| Subject: | Re: [socialcredit] U.S. Economics Test | | Date: | Tuesday, August 14, 2007 22:31:49 (+0000) | | From: | John G Rawson <johngrawson @.......com>
|
Two comments:
1. Our Royal Commission pointed out that, if there were only
one bank operating, there would be no limit to its lending apart from possible
shortage of willing borrowers. They thus pointed out that reserves concerned only
interbank operations, when one outstripped the others in lending, as Bill
commented.
2. They regarded reserve ratios as a "blunt instrument", i.e. ineffective.
Whether because of that or for other reasons as well, reserve ratios were dropped
and our only means of trying to control the volume of money is per changes in the
"Official Cash Rate" (Res. Bank to trading banks) which trigger changes in
general interest rates. (I am not suggesting that this method is fully effective
either.
Regards. John R.
From: John Hermann <hermann@picknowl.com.au>
Reply-To:
socialcredit@elistas.com
To: socialcredit@elistas.com
Subject: Re:
[socialcredit] U.S. Economics Test
Date: Tue, 14 Aug 2007 09:59:48 +0930
At
11:15 PM 13/08/2007, William Ryan wrote:
... Beyond regulatory requirements, a bank needs reserves only to cover
deposits lost to other banks, as they are lost.* Banks of course individually
gain and lose deposits to other banks, but if a bank has no net loss of deposits
as it is granting loans, it has no need for reserves to cover them.
Conventional banking wisdom (dogma) holds that a depository needs
reserves to "cover" deposits by its own customers. And that any newly-created
deposits (i.e., arising from new loans advanced by the depository) require
additional reserves.
A perfectly coordinated banking system has no need whatsoever for reserves,
Yes it does. The reason being that the real purpose of reserves is
not to provide backing for deposits (because deposits already perform all of the
functions of money and do not need backing), but rather to provide the central
bank with additional means (apart from interest rates) of adjusting the overall
volume of bank lending, and also the means to adjust the volume of legal tender -
according to society's need for cash at every point in time.
exactly as if it were one large monopoly bank with many branches. As the
banking system becomes increasingly coordinated, the need for reserves is
diminishing.
* Simple withdrawals are similar. Individual banks do not issue
their own banknotes and coins, but must purchase them from the central bank. If
deposits of
banknotes and coins equal withdrawals of banknotes and coins, there
is no need for reserves to purchase them. Regardless of the volume of
transactions.
This is a thoroughly confused statement. All coins and notes held
by a bank ARE reserves. And as such are entirely interchangeable with creditary
deposits in the bank's account with the central bank.
- John Hermann
>> By Mr. McMaster: Q. So they pay three per cent and invite the public to
deposit by advertisements just to get a smoke screen?-
>>
>> A. I should say
that.
>
> That is not correct. Banks and other depositories invite the public to
transfer their deposits from transaction accounts to interest-bearing accounts
because the latter
> generally have a reduced reserve requirement (in the U.S.
we find that term deposits have zero mandatory reserve requirement). This action
effectively frees up reserves, > which may be used by commercial banks in support
of additional lending to the public. In regard to this method of acquiring excess
reserves, the interest paid to
> depositors is generally a lower cost to a bank
than is the cost of borrowing the same quantity of reserves from within the
financial system. This
explains the incentive
> for banks to offer interest-bearing deposits to the
public. -- John Hermann
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