tag:blogger.com,1999:blog-8764541874043694159.post9175112275860378357..comments2024-03-28T12:23:39.665+00:00Comments on Coppola Comment: The deadly quest for safetyFrances Coppolahttp://www.blogger.com/profile/09399390283774592713noreply@blogger.comBlogger13125tag:blogger.com,1999:blog-8764541874043694159.post-48857744032778227782013-04-12T18:40:43.512+01:002013-04-12T18:40:43.512+01:00hi frances, I find your post very interesting.hi frances, I find your post very interesting.domenica tropeanonoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-49067449163825688742013-02-08T19:27:45.103+00:002013-02-08T19:27:45.103+00:00What is money? What are deposits? The velocity o...What is money? What are deposits? The velocity of collateral is no different than the velocity of bank deposits. The unregulated, prudential reserve, money creating, E-D banking system (not ECB system) has used collateral since the early 60's to expand new money & credit. <br /><br />The Fed is now behind the curve. It must immediately raise the remuneration rate to stop a train wreck. Money growth is too fast to sustain without causing rapid inflation. Salmo Truttahttps://www.blogger.com/profile/13910212017849902362noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-64366885221139957482013-02-06T12:49:13.521+00:002013-02-06T12:49:13.521+00:00Re 3, I agree that loans made by banks should only...Re 3, I agree that loans made by banks should only come from bank creditors who take a hit when those loans go wrong.<br /><br />But there’s a problem with No.2 and the 5%: it’s that many governments (e.g. US and UK) are currently paying a lot less than 5% for money they borrow. So if that idea was implemented, why would anyone buy normal government debt? Everyone would go for the much more generous and equally safe 5%.<br />Ralph Musgravehttps://www.blogger.com/profile/09443857766263185665noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-44515445118558476212013-02-06T11:59:41.012+00:002013-02-06T11:59:41.012+00:00Frances says, “But so far, as far as I can see, no...Frances says, “But so far, as far as I can see, no-one is asking why the financial system needs safe assets in such quantities. What exactly is the driver behind such a desire for safety?”<br /><br />Agreed. I’m equally baffled. <br /><br />Ralph Musgravehttps://www.blogger.com/profile/09443857766263185665noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-62708770772194873082013-02-06T11:21:30.872+00:002013-02-06T11:21:30.872+00:00The constant multiplication money not only reduces...The constant multiplication money not only reduces its value but creates a situation in which there isn't enough business left in the world to produce expected returns of investment.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-57988579905349552742013-02-05T22:21:44.991+00:002013-02-05T22:21:44.991+00:00In my view, of the three choices shown, I prefer a...In my view, of the three choices shown, I prefer a combination of the following:<br /><br />1. All demand deposits in Banks are to be swept into the Bank's demand deposit account at the Central Bank, who invests them in Treasury Demand Deposit Bonds paying 2.5%. The bank keeps 0.5%, remitting 2% to the depositor.<br /><br />2. All savings deposits in Banks are to be swept into the Bank's savings deposit account at the Central Bank, who invests them in Treasury Savings Bonds paying 5.5%. The bank keeps 0.5%, remitting 5% to the depositor.<br /><br />3. All loans made by a bank, are made from bank capital.<br />4. Banks may syndicate loans to no one other than the Federal Development Bank specializing in that type of loan, under terms and conditions specified for that loan class. For example: Bank A can make a $24 million loan to Solar Generating Company for construction of a solar electricity generating plant, syndicating 90% of the loan to the Federal Renewable Energy Development Bank at 1% interest, under the FRED's terms for such loans, which permit Bank A to receive 5% interest on it's capital, for a combined rate of 1.2% offered the borrower.<br />5. High wealth individuals desiring larger returns, must invest in corporate/business bonds and shares, taking on risk.<br />6. Treasury Bonds are offered to one and all at 0.5% interest for 10 years, which means risk free is available, but essentially yields nothing. Treasury Bills with 90 day duration yield 0%, same as cash. Treasury Bonds with 30 year duration yield 1%<br /><br />7. Only the purchase of shares/bonds newly issued by businesses is tax exempt. Sale of such assets for the first time in the secondary market is taxed at 1%. Subsequent sales are taxed at 5%. All shares/bonds expire worthless 50 years after they are first sold in the secondary market. This provision is for the express purpose of fostering investment into businesses, rather than into speculation.<br /><br />INDYDr. George W. Opriskohttp://www.publicresearchinstitute.orgnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-49450123300959504242013-02-05T17:53:54.269+00:002013-02-05T17:53:54.269+00:00There is no need to scratch heads about the MORAL ...There is no need to scratch heads about the MORAL case for insuring large wholesale deposits. Pure economics answers the point, as follows.<br /><br />Bank accounts where the relevant sums are not loaned on or invested by the relevant bank involve virtually no risk, ergo government might as well insure those. Little taxpayer exposure is involved, regardless of whether the deposits are large wholesale ones or small retail ones.<br /><br />In contrast, if deposit insurance is offered for accounts where the relevant money IS LOAND ON, that’s a subsidy of commerce. And that amounts to an misallocation of resources. So that form of deposit insurance should be outlawed. And if government acts as lender of last resort for those sort of accounts, that’s also a subsidy, i.e. a misallocation of resources. That misallocation occurs (again) regardless of whether the deposits are large or small.<br /><br />And wouldn’t you know it, the latter arrangement is inherent to full reserve banking.<br /><br /><br /><br />Ralph Musgravehttps://www.blogger.com/profile/09443857766263185665noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-50062994035106952332013-02-05T04:09:24.995+00:002013-02-05T04:09:24.995+00:00Great post, Frances. I think the UK has the same s...Great post, Frances. I think the UK has the same system we do, where part of the draw of Gilts (US Treasury Securites) is that they are risk-free. Some have suggested that going with Interest on Reserves along with removing the FDIC cap would pretty much blow away the "debt" myth, neutralizing the debt hand-wringers in the process. I can see the moral question posed above, should we do away with bonds entirely, but have a look at these banking proposals for the US:<br /><br />http://moslereconomics.com/wp-content/pdfs/Proposals.pdf<br /><br />As Warren would say, the Financial Sector is a LOT more trouble than it's worth. <br />John H.noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-66838673985915505852013-02-05T02:11:38.383+00:002013-02-05T02:11:38.383+00:00"Really we need to reframe the whole issue. A..."Really we need to reframe the whole issue. A sovereign currency-issuing government does not require debt in order to fund spending, and it does not require taxation either. Debt is a savings scheme. And taxation is a means of mopping up the excess of government spending over production, thus reducing the risk of inflation - the same job as interest rates do on the monetary policy side"<br /><br />Blimey Frances I knew you were sort of sympathetic to MMT but thats smack you in the face head on MMT. Thats 2 of us in NW Kent then lol.Andy Blatchfordhttps://www.blogger.com/profile/05196261322445607791noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-62056888892787726962013-02-04T23:38:34.367+00:002013-02-04T23:38:34.367+00:00Hi Richard,
Thanks. Actually I'm with you on ...Hi Richard,<br /><br />Thanks. Actually I'm with you on the limited use of deposit insurance in choking off bank runs, hence my use of the term "helps to....". Depositors are more concerned about liquidity - they aren't going to wait for a bank to fail then claim their money back, they will take it out before it fails. I agree that an adequate LOLR is a much more effective preventative for bank runs. As you say, the UK existed for a very long time with no deposit insurance and no bank runs. <br /><br />King's inept handling of the Northern Rock liquidity crisis surely has to go down as one of the worst examples of central banker incompetence in history. I really don't know how he kept his job. He nearly didn't.<br /><br />The naivety of retail depositors may be a practical reason for insuring them against loss, but it is not a moral one. My point is that "morality" is being used to justify taking a harder line with wholesale depositors than retail ones, but I have yet to see a convincing moral argument for discriminating against wholesale depositors.<br />Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-11900200033918095822013-02-04T23:27:09.175+00:002013-02-04T23:27:09.175+00:00" Some people suggest that only transaction a..." Some people suggest that only transaction accounts should receive such a guarantee, and that other small retail deposits should not be guaranteed: but deposit insurance helps to prevent retail depositor panics and bank runs, and there may also be good social reasons for protecting small savers from loss. "<br /><br />The UK banking system managed to get by without deposit insurance until the EEC forced it on the Thatcher government (1979). There is no need for a retail bank run scenario if the central bank is doing its job of lender of last resort. When they refuse to even acknowledge that it is their role to be LOLR, such as the King BoE, that is when something like the Northern Rock debacle occurs. Especially when a BBC journalist (Peston) announces the bank have run out of money. The CB should certainly not be a LOLR to an insolvent bank, so the deposit insurance is a nice subsidy by taxpayers to those who deposit funds in insolvent banks. Therefore, the deposit insurance is not going to prevent the bank being illiquid if the central bank does its job. The DI is only really offering anything if the bank is in fact bankrupt. It would be quite rational for depositors to panic and engage in a bank run if the bank is insolvent. There are a number of reasons why that is the rational thing to do. You do not know how long the government will take to pay the DI compensation. You do not know whether everyone else is going to panic so you panic and the whole thing becomes a self-fulfilling prophecy.<br /><br />It is quite possible that deposit insurance does more harm than good. Depositors get lazy and do not give much thought to the safety of where they deposit money. The depositors laziness fails to put on a check on the banks and as a consequence they amplify risk.<br /><br />" I've outlined some practical reasons why governments might wish to offer retail depositors more loss protection than wholesale ones, but the moral case for this is still to be made, and until it is, in my view it is wrong to regard wholesale depositors as "immoral" for seeking the same loss protection as retail depositors. "<br /><br />The best argument that is usually made is retail depositors are considered unsophisticated lenders. Other lenders to a bank are supposedly more sophisticated, professional and should understand risk better that the secretary of the local bowling club.<br /><br />This is off topic although some parts are relevant. I don't know if you have ever read this essay by Tim Congdon from a few years ago.<br />http://www.iea.org.uk/sites/default/files/publications/files/upldbook450pdf.pdfRichardhttps://www.blogger.com/profile/07937606253138392580noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-49523500453858995732013-02-04T20:56:03.150+00:002013-02-04T20:56:03.150+00:00Depositors look to avoid losses even in calm perio...Depositors look to avoid losses even in calm periods. Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-69647434251818863712013-02-04T15:12:39.983+00:002013-02-04T15:12:39.983+00:00The first, and most important thing, that the hot ...<em>The first, and most important thing, that the hot money flows were seeking was SAFETY. Investors were looking first of all to avoid loss</em><br /><br />We think of the period up to mid 2007 as being one of calm and stability; why were they so jumpy?Alexhttps://www.blogger.com/profile/17153530634675543954noreply@blogger.com