No minimum reserve requirements

SLUSK

The "genius" Ben Bernanke wants a system in the future where there is NO minimum reserve requirement on the banks. You can read it on the FED's website.
http://www.federalreserve.gov/newsevents/testimony/bernanke20100210a.htm#fn9

"The Federal Reserve believes it is possible that, ultimately, its operating framework will allow the elimination of minimum reserve requirements, which impose costs and distortions on the banking system."

Now what would that do to the economy if banks were free to leverage themselves 1000 times over? Can you spell the words bubble and trouble?

Ben Bernanke is a genius. Pure and simple.

I've not read the link, and I wouldn't agree with the policy but bad policy call aside, the man is highly intelligent and worthy of respect.

SLUSK

Deleted User wrote: »

Ben Bernanke is a genius. Pure and simple.

I've not read the link, and I wouldn't agree with the policy but bad policy call aside, the man is highly intelligent and worthy of respect.

He failed to see the bubble when others saw it clearly, what makes him a genius?

Flamed Diving

Well, the minimum reserve requirement was introduced as a precaution to bank's becoming insolvent if it's customers all attempted to withdraw their funds, at once. However, it would appear that it doesn't seem to perform it's tasks very well, as no matter how high a level you set, if people want to withdraw all their cash at once, the bank will go bust anyway, unless the Govt steps in. So, apart from the stylised Kenyesian Multiplier, what reason do you have for wanting this government-imposed rule to stay? Surely this is an example of the government sticking their noses into business, where is your ultra-free market slant now?

Note that I never read your Von Mises links. So you can save yourself the effort.

SLUSK

Flamed Diving wrote: »

Well, the minimum reserve requirement was introduced as a precaution to bank's becoming insolvent if it's customers all attempted to withdraw their funds, at once. However, it would appear that it doesn't seem to perform it's tasks very well, as no matter how high a level you set, if people want to withdraw all their cash at once, the bank will go bust anyway, unless the Govt steps in. So, apart from the stylised Kenyesian Multiplier, what reason do you have for wanting this government-imposed rule to stay? Surely this is an example of the government sticking their noses into business, where is your ultra-free market slant now?

Note that I never read your Von Mises links. So you can save yourself the effort.

I don't think the fractional reserve banking system could be considered to be free market at all. I call it fraud.

Flamed Diving

SLUSK wrote: »

I don't think the fractional reserve banking system could be considered to be free market at all. I call it fraud.

The speed of your response betrays the lack of thought you gave to my post. Nonetheless, you seem to support getting rid of the minimum reserve requirement then. Good.

SLUSK

Flamed Diving wrote: »

The speed of your response betrays the lack of thought you gave to my post. Nonetheless, you seem to support getting rid of the minimum reserve requirement then. Good.

I would like to have a sound currency system based on stuff like gold, silver, platinum and other precious metals. You on the other hand want inflation(destruction of wealth).

Flamed Diving

SLUSK wrote: »

I would like to have a sound currency system based on stuff like gold, silver, platinum and other precious metals. You on the other hand want inflation(destruction of wealth).

Denial, SLUSK, denial...

Gold:



Silver:



Platinum:

SLUSK

How much did gold cost in 1915 i USD?
How much does it cost now?

Flamed Diving

$15 USD per ounce (dodgy source), and it now costs $1106 USD. I'm not sure if the $15 price is in 2010 prices, but assuming it wasn't that makes it $310 USD.

SLUSK

Flamed Diving wrote: »

$15 USD per ounce (dodgy source), and it now costs $1106 USD. I'm not sure if the $15 price is in 2010 prices, but assuming it wasn't that makes it $310 USD.

So an old geezer who kept most of his wealth in gold instead of us currency has retained his purchasing power while the others has lost more than 99% of their purchasing power if they were alive today.

Is there a reason to believe that precious metals will not outperform "paper currencies" the next 100 years?

Flamed Diving

Ok, I have a point to make that you are missing, but let's see if you can explain it.

Let's say we are on the Platinum Standard, and we are at that point in the late 70's/early 80's. A sharp world recession hits, platinum prices are falling sharply. You are the leader of this country, in control of fiscal and monetary affairs. What do you do?

SLUSK

Flamed Diving wrote: »

Ok, I have a point to make that you are missing, but let's see if you can explain it.

Let's say we are on the Platinum Standard, and we are at that point in the late 70's/early 80's. A sharp world recession hits, platinum prices are falling sharply. You are the leader of this country, in control of fiscal and monetary affairs. What do you do?

Nothing

Meddling in the economy leads to unintended consequences and trouble in the future. The only thing I might do would be to abolish legal tender laws so people could be free to use whatever they like as money and not be forced to use a government favored currency.

Flamed Diving

OK.

simplistic2

SLUSK wrote: »

Nothing

Meddling in the economy leads to unintended consequences and trouble in the future. The only thing I might do would be to abolish legal tender laws so people could be free to use whatever they like as money and not be forced to use a government favored currency.

Exactly! Let the wonderful minds of millions of entrepreneurs figure it out. But really do you ever think any politician would have the intelligence and humility to realize that just maybe a million minds are better than his!

Slippers 2

Flamed Diving wrote: »

...no matter how high a level you set, if people want to withdraw all their cash at once, the bank will go bust anyway...

What if it's 100% on transaction accounts? (either at the CB or in cash)

The bank would still be insolvent, think it through.

Slippers 2

What am I missing?

How does a bank make money?

Slippers 2

They would issue debt instruments (time deposits, minimum notice savings accounts) which paid low interest rates and use the reserves acquired to buy debt that paid higher rates from households and businesses?

If there was a run on transaction accounts they would be able to pay in full. If there was a run on the other accounts they would have time to sell assets. Even if they couldn't raise enough money from the sales it would be clear to account holders from the outset which accounts were money and which were liabilities of private corporations which may or may not go bust.

BESman

Flamed Diving wrote: »

Ok, I have a point to make that you are missing, but let's see if you can explain it.

Let's say we are on the Platinum Standard, and we are at that point in the late 70's/early 80's. A sharp world recession hits, platinum prices are falling sharply. You are the leader of this country, in control of fiscal and monetary affairs. What do you do?

What would you do?

Flamed Diving

BESman wrote: »

What would you do?

Get us off the Platimum Standard, returning full monetary discretion. This wasn't even meant for me, because the answer is clearly trivial.

Thanks.

Hasschu

The invisible hand operating through the actions of millions who are acting independently leads to ruination and as a philosopy it is an abomination. Think of millions of lemmings who independently all get the idea that running off the cliff into the lake is a brilliant idea. Mass delusion, manias, hallucinations, thralls to greed are common human afflictions. Shooting would be too good for Regan, Von Mises, Hayek, Rand and the whole Austrian school. As my dear departed mother used to say slowing hanging would be more appropriate.

dermo88

It is insane in my view to consider a reduction to having no minimum reserve requirement. Granted that in the likes of Switzerland and the United Kingdom, the reserve ratio by the private banks is less than 3%. However, this leads to excessive risk taking, as we saw with Richard Fuld's antics in charge of Lehman Brothers.

Consider the immorality of the situation. We have the very people who caused the current crisis, they are still in charge. They are still managing the same Banks. They are still in contact with the Central Banks. They are the very people who would willingly deny low cost housing and healthcare to those in our society who need it most, and yet go cap in hand to the Government for a bailout.

They then make recommendations on monetary policy, after receiving these bailouts, stating that the Government deficits which they helped cause are "too large"

Words fail me at this point.

There is a dangerous sense of Schaudenfreude amongst many Irish people rejoicing at watching Sterling go through the floor, and the US Dollar also, while meanwhile, for the time being, those with jobs have the luxury to continue travelling overseas, with their savings and buy easily, despite the cost in jobs.

The problem with this recession started under Alan Greenspans tenure. Interest rates on a Fiat issued paper currency should never be less than 2% above the inflation rate. This prevents money being borrowed going into unproductive assets and helps to prevent bubbles. There is a limit to which bubbles can be prevented, but I am going to pull a link to 2005 on p45.net where I actually predicted the $hit hitting the fan.

What is likely to happen next?

Someone mentioned Gold, Silver and Platinum being used as backing for a currency. The last currency to use Gold backing at 40% of the reserve requirement were the Swiss. They pulled off that after a referendum in 2005 as far as I recall. Its not a flexible enough medium for the modern age. I would specify using a mixed basket of Gold, Silver, Energy, as the basis for a new world currency standard. Keynes proposed something similar in 1946, under Bretton Woods. Dollars, Euros, Yen, Sterling, Yuan, Pesos would continue to be used, since they give regional autonomy and allow policies to be adjusted on a regional/national basis.

Bernanke's proposal would lead to much greater pain later on. It has been postponed for long enough. The scam perpetuated by the American military industrial complex, pumping the world with cheap dollars, gaining an interest rate advantage of 2% above the rest of the world has gone on long enough. It must end, the debts must be repaid, and the restoration of sound monetary policy, must happen.

If not, we are all poorer in the short term. Take the pain now, and gain later.