Thanks John.
1. The "one bank" proposition was to reinforce the idea that if they all kept
in step, there would be no limit to their lending except availability of willing
borrowers. That is its significance.
2. If there are differences in the basic method, what are they?
3. The comments referred specifically to trading banks (commercial banks), not
central ones and certainly not credit unions. I believe the latter and also
savings banks could be considered to create money, but would prefer not to get
into a fairly involved discussion on that angle.
4. What central banks do is a different matter. Presumably in this case they
acted like commercial ones and purchased assets?
I believe the importance of Royal Commissions, and presumably Senatorial
Enquiries in the US is that submissions are given under oath, therefore I place
much more faith in material emenating from them than even the best textbooks, let
alone enocomists' pontifications.
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: Wed, 15 Aug 2007 11:53:12 +0930
At
08:01 AM 15/08/2007, John Rawson wrote:
Two comments:
1. Our Royal Commission
Not sure which RC you are
referring to John. However banking prior to 1990 (i.e., pre-Basel 1) was a
somewhat different beast to post-1990 banking.
pointed out that, if there were only one bank operating,
Which is
entirely hypothetical
there would be no limit to its lending apart from possible shortage of
willing borrowers.
A major constraint on its lending would be its
regulatory capital in relation to its assets, i.e. its capital adequacy ratio.
They thus pointed out that reserves concerned only interbank operations, when
one outstripped the others in lending, as Bill commented.
Nevertheless
banks are obliged to go through the ritual of surrendering reserves to other
banks as a result of transferring deposits.
As I indicated previously, there
are reasons for maintaining this exercise quite apart from any notions that
deposits need "backing".
2. They regarded reserve ratios as a "blunt instrument",
Perhaps so,
but there remain regulatory requirements in some countries (including USA) which
specify reserve ratios.
In Australia, credit unions are still obliged to
maintain deposits with the central bank (the RBA) amounting to around 9
percent of their customers' deposits.
i.e. ineffective.
Ineffective in what respect?
Whether because of that or for other reasons as well, reserve ratios were
dropped
Evidently they have not been universally 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.
If that is the case, by what mechanism did the FED and other
central banks recently pump billions of dollars of new money
into financial
systems around the world in order to cope with the effects of plunging stock
markets?
- John Hermann
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