tag:blogger.com,1999:blog-1238258760461263342.comments2019-09-11T21:42:37.316+01:00The QE DebateFrances Coppolahttp://www.blogger.com/profile/09399390283774592713noreply@blogger.comBlogger24125tag:blogger.com,1999:blog-1238258760461263342.post-55463858095081263762019-09-11T21:42:37.316+01:002019-09-11T21:42:37.316+01:00Banks can't literally lend their excess reserv...Banks can't literally lend their excess reserves, other than to each other via the Fed Funds market. <br /><br />What they can do is make loans and convert excess reserves into required reserves that they have to hold against loans.<br /><br />The short of it is they haven't done that. I wrote about this here: https://macrohive.com/why-qe-doesnt-really-work-4-min-read/<br /><br />The primary way QE proceeds get into the real economy is via bank lending. If banks don't lend QE proceeds remain in the financial system. Good for asset inflation but not much else.Anonymoushttps://www.blogger.com/profile/08018745790080635213noreply@blogger.comtag:blogger.com,1999:blog-1238258760461263342.post-73709122695973425362019-01-02T16:14:09.031+00:002019-01-02T16:14:09.031+00:00Phil Gramm and Thomas R. Saving have an op-ed in t...Phil Gramm and Thomas R. Saving have an op-ed in today's WSJ, which is essentially a recycled version of another WSJ op-ed published in December of 2017. They share their belief that the Fed, by paying interest on reserves, is paying banks not to lend. They also share their concerns about inflation, should banks start lending too much of their excess reserves. I use a couple of your Forbes articles as references to counter Gramm's and Saving's ideas, as well as research from the Federal Reserve, the Bank of England, and Standard & Poor's. I decided to do a Google search on the question of banks lending excess reserves and easily found links to articles exposing that idea as a myth - but I also found an article from the Federal Reserve Bank of Minneapolis (in 2015) that supports the notion of banks lending reserves, even stating that "the nation’s fractional banking system allows banks to convert excess reserves held at the Federal Reserve into bank loans at about a 10-to-1 ratio." That researchers from different branches of the Federal Reserve banking system hold such different views on this crucial operational aspect of modern banking is both fascinating and troubling. Steve Wierhakehttps://www.blogger.com/profile/17694445857438628301noreply@blogger.comtag:blogger.com,1999:blog-1238258760461263342.post-22671770838438601872016-09-01T10:40:45.979+01:002016-09-01T10:40:45.979+01:00As far as I am concerned there is a very important...As far as I am concerned there is a very important new approach to QE, et. Here, I refer to a futuristic form of economics. The following link may be of interest. http://www.p2pfoundation.net/Transfinancial_Economics<br />It goes beyond Basic Income, and is far more advanced. But it is good to see people discussing BI. It is a starting point.....Robert Searlehttps://www.blogger.com/profile/15492364980305779010noreply@blogger.comtag:blogger.com,1999:blog-1238258760461263342.post-59005653179659710122015-02-26T20:37:35.602+00:002015-02-26T20:37:35.602+00:00Some sources of information on log scale graphs:
...Some sources of information on log scale graphs:<br /><br />http://visualizingeconomics.com/products/exponential-growth<br />(I had given her some reasons to use log graphs. She has made a very beautiful demonstrations using economic data. )<br /> <br />http://www.forbes.com/sites/johntobey/2014/03/08/the-risk-behind-buffetts-advice/<br /><br />http://www.forbes.com/sites/naomirobbins/2012/01/19/when-should-i-use-logarithmic-scales-in-my-charts-and-graphs/<br />"There are two main reasons to use logarithmic scales ... the second is to show percent change or multiplicative factors. "<br /><br />School math and science text books, or people who should know.<br /><br />Natural Logarithmnoreply@blogger.comtag:blogger.com,1999:blog-1238258760461263342.post-73344699928051590602015-02-26T08:20:42.585+00:002015-02-26T08:20:42.585+00:00I have 2 important questions.
1. What is are goo...I have 2 important questions.<br /><br />1. What is are good ways to protect from loss of purchasing power. Any excellent books or articles?<br /><br />2. Does any one know of any <b>clear books or articles on inflation accounting</b>? When the unit of account fails as an accurate measure of value over time? We are using an exponentially changing ruler. When it is rapid, historically in other countries they will change their book's unit of a account to a foreign currency or specie. Natural Logarithmnoreply@blogger.comtag:blogger.com,1999:blog-1238258760461263342.post-87259902147629995112015-02-26T07:57:57.737+00:002015-02-26T07:57:57.737+00:00In conclusions, the banks reserve ratio constraint...In conclusions, the banks reserve ratio constraints might loosen and capital ratio constraints might increase or stay the same with QE loan asset purchases.Natural Logarithmnoreply@blogger.comtag:blogger.com,1999:blog-1238258760461263342.post-81624066653295802372015-02-26T07:52:40.003+00:002015-02-26T07:52:40.003+00:00Correction:
As if monetary base catches up with t...Correction:<br /><br />As if monetary base catches up with the M2.Natural Logarithmnoreply@blogger.comtag:blogger.com,1999:blog-1238258760461263342.post-22426828931604925862015-02-26T07:50:01.995+00:002015-02-26T07:50:01.995+00:00When the crisis happened I saw banks with capital ...When the crisis happened I saw banks with capital ratios of 3% or 30:1 assets to capital. Now I have seen more near 10:1.Natural Logarithmnoreply@blogger.comtag:blogger.com,1999:blog-1238258760461263342.post-14401877506075268912015-02-26T07:44:32.221+00:002015-02-26T07:44:32.221+00:00This occurred to me. There might be an effect if ...This occurred to me. There might be an effect if QE purchased of loans were at a discount. Then if the loans were marked at historical value on the bank books. A loss against bank's capital would occur when the loan is sold at a discount.<br /><br />That would not help minimum capital ratios if they are already near the minimum. I'm not using tiered capital. Simple accounting Capital ratio=Equity capital/Assets.<br />http://www.myaccountingcourse.com/financial-ratios/equity-ratio<br /><br />Even though it would increase the reserve ratio=(currency held+deposit asset with the central bank)/Owed to depositors. Where reserves are the numerator. Because it converts the banks loans to reserves. <br />http://www.investopedia.com/terms/r/reserveratio.asp<br /><br />Correct me if I am wrong any where.Natural Logarithmnoreply@blogger.comtag:blogger.com,1999:blog-1238258760461263342.post-15186510203497621402015-02-26T07:29:11.784+00:002015-02-26T07:29:11.784+00:00Correction:
about 8% continuously compounded for ...Correction:<br /><br />about 8% continuously compounded for that period of time.Natural Logarithmnoreply@blogger.comtag:blogger.com,1999:blog-1238258760461263342.post-28079011495876306332015-02-26T07:17:58.752+00:002015-02-26T07:17:58.752+00:00should have written:
Regular liner plot, hard to s...should have written:<br /><b>Regular liner plot</b>, <i>hard</i> to see what goes on at earlier times. Shows exponential curves, growth of Monetary base and M2. Detail lost at lower end. <br />http://research.stlouisfed.org/fred2/graph/?g=128TNatural Logarithmnoreply@blogger.comtag:blogger.com,1999:blog-1238258760461263342.post-85770745165463169752015-02-26T07:13:35.297+00:002015-02-26T07:13:35.297+00:00RE: My observation of the data plotted on same gra...RE: My observation of the data plotted on same graph and wondering what it shows.<br />(Does the Fed really control the money supply? - John Aziz (The Week))<br /><br /><br />He uses some data I have been looking at. I include links to three plots of the M2, Monetary Base, and MB time 9 for comparison with monetary base. It is multiplied by a factor as if we had a constant reserve ratio and thus constant money multiplier. Note: the divide by 1000 factor is convert millions to billions so ever time series is in billions. <br /><br />I wish to point out particularly the graph of the logarithm of each of the series. The log. graphs show almost constant upward slope. If it was constant slope the lines would be strait. Almost constant exponential rate of dilution or number of M2 and MB monetary units.<br /><br />Here is what I noticed. If one takes a strait edge and puts it on the M2 line at 1960 and 1985 the projected line from the strait edge eventually meets the jump in the green line MB x 9. As if M2 catches up with the monetary base. <br /><br />A possible speculation is that M2 might have been under accounted for in later times. <br /><br />An other speculation is that taking cash out of the banking system changes the reserve ratios, thus cash might have been taken out. <br /><br />(M2/MB is approximately = credit money/base money when one is a lot larger than the other such as 9 times. ln(M2/MB)=ln(M2)-ln(MB) distance between blue and red line) My approximation here is not exact. M2 might include cash outside banks and reserve ratio counts what is only on the reserve banking systems books. Yet that cash should be on the books of at least one of the central bank and treasury, but not in the private bank reserve account. As the currency would be in private hands as an asset on their books.<br /><br />Or, possibly QE as defined above.<br /><br />I am not sure any of the speculations fit as a good interpretation. But there is the data in comparison.<br /><br />Three graphs of the same data: (except the log graph has additional GDP line.)<br /><br /><b>*** Natural Logarithm of time series data *****</b><br />*** Constant exponential growth is a strait upward slope, slope proportional to exponential growth rate. Shows money roughly grows exponentially over long periods of time.<br />http://research.stlouisfed.org/fred2/graph/?g=128S<br />Why use natural logarithm or log of base e? e=2.7182818284590.... If you take the 100 divided by the time to climb 1 unit that is the geometric mean of the continuous compounding rate. An easy way to figure it. Just divide 100/by the time. From 1976 to 1988 the log of M2 (in billions) went up one unit from 7 to 8. 100/(1988-1976)=100/(12 years)=about 8% continuously compounded for the year. {In 1976 M2=1 Billion*e^7. } <br /><br /><b>Regular liner plot</b>, had to see what goes on at earlier time. Shows exponential curves, growth of Monetary base and M2.<br />http://research.stlouisfed.org/fred2/graph/?g=128T<br /><br /><b>Percent change graph.</b> from 1960~1985 annual percent change of M2 is mostly faster than the Monetary Base.<br />http://research.stlouisfed.org/fred2/graph/?g=128U<br />Natural Logarithmnoreply@blogger.comtag:blogger.com,1999:blog-1238258760461263342.post-87420067600046788362015-02-26T05:25:56.085+00:002015-02-26T05:25:56.085+00:00Thank you for starting this discussion. It lead m...Thank you for starting this discussion. It lead me to looking for definition for QE actually was so I looked it up. What a vague name. <br /><br />I googled, "definition of quantitative easing"<br /><br />Bank of England has a video: http://www.bankofengland.co.uk/monetarypolicy/pages/qe/default.aspx<br /><br />I think the definition and video makes things a little clearer. The video describes their theory of what some of the effects of QE.<br /><br />Natural Logarithmnoreply@blogger.comtag:blogger.com,1999:blog-1238258760461263342.post-64247070416468934972014-12-14T18:55:46.096+00:002014-12-14T18:55:46.096+00:00QE does not necesserly cause inflation. Inflation ...QE does not necesserly cause inflation. Inflation is only caused if money is spent into circulation. If the government prints £2 million and does nothing with it, no inflation.Randomhttps://www.blogger.com/profile/04445772572707818311noreply@blogger.comtag:blogger.com,1999:blog-1238258760461263342.post-62519333402182412182014-12-14T18:51:53.622+00:002014-12-14T18:51:53.622+00:00Nailed it! Helicopter drops are a much better idea...Nailed it! Helicopter drops are a much better idea and QE does not stop inflation as that is only affected by money circulated.Randomhttps://www.blogger.com/profile/04445772572707818311noreply@blogger.comtag:blogger.com,1999:blog-1238258760461263342.post-5804369858372794222013-10-05T17:03:43.655+01:002013-10-05T17:03:43.655+01:00QE is a smart name for printing money and fools so...QE is a smart name for printing money and fools some of the people some of the time. The effect of it can easily be overshadowed in the short term by other more dominant factors. Lack of faith in fiat currency has caused a flight into equities and the obscene Buy to Let market. Prudent people, [labelled 'savers' for some strange reason] are deprived of a capacity to pay tax on deposits and are disinclined to engage with the economy - they outnumber hapless borrowers seven to one. The alchemists in government and the BoE think eternal debt leads to success. An incredible belief, in a circle that can only be squared with rampant inflation. Thistlegormnoreply@blogger.comtag:blogger.com,1999:blog-1238258760461263342.post-59689458857373701122013-08-18T14:31:10.138+01:002013-08-18T14:31:10.138+01:00Yes it is but in these cases it is deflationary be...Yes it is but in these cases it is deflationary because it has driven down the the bond yields and thus the savings interest rates to a little above zero per cent. High Street prices, energy prices are up mages are down savings returns are down. Consumers no longer have the disposable income to go out and buy so they save. Money velocity falls, deflation sets in and boom, we're bust again. Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-1238258760461263342.post-44294741747813771392013-08-18T14:18:37.405+01:002013-08-18T14:18:37.405+01:00It was clear to me that from the outset, QE was no...It was clear to me that from the outset, QE was not going to do its proposed job. There remains zero net growth in UK GDP even after years of pumping in billions of magic money but that should be of no surprise to us consumers. <br />We, apparently, are responsible for around 70% of our GDP yet QE never arrived in our accounts for us to make use of. <br />Instead, it was used to buy Bonds from the banks that held them in the forlorn hope that these same banks would actually lend out the money, realised from their Bond sales, to SME's and the general public. The consumers. <br />Merv King, the BoE and the Government must have been pretty naive to believe that the already hugely indebted Banks would risk such a venture with their newly found wealth. No, instead they opted for the safe way out. They used this money to purchase more Government Bonds and when they ran out of funds they merely borrowed more at 0.5%. <br />Using Government(Tax Payers) money at 0.5% to buy Government Bonds yielding 2%, was and still is, the greatest investment return in British history. A 400% return on outlay, Triple A secured, for doing absolutely nothing but sit on those bonds. Now what would that money have done for the UK if applied to tax cuts for businesses and the consumers and to boost training programmes? QE has already failed in the past, so why do these dangerous people, in charge of our economy, believe that it would work this time? There are bad times ahead and even worse for our offspring and all because arrogant incompetents think they know best.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-1238258760461263342.post-78340070006617057422013-05-29T06:41:59.735+01:002013-05-29T06:41:59.735+01:00Printing money IS inflationary. But bust banks are...Printing money IS inflationary. But bust banks are black holes for money as you can give them money and they are still worth zero. Then there are interest rates that might as well be zero. So, banks are receiving money they would normally pay out as interest to savers - on balance they lose 70 billion on lower mortgage rates and gain 150 billion from not having to pay interest to savers - in the UK alone. So imagine that worldwide? The saver is being squeezed by receiving no interest, and house prices over the last 10 years were too high leading to excessive mortgages, and so the debtor is also squeezed even though interest rates are at historic lows. Savers who own stuff get nothing for their bank deposits. Those in heavy debt are scraping by. This is why prices are not really rising much. Nobody has the disposable income. The banks have soaked up all the money. Worldwide this is the biggest transfer of wealth from individuals to banking institutions and governments in world history, and one day will be seen as outright theft from a banking/govt cartel. All, that money is being recycled back into bond markets, stock markets and being hedged with credit defaults etc.<br /><br />Basically, QE is not that important because interest rates being effectively zero are the big issue. How many sovereign countries go bust if interest rates go to their historic average? Or how much money would they have to print then? How many banks could not afford to pay their savers that historic average? Or how much interest would they have to charge their debtors in order to pay higher rates to their creditors?<br /><br />Smart savers will have already withdrawn their money from banks and put it into something else - a diversified portfolio of some kind of stocks, corporate bonds, precious metals etc to protect them from investment bank shenanigans. But when most people with some kind of nest egg realise they are being fleeced the banks will lose a vast amount of capital to stock markets and precious metals markets.<br /><br />At that point, interest rates will have to rise, or more money will have to be printed. Sooner or later, if banks want to keep savers depositing their money, they will have to raise interest rates. That is when all hell will break loose.<br /><br />Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-1238258760461263342.post-71933939059745200322013-05-28T21:13:20.912+01:002013-05-28T21:13:20.912+01:00Increasing the monetary base does not necessarily ...Increasing the monetary base does not necessarily mean increasing money supply, particularly in a deleveraging economy in which real incomes are falling, people are unwilling or unable to borrow and banks are unwilling to lend, either to individuals or to SMEs which represent the backbone of the real economy.<br /><br />Also, in a balance sheet recession for the Govmt to also deleverage is total madness (deepens the recession instead of helping recovery) as well as actually being counterproductive. Someone should explain the basic principles of macroeconomics to Osborne, let alone the concept of fiscal multipliers. Coincidence that the borrowing requirements of the UK Gvmt are higher than initially planned by some 40%? I don't think so.<br /><br />The alternative to QE (although it has to be said that some QE may have been necessary to backstop the financial system per se, without which the economy cannot survive in the first place), is a rebalancing of the economy towards renewable energy (through tax incentives), technological innovation, re-skilling and re-training of the unemployed, improvement in infrastructures particularly the technological ones (internet etc) but also better access to and efficiency of transport with some level of subsidies possibly to improve affordability for the ordinary people.<br /><br />As an extreme measure potentially some level of debt restructuring for the more indebted individuals, particularly in relation to existing mortgages (not subsidies to new ones which stoke up demand and increase the risk of another property bubble), may be desirable. But this is more controversial and potentially destabilising in terms of creating a precedent and thus inducing some level of moral hazard in the future. Also, probably not sure it's possible - or a good idea anyway - to 'forgive' credit card debt, of which there is lots in the UK.<br /><br />Filippo Gioiafilippohttps://www.blogger.com/profile/00436766913320201458noreply@blogger.comtag:blogger.com,1999:blog-1238258760461263342.post-20113244262707282762013-05-28T21:11:23.482+01:002013-05-28T21:11:23.482+01:00This comment has been removed by the author.filippohttps://www.blogger.com/profile/00436766913320201458noreply@blogger.comtag:blogger.com,1999:blog-1238258760461263342.post-1072726673530365492013-05-28T12:33:56.498+01:002013-05-28T12:33:56.498+01:00QE seems to have two key advantages that would mak...QE seems to have two key advantages that would make it irresistible to a politician. First it enables the central bank to provide significant amounts of liquidity to the banking system - there is no evidence that the QE funds have ever moved beyond the banks - under the guise of being a general economic stimulus. Two, crucially, to ensure continued access to cheap financing for deeply indebted governments. All the rest is PR.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-1238258760461263342.post-50027277069384746272013-05-28T12:21:43.234+01:002013-05-28T12:21:43.234+01:00Is this of interest?
http://drderrick.wordpress.c...Is this of interest?<br /><br />http://drderrick.wordpress.com/2011/10/13/the-mpc-time-for-a-rethink/?preview=true&preview_id=30&preview_nonce=4bce97edd7<br />Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-1238258760461263342.post-25276763638687199342013-05-27T22:44:53.294+01:002013-05-27T22:44:53.294+01:00From Shire Blogger on Twitter:
The portfolio reba...From Shire Blogger on Twitter:<br /><br />The portfolio rebalancing channel was suspect from the get-go @notayesmansecon & myself long complained. <br /><br />The key target of M4x was the inflationary indicator. Its been weak. Leaks given some analysis here:<br /><br />http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/qb120402.pdf<br />Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.com