Posted: Sep 27, 2013 7:49 am
by stevecook172001
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.

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:

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. ... 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.


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..... ;)