I think it's normally called a monetary multiplier and is very common in banking ever since the gold standard was abandoned. Since the new bank regulations have come into effect, I think the multiplier has been adjusted so that banks are legally required to hold more cash in reserve than before.
I'm not sure what you suppose can be a solution to the simple fact that there's not enough 'base' around to fund the entire economy?

edit: money multiplier. Dutch doesn't always translate well into English, it seems. http://en.wikipedia.org/wiki/Money_multiplier

babel wrote:I think it's normally called a monetary multiplier and is very common in banking ever since the gold standard was abandoned. Since the new bank regulations have come into effect, I think the multiplier has been adjusted so that banks are legally required to hold more cash in reserve than before.
I'm not sure what you suppose can be a solution to the simple fact that there's not enough 'base' around to fund the entire economy?

edit: money multiplier. Dutch doesn't always translate well into English, it seems. http://en.wikipedia.org/wiki/Money_multiplier

Well, at least someone else appears to understand the money multiplier.

However, in relation to your point about the amount of money that has to be held on account, this can be entirely offset by the amount of money that is pushed into the system.

For example, on a fractional reserve ratio of, say, 20%, £1,000 of base money becomes £3,000 in circulation and the original £1,000 on deposit at the banks (see earlier post for details). If the government imposes a new higher fractional reserve limit this does not stop the multiplier, but is does reduce the factor of multiplication by a given amount. However, if the total amount of base money pumped into the system rises at the same time, this can have the effect of completely mitigating against any reduced multiplication inherent in a higher fractional reserve. In other words, despite the level of debt relative to base money reducing, the absolute level of debt may remain or even rise.

And we haven't even touched, yet, on the implication for the money supply, going forward, that interest on the loans has. Namely, that the interest on the loans means that there is literally not enough money (either base or credit) in existence at any given time to clear all the debts. The only way this is resolved is by the issuance of yet more debt to cover those interest payments. Or, to put it more colloquially, such a process may be properly termed a ponzi-scheme.

If you accept that the majority of money in circulation is actually debt (over 90%), then why should the creation of such money be in the hand of a private state-backed monopoly, Why does the state not simply spend it into the economy directly on capital projects (thus allowing it to circulate and get to work and also avoiding massive interest payment to private monopolies, in turn requiring an ever growing money supply to fill the hole in the future supply implied by that interest) and then tax it back out of existence in the form of tax (in the event of a downturn requiring a contraction of the money supply to avoid inflationary price rises)?

Hell, they could even put it directly into each and every citizens bank account and allow it to be spent into the economy by the citizens. There is absolutely no logic nor is there any moral justification for allowing the lending of money into existence to be in the hands of a private monopoly cartel who can then add interest to the money that they lend into existence such that, despite producing literally nothing, they end up owning everything.

stevecook172001 wrote:I'll take that as indicating you are indeed unable to refute the argument that FRB-money is a double-accounting fraud then.

A stinging rebuke, Steve. You're obviously clued in to the way people just line up to refute the arguments of anonymous internet sages who take it upon themselves to summarise what's wrong with the banking system in a thousand words or less.

Cito di Pense wrote:

stevecook172001 wrote:I'll take that as indicating you are indeed unable to refute the argument that FRB-money is a double-accounting fraud then.

A stinging rebuke, Steve. You're obviously clued in to the way people just line up to refute the arguments of anonymous internet sages who take it upon themselves to summarise what's wrong with the banking system in a thousand words or less.

Still unable or unprepared to refute a single specific point of argument I see.

stevecook172001 wrote:All of the above is the reason why governments shit themselves when growth stops because, when that happens, the ponzi-scheme money-supply promptly collapses.

I've read this stuff before, but rarely see this part filled out. Can you have a go? "Collapse" is a scary word, and "prompt collapse" is scarier. During recession, how do defaults on the loans factor in, to start with.

babel wrote:I think it's normally called a monetary multiplier and is very common in banking ever since the gold standard was abandoned. Since the new bank regulations have come into effect, I think the multiplier has been adjusted so that banks are legally required to hold more cash in reserve than before.
I'm not sure what you suppose can be a solution to the simple fact that there's not enough 'base' around to fund the entire economy?

edit: money multiplier. Dutch doesn't always translate well into English, it seems. http://en.wikipedia.org/wiki/Money_multiplier

There is no money multiplier.

GT2211 wrote:

babel wrote:I think it's normally called a monetary multiplier and is very common in banking ever since the gold standard was abandoned. Since the new bank regulations have come into effect, I think the multiplier has been adjusted so that banks are legally required to hold more cash in reserve than before.
I'm not sure what you suppose can be a solution to the simple fact that there's not enough 'base' around to fund the entire economy?

edit: money multiplier. Dutch doesn't always translate well into English, it seems. http://en.wikipedia.org/wiki/Money_multiplier

There is no money multiplier.

Yes there is. Its mechanism has been laid out in detail here and it t is also thoroughly researched and understood.

See below:

http://en.wikipedia.org/wiki/Money_multiplier

Simply baldly stating you do not believe it to be true in the absence of any attempt to explain why borders, frankly, on the religious in tone and makes you sound like the kind of creationist who would be rightly mocked on a forum such as this. Refute the specifics of the argument, if you can. Otherwise, your blank denial will be rightly dismissed.

VazScep wrote:

stevecook172001 wrote:All of the above is the reason why governments shit themselves when growth stops because, when that happens, the ponzi-scheme money-supply promptly collapses.

I've read this stuff before, but rarely see this part filled out. Can you have a go? "Collapse" is a scary word, and "prompt collapse" is scarier. During recession, how do defaults on the loans factor in, to start with.

Sure. No problem. I'm going to go offline and type it up and will post it back here later.

stevecook172001 wrote:

GT2211 wrote:

babel wrote:I think it's normally called a monetary multiplier and is very common in banking ever since the gold standard was abandoned. Since the new bank regulations have come into effect, I think the multiplier has been adjusted so that banks are legally required to hold more cash in reserve than before.
I'm not sure what you suppose can be a solution to the simple fact that there's not enough 'base' around to fund the entire economy?

edit: money multiplier. Dutch doesn't always translate well into English, it seems. http://en.wikipedia.org/wiki/Money_multiplier

There is no money multiplier.

Yes there is. Its mechanism has been laid out in detail here and it t is also thoroughly researched and understood.

See below:

http://en.wikipedia.org/wiki/Money_multiplier

Simply baldly stating you do not believe it to be true in the absence of any attempt to explain why borders, frankly, on the religious in tone and makes you sound like the kind of creationist who would be rightly mocked on a forum such as this. Refute the specifics of the argument, if you can. Otherwise, your blank denial will be rightly dismissed.

I'm pretty certain you are a troll...but the money multiplier view is logically implasuible under a regime that targets an interest rate like the fed funds rate.

Here is a paper I posted previously on the subject.

The role of reserves and money in macroeconomics has a long history. Simple textbook treatments of the money multiplier give the quantity of bank reserves a causal role in determining the quantity of money and bank lending and thus the transmission mechanism of monetary policy. This role results from the assumptions that reserve requirements generate a
direct and tight linkage between money and reserves and that the central bank controls the money supply by adjusting the quantity of reserves through open market operations. Using data from recent decades, we have demonstrated that this simple textbook link is implausible in the United States for a number of reasons. First, when money is measured as M2, only a small
portion of it is reservable and thus only a small portion is linked to the level of reserve balances the Fed provides through open market operations. Second, except for a brief period in the early 1980s, the Fed has traditionally aimed to control the federal funds rate rather than the quantity of reserves. Third, reserve balances are not identical to required reserves, and the federal funds rate is the interest rate in the market for all reserve balances, not just required reserves. Reserve balances are supplied elastically at the target funds rate. Finally, reservable liabilities fund only a small fraction of bank lending and the evidence suggests that they are not the marginal source of funding, either. All of these points are a reflection of the institutional structure of the U.S. banking system and suggest that the textbook role of money is not operative.

While the institutional facts alone provide compelling support for our view, we also demonstrate empirically that the relationships implied by the money multiplier do not exist in the data for the most liquid and well-capitalized banks.Changes in reserves are unrelated to changes in lending, and open market operations do not have a direct impact on lending. We conclude that the textbook treatment of money in the transmission mechanism can be rejected. Specifically, our results indicate that bank loan supply does not respond to changes in monetary policy through a bank lending channel, no matter how we group the banks.

http://www.federalreserve.gov/pubs/feds ... 041pap.pdf

GT2211 wrote:

stevecook172001 wrote:

GT2211 wrote:

babel wrote:I think it's normally called a monetary multiplier and is very common in banking ever since the gold standard was abandoned. Since the new bank regulations have come into effect, I think the multiplier has been adjusted so that banks are legally required to hold more cash in reserve than before.
I'm not sure what you suppose can be a solution to the simple fact that there's not enough 'base' around to fund the entire economy?

edit: money multiplier. Dutch doesn't always translate well into English, it seems. http://en.wikipedia.org/wiki/Money_multiplier

There is no money multiplier.

Yes there is. Its mechanism has been laid out in detail here and it t is also thoroughly researched and understood.

See below:

http://en.wikipedia.org/wiki/Money_multiplier

Simply baldly stating you do not believe it to be true in the absence of any attempt to explain why borders, frankly, on the religious in tone and makes you sound like the kind of creationist who would be rightly mocked on a forum such as this. Refute the specifics of the argument, if you can. Otherwise, your blank denial will be rightly dismissed.

I'm pretty certain you are a troll...but the money multiplier view is logically implasuible under a regime that targets an interest rate like the fed funds rate.

Here is a paper I posted previously on the subject.

The role of reserves and money in macroeconomics has a long history. Simple textbook treatments of the money multiplier give the quantity of bank reserves a causal role in determining the quantity of money and bank lending and thus the transmission mechanism of monetary policy. This role results from the assumptions that reserve requirements generate a
direct and tight linkage between money and reserves and that the central bank controls the money supply by adjusting the quantity of reserves through open market operations. Using data from recent decades, we have demonstrated that this simple textbook link is implausible in the United States for a number of reasons. First, when money is measured as M2, only a small
portion of it is reservable and thus only a small portion is linked to the level of reserve balances the Fed provides through open market operations. Second, except for a brief period in the early 1980s, the Fed has traditionally aimed to control the federal funds rate rather than the quantity of reserves. Third, reserve balances are not identical to required reserves, and the federal funds rate is the interest rate in the market for all reserve balances, not just required reserves. Reserve balances are supplied elastically at the target funds rate. Finally, reservable liabilities fund only a small fraction of bank lending and the evidence suggests that they are not the marginal source of funding, either. All of these points are a reflection of the institutional structure of the U.S. banking system and suggest that the textbook role of money is not operative.

While the institutional facts alone provide compelling support for our view, we also demonstrate empirically that the relationships implied by the money multiplier do not exist in the data for the most liquid and well-capitalized banks.Changes in reserves are unrelated to changes in lending, and open market operations do not have a direct impact on lending. We conclude that the textbook treatment of money in the transmission mechanism can be rejected. Specifically, our results indicate that bank loan supply does not respond to changes in monetary policy through a bank lending channel, no matter how we group the banks.

http://www.federalreserve.gov/pubs/feds ... 041pap.pdf

I have read your paper and am happy to address it's falsehoods in due course. Meanwhile, you haver yet to directly logically refute a single portion of the argument I have presented in details. To remind you:

1) Central banks create base money for our economy either by buying it in from outside the system via the issuance of government bonds or, if they wish, by directly creating it from scratch with mechanisms such as QE.

2) The banks who take out loans of base money from the CB can then lend out a proportion of it to other banks and/or non-banks customers based on their fractional reserve requirements.

3) Either:

a) Non-bank customers are either going to deposit the money they have borrowed into a bank or are they going to spend the money such that the recipient (or some recipient at some point down the chain of transactions) is going to deposit the money into a bank, thus allowing the recipient banks to declare that loaned money that has been deposited with them on their books as a part of their assets and thus increase their fractional reserve.

or

b) Other banks who have directly borrowed the money from the first bank in the chain are going to be able to declare their loaned money as an asset on their books and thus increase their fractional reserves?

4) In either or both instances of (3), the increased fractional reserves of the banks having received previously loaned money means that they can now lend more money out than was the case prior to their receipt of it.

5) All of the above processes will, unless there is a direct regulatory intervention, continue until all capacity to wring a return out of deposits received (within the fractional reserve requirements) is exhausted. In other words, until infinity is approached.

When all of the liabilities and assets in the chart example I provided are added up, it does not add up to merely the original £1000 due to the interest that has been added to the loans. If, however, we add up the fractional reserves held by all of the banks put together, it is there that we will find the original £1000 issued by the CB, spread out over the entire banking system's deposits held on account in the form of required fractional reserves. On top of that £1,000, though, is another £3,000 that has been lent into existence. Oh, and of course, there is the interest of £600 that is due to be paid back as well (based on 5%). There has actually been £4000 lent out but, given that some of that money in circulation on that table ends back up as fractional reserves held on deposit account, if we subtract the £1000 held in the form of fractional reserves from the total amount of £4000 that has been lent out, this leaves £3000 actually in circulation being used by people as if it was base money which it is not.

There is nothing obtuse or obfuscatory in the argument presented. Therefore it should be simple matter for you to refute each of the above points and give logically sound and transparent reasons for doing so. As yet, you have not none so. why is that?

So you see, before you move the debate onto the territory of a paper you claim to have authored about the multiplier as a tool of monetary policy, which is a related, but separate matter, it is first incumbent on you to directly address the arguments presented to you. Namely that the multiplier effect merely exists, which you are currently denying. Unless, of course, you can't, in which case just admit it, you'll feel better.....

stevecook172001 wrote:

GT2211 wrote:

stevecook172001 wrote:

GT2211 wrote:
There is no money multiplier.

Yes there is. Its mechanism has been laid out in detail here and it t is also thoroughly researched and understood.

See below:

http://en.wikipedia.org/wiki/Money_multiplier

Simply baldly stating you do not believe it to be true in the absence of any attempt to explain why borders, frankly, on the religious in tone and makes you sound like the kind of creationist who would be rightly mocked on a forum such as this. Refute the specifics of the argument, if you can. Otherwise, your blank denial will be rightly dismissed.

I'm pretty certain you are a troll...but the money multiplier view is logically implasuible under a regime that targets an interest rate like the fed funds rate.

Here is a paper I posted previously on the subject.

The role of reserves and money in macroeconomics has a long history. Simple textbook treatments of the money multiplier give the quantity of bank reserves a causal role in determining the quantity of money and bank lending and thus the transmission mechanism of monetary policy. This role results from the assumptions that reserve requirements generate a
direct and tight linkage between money and reserves and that the central bank controls the money supply by adjusting the quantity of reserves through open market operations. Using data from recent decades, we have demonstrated that this simple textbook link is implausible in the United States for a number of reasons. First, when money is measured as M2, only a small
portion of it is reservable and thus only a small portion is linked to the level of reserve balances the Fed provides through open market operations. Second, except for a brief period in the early 1980s, the Fed has traditionally aimed to control the federal funds rate rather than the quantity of reserves. Third, reserve balances are not identical to required reserves, and the federal funds rate is the interest rate in the market for all reserve balances, not just required reserves. Reserve balances are supplied elastically at the target funds rate. Finally, reservable liabilities fund only a small fraction of bank lending and the evidence suggests that they are not the marginal source of funding, either. All of these points are a reflection of the institutional structure of the U.S. banking system and suggest that the textbook role of money is not operative.

While the institutional facts alone provide compelling support for our view, we also demonstrate empirically that the relationships implied by the money multiplier do not exist in the data for the most liquid and well-capitalized banks.Changes in reserves are unrelated to changes in lending, and open market operations do not have a direct impact on lending. We conclude that the textbook treatment of money in the transmission mechanism can be rejected. Specifically, our results indicate that bank loan supply does not respond to changes in monetary policy through a bank lending channel, no matter how we group the banks.

http://www.federalreserve.gov/pubs/feds ... 041pap.pdf

I have read your paper and am happy to address it's falsehoods in due course. Meanwhile, you haver yet to directly logically refute a single portion of the argument I have presented in details. To remind you:

1) Central banks create base money for our economy either by buying it in from outside the system via the issuance of government bonds or, if they wish, by directly creating it from scratch with mechanisms such as QE.

You are missing one of the major ones....which is lending it. The Fed lends large amounts every day in order to keep financial system flowing smoothly.

2) The banks who take out loans of base money from the CB can then lend out a proportion of it to other banks and/or non-banks customers based on their fractional reserve requirements.

Banks don't lend out base money.


The Wiki link even covers this MM myth clearly:
Jaromir Benes and Michael Kumhof of the IMF Research Department, report that: the “deposit multiplier“ of the undergraduate economics textbook, where monetary aggregates are created at the initiative of the central bank, through an initial injection of high-powered money into the banking system that gets multiplied through bank lending, turns the actual operation of the monetary transmission mechanism on its head.

At all times, when banks ask for reserves, the central bank obliges. Reserves therefore impose no constraint. The deposit multiplier is simply, in the words of Kydland and Prescott (1990), a myth. And because of this, private banks are almost fully in control of the money creation process. [3]

GT2211 wrote:

stevecook172001 wrote:

GT2211 wrote:

stevecook172001 wrote:Yes there is. Its mechanism has been laid out in detail here and it t is also thoroughly researched and understood.

See below:

http://en.wikipedia.org/wiki/Money_multiplier

Simply baldly stating you do not believe it to be true in the absence of any attempt to explain why borders, frankly, on the religious in tone and makes you sound like the kind of creationist who would be rightly mocked on a forum such as this. Refute the specifics of the argument, if you can. Otherwise, your blank denial will be rightly dismissed.

I'm pretty certain you are a troll...but the money multiplier view is logically implasuible under a regime that targets an interest rate like the fed funds rate.

Here is a paper I posted previously on the subject.

The role of reserves and money in macroeconomics has a long history. Simple textbook treatments of the money multiplier give the quantity of bank reserves a causal role in determining the quantity of money and bank lending and thus the transmission mechanism of monetary policy. This role results from the assumptions that reserve requirements generate a
direct and tight linkage between money and reserves and that the central bank controls the money supply by adjusting the quantity of reserves through open market operations. Using data from recent decades, we have demonstrated that this simple textbook link is implausible in the United States for a number of reasons. First, when money is measured as M2, only a small
portion of it is reservable and thus only a small portion is linked to the level of reserve balances the Fed provides through open market operations. Second, except for a brief period in the early 1980s, the Fed has traditionally aimed to control the federal funds rate rather than the quantity of reserves. Third, reserve balances are not identical to required reserves, and the federal funds rate is the interest rate in the market for all reserve balances, not just required reserves. Reserve balances are supplied elastically at the target funds rate. Finally, reservable liabilities fund only a small fraction of bank lending and the evidence suggests that they are not the marginal source of funding, either. All of these points are a reflection of the institutional structure of the U.S. banking system and suggest that the textbook role of money is not operative.

While the institutional facts alone provide compelling support for our view, we also demonstrate empirically that the relationships implied by the money multiplier do not exist in the data for the most liquid and well-capitalized banks.Changes in reserves are unrelated to changes in lending, and open market operations do not have a direct impact on lending. We conclude that the textbook treatment of money in the transmission mechanism can be rejected. Specifically, our results indicate that bank loan supply does not respond to changes in monetary policy through a bank lending channel, no matter how we group the banks.

http://www.federalreserve.gov/pubs/feds ... 041pap.pdf

I have read your paper and am happy to address it's falsehoods in due course. Meanwhile, you haver yet to directly logically refute a single portion of the argument I have presented in details. To remind you:

1) Central banks create base money for our economy either by buying it in from outside the system via the issuance of government bonds or, if they wish, by directly creating it from scratch with mechanisms such as QE.

You are missing one of the major ones....which is lending it. The Fed lends large amounts every day in order to keep financial system flowing smoothly.

2) The banks who take out loans of base money from the CB can then lend out a proportion of it to other banks and/or non-banks customers based on their fractional reserve requirements.

Banks don't lend out base money.


The Wiki link even covers this MM myth clearly:
Jaromir Benes and Michael Kumhof of the IMF Research Department, report that: the “deposit multiplier“ of the undergraduate economics textbook, where monetary aggregates are created at the initiative of the central bank, through an initial injection of high-powered money into the banking system that gets multiplied through bank lending, turns the actual operation of the monetary transmission mechanism on its head.

At all times, when banks ask for reserves, the central bank obliges. Reserves therefore impose no constraint. The deposit multiplier is simply, in the words of Kydland and Prescott (1990), a myth. And because of this, private banks are almost fully in control of the money creation process. [3]

You are trying to make a counter point to an argument I did not present. I should thank you, however, since it allows me to demonstrate such tactics to others who may read this thread and, in doing so, allow them to place them in the context of judging the validity of anything else you may post. Whether or not the FED actively attempts to control the money multiplier effect in the banks is a separate but related argument.

The schematic I have presented indicates the flow of central bank base money through the system in a manner that allows it to to be conceptually tracked. That's because it's a schematic. Of course, in the real world, once in the system it may be treated as all the same. But, the process of money-multiplication occurs nonetheless and nothing you have posted there is anything but smoke and mirrors to avoid addressing that central issue of the multiplier phenomena.

You flat out-denied, several posts ago, that the money multiplier phenomena exists. Despite repeated requests that you explain why it does not exist you have refused to take the opportunity to do so but have, instead, pursued side-issues that do not address that central issue. Indeed, the quote at the end of this last post of yours is actually accepting its existence but is merely arguing that central banks have no control over it. That may well be so, but is hardly a refutation of it's existence. In other words, it is making an even more severe case than I since it is arguing the multiplier effect exists and there are no constraints on it since CBs will never refuse requests for base money from the banks.

I will repeat the question and hopefully we might avoid a politician's response this times and get a straight answer from you. Do you retract your earlier denial of the existence of the money multiplier phenomena in the banking system? If you do, then it becomes possible to rationally debate it's impact and who fundamentally controls it.

On the other hand, if you are not retracting it, you would now seem to be suggesting that banks may actually lend any sum of debt-based money into existence without any restraints of any kind in terms of existing balance sheet requirements.

Is that what you are suggesting?