Posted: Sep 28, 2013 8:54 am
by stevecook172001
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?