeah, I was thinking more about that. For I knew that the Fed did a lot with this. I just didn’t know if a bank could voluntarily do something else with their reserve balance, such as purchase another asset. But I knew I was treading in unknown territory for me.
              Linda

              • http://overthepeak.com/wordpress/ Mystic

                On reserves.
                I am going to confuse matters slightly by going over to the European Central Bank, but thems is pretty much the same.

                The ECB (like the Fed still does) paid a small percentage on `excess reserves`, so the banks were stocking up the `reserve accounts` way over and above the minimum (interest is only paid on excess, not statutory reserves).
                But, a couple of weeks ago, the ECB stopped paying interest on excess reserves ……….. and, a couple of days later, the banks had moved half a trillion Euros from their reserve accounts to their current accounts at the ECB (which pay no interest).

                • lgrinaker

                  *very interesting*

                  In bringing up the important stuff of “excess reserves,” you are preceding my reading. For all the reading I am currently exposed to doesn’t really touch upon “excess reserves,” which I suppose they are leaving for “later lessons.”

                  But I see from what you are discussing, how significant that aspect of things is.

                  Linda

        • http://overthepeak.com/wordpress/ Mystic

          I’ve done a video reply to this comment.

          • lgrinaker

            I was going to go back in and see if I could edit it down quite a bit, but I’d have to be less tired for that (a very long, busy day today – but not just mentally this time – a nicely physical day today, too, which I very much needed, ;-); starting to get back on track with that…)
            Linda

      • windslice

        I think there are four types of reserves, but may be incorrect.

        - reserves held against depositors’ accounts for day to day withdrawals. Mostly vault cash and in the west the amount is essentially voluntary.

        - reserves required to balance the account at the central bank.

        - required capital reserves held against the possibility of defaults, based on the Basel agreements and also national laws.

        - general reserves which is all the uninvested money left over on the asset side of the balance sheet.

        The last three sort of merge into one another.

    • http://overthepeak.com/wordpress/ Mystic

      `credits` is fine.
      If you can get that the `cash folding stuff` is only another representation of `credits`, then I think the world is a wonderful place.
      Don’t try and keep `credits` only for deposits ……. it’s credits all the way down~!

    • joebhed

      What are reserves?
      That’s the question to ponder in order to really comprehend the structure of “fractional-RESERVE banking” and the “federal RESERVE system”.
      Here’s a clue.
      The system is not federal.
      And there are no reserves.
      And bank lending only relates to reserves as they are created by the CB, through its “discounting” power.

      In the sense of a debt-based money system – reserves are money; deposits are money; cash is money, base-money is money and High Powered Money is money.
      Money is money.
      There are no reserves.
      It’s ALL about the accounting.

      My Dad used to say: “they’ve got us by the double-entry bookkeeping shorthairs”.

      Thanks.

  • lgrinaker

    But still, even if I think of it as a kind of “pyramid of liabilities” (used in Wray’s MMT primer)… from one set of deposits exercising (or not exercising) their right to “demand” USDs (the vast majority of the time, in electronic form) from the next set of deposits higher up, with the apex being the Fed’s own account…

    …and even with the need for daily borrowings throughout the system, to whatever extent, in order to keep all running smoothly…

    It still comes down to *book entries* at all levels, crediting and debiting this and that, as appropriate, ;-).

    Linda

    • http://overthepeak.com/wordpress/ Mystic

      Me thinks you is getting there.
      As I say, video to come ……. will refine one aspect of what you say here.
      And yes, It is all `book entries`~!

      • lgrinaker

        If nothing else, I feel like I can now see why a bank just doesn’t have to pay attention to reserves when making a loan, among a few other things, so that I can follow Keen and some of these others quite a bit better now.

        I knew that I was drawn to what he was “getting at,” but I didn’t want to just take that leap after him blindly, you know? I also knew I was dazzled by how bright he seems. But there are a whole lot of very bright folks out there, and yet, still, a whole lot of them/us can still “bark up the wrong tree” at times. Just a part of it – the trial and error of it all.

        But now, I feel like I’ve done some work that’s let me confirm what my gut was telling me. I don’t have to just assume he’s correct (and others in association with him), I now really do think he’s on track. And I can now see better for myself where and how some others are off track.

        Linda

        • http://overthepeak.com/wordpress/ Mystic

          Something to note.
          We are using T accounts to describe things and this is not really the bestest way of doing it.
          The bank has two sets of books (I think), like all businesses.
          One is the `cash flow statement` which deals with day to day comings and goings.
          The other is the `Income statement`, (which is what we are kinda using), which is a `snapshot` of things at a certain date (quarterly / yearly / whateverly).

          The making of the loan, the spending of the loan on a new bicycle, the bicycle seller putting the money into her bank, the CB balancing out the accounts …………. all come easily within one quarter.
          So, if anyone was to insist to me that banks do use reserves for lending, I would not get myself all riled up arguing with them.

          • windslice

            If we are going to use the correct terms, then we should say “profit & loss” and “balance” statements.

            The P&L summarises the cash flow throughout the accounting period, the balance sheet shows where the assets and liabilities are at the end of the accounting period.

  • http://overthepeak.com/wordpress/ Mystic

    A bit like Bill Mitchell, I struggle with Randy Wray …… He just seems to go on ….. and on …… and on.

    • lgrinaker

      Oh, I hear ya, it’s so hard to read from someone who goes on and on… ;-).
      Linda

      • http://overthepeak.com/wordpress/ Mystic

        Ah yes ….. I wasn’t actually thinking of you, but yes, putting over stuff in a concise way, is an art~!
        (and a necessary art nowadays, because people’s time is so precious ……. so much stuff to do~!)

        • lgrinaker

          Yeah, I’m doing a lot of “thinking things through,” including a lot of trial and error (as well as some untidy writing in general), as I’m writing in the comment section here, which, unfortunately, does lead to writing that’s not a lot of fun for a reader, for sure.

          In “real life,” in my “later drafts,” after I’ve used earlier writing to do a lot of my “thinking through,” I’m usually better at being succinct.

          Knowing that reading what I write at the these stages is something that, quite naturally, can put off readers… I do go into these without expectation of “readers.”

          And so, it’s usually a nice surprise for me when some do “give it a go” and take part with me in these “thinking through” stages, ;-).

          Linda

  • Anne Panne

    This describes the “low-powered” money? This money come from “thin- air” and become air again when the loan is payed back? Inflation and deflation.

    Steve Keen claims it’s ok if the loans are made for productive purposes, rather than to speculate on existing assets.

    But the money will still disappear if the loan is repaid. There has to be a continuous stream of loans made to fuel “the Economy”. So the banks will still have the power that lies in controlling the money fountain.

    That’s what Zarlenga is talking about isn’t it? To break the power of the banks we must use “high-powered” money?

    • http://overthepeak.com/wordpress/ Mystic

      Yes, that is what Zarlenga is on about ……….. BUT, be aware that the terms `low` and `high powered money` are already taken and should not be used in this instance.

      The more acceptable wording is `vertical money` for government issue …… and `horizontal money` for bank issue.

      Hello AnPan,

      • Anne Panne

        hello Nick

        I have an inflamation in my heel and try not to use it – so I just sit around doing as little as possible.
        Zarlenga used it, or did I miss something this time too?
        When should I use the high/low – powered term?

        • http://overthepeak.com/wordpress/ Mystic

          Low powered money …. probably never.
          High powered money …. as inward investment in a country.

          High powered money is sometimes used for reserves (I think), but when done so, it is linked to the old theories such as `the money multiplier`.
          It is not a wrong thing. I think it is an old and now confusing way to talk about things.

          Vertical money creation for government. Horizontal money creation for banks.
          (but if you read a load of other people who are using `high powered` talk…..then don’t let me get in the way~!)

          Must be frustrating for you, having to sit around~!?

          • joebhed

            Nick
            I’m not sure how Zarlenga used ‘high-powered money”, I’ll have to check.
            In general, he uses the term REAL money to describe that issued directly by the government (not the CB) and that which is converted FROM bank-credit money to United States Money.

            Here’s a run with by Izabella at FT Alphaville
            http://ftalphaville.ft.com/blog/2011/08/18/656736/the-high-powered-money-problem/
            Not that I agree with ANY of it.
            More to show the advanced rate of confusion.

            Here’s my take:
            If and when you look behind the curtain marked “HIGH-POWERED MONEY” what you find is money – sort of.
            More Electronic monetary assets.

            And if you look closely, it resembles what are fondly called ‘reserves’ elsewhere.
            And if you look closer you’ll find cash and……deposits.
            And monetized bank and corporate assets.

            You’ll see st FT that Mr. Fisher describes “excess reserves” as HPM.
            I say the only problem with HIGH-POWERED MONEY is that it isn’t.
            Neither high nor low powered.
            It’s impotent.
            http://youtu.be/Zliv3USGysM

            As is the entire debt-based system of money to do anything constructive for the working people of the world.

            I agree with Linda’s observation of the fact that the real NEED to understand this money system is not to figure out what’s wrong, but to be ready for what comes next.

            The Money System Common.

            • http://overthepeak.com/wordpress/ Mystic

              I am a total Izabella Kaminska fan, but I did not get to the end of this article when I came upon it.

              High powered money going into an emerging economy, is really high powered and can be terribly destructive.

              Thanks for the HPM background check. I think I will stick with not using it for reserves, as it just doesn’t do it for me.

          • Anne Panne

            Not yet – as I am born lazy. Probably more frustrating for the people around me. The weather slow things down here also.
            Rain is OK when the grass is growing, not during harvest. You can’t start any other project either, because you have to be ready to go the moment the weather allows it.
            I will use a little time to find out more on High/ low and horizontal/ vertical.

            • lgrinaker

              (lots of chuckling) I really enjoyed this, Anne, ;-).
              Linda

              • Anne Panne

                I am starting to enjoy this too ;)

            • http://overthepeak.com/wordpress/ Mystic

              We have had a combine stopped in the field next door for five days now (winter wheat). Rain stops play.

              • Anne Panne

                It’s no good being a control freak in agriculture, being a regular freak helps a lot.

                • http://overthepeak.com/wordpress/ Mystic

                  Mr. Grumpy Farmer and his son Young Grumpy Farmer are certainly a pair of those (especially YGF)~!

      • Anne Panne

        It turned out to be High/ lower (not Low) – Zarlenga use the term at about 1.33.05 in the second part of the video.
        He names high power money as real money and lower powered money as credit money.

        At Economic Glossary the term is defined as similar to the monetary base.

        • http://overthepeak.com/wordpress/ Mystic

          It is good to stock away these definitions …… Know what the old fogies are talking about.
          I am happy with statutory reserves and excess reserves, but whichever you fancy does the trick (as long as who you are talking to is speaking the same language).
          If you want a modern horror to avoid, it would be `liquidity` …. used for the same thing ………. and in many other wishy-washy ways~!

          • Anne Panne

            a liquid term then

  • joebhed

    Nick,
    Really great job on the explanation here.
    That is how it works.
    Thanks.

    • http://overthepeak.com/wordpress/ Mystic

      Hey Joe,
      It is like we have hiked for three weeks, to get a hundred yards~!?

      • lgrinaker

        (chuckling)

        I like thinking of it as the arduous initial process of “getting one’s footing.” If we can succeed fairly well with that…

        On a related note, a nice thought to keep in mind here is that in the traditional lore about Einstein – not sure if this is actually true or not – it took him until he was 4 years old to say his first words. And then, look what happened, ;-).

        Linda

      • joebhed

        Almost three years, Nick.
        But it’s much more than a hundred yards.
        There’s a fork in the path ahead.
        Which way reserves?
        And which – no reserves?