Dow plummets

[WellDressed]

So what's the big difference between lager and malt liquor??

[Acantha]

How the EU comes through this will be interesting but not smooth. In the US, banks have deposits of 96 cents for every dollar loaned. In Europe that ratio is 1 to 1.4 Euros--not a good time to be a European bank.

Whoa. The Federal Reserve (the great US Central Bank) has set a 10% fractional reserve rate. If someone deposits 1,000 into an account, the banks can lend out 10,000. Not only that, but with the pyramid scheme of the central bank, that money is deposited into the central bank, then the central bank can lend out 10,000 dollars to the bank, and the bank can lend out 100,000. (that doesn't normally happen with individual account deposits, but technically it can. It DOES happen when the fed decides to counterfeit the dollar by buying it's own assets)

 

We are nowhere NEAR .96 cents to the dollar.

[John Adams]

Whoa. The Federal Reserve (the great US Central Bank) has set a 10% fractional reserve rate. If someone deposits 1,000 into an account, the banks can lend out 10,000. Not only that, but with the pyramid scheme of the central bank, that money is deposited into the central bank, then the central bank can lend out 10,000 dollars to the bank, and the bank can lend out 100,000. (that doesn't normally happen with individual account deposits, but technically it can. It DOES happen when the fed decides to counterfeit the dollar by buying it's own assets)

 

We are nowhere NEAR .96 cents to the dollar.

 

The only problem with my citation is that "outside Wall Street," the actual ratio is .96 to 1. (I left out the "outside Wall Street" from my memory....when I revisited this week's Economist, I saw that caveat.)

 

I did some quick Googling and can't find the overall US bank ratio.

[Acantha]

The only problem with my citation is that "outside Wall Street," the actual ratio is .96 to 1. (I left out the "outside Wall Street" from my memory....when I revisited this week's Economist, I saw that caveat.)

 

I did some quick Googling and can't find the overall US bank ratio.

 

1. The economist. The same people and frame of mind that are running things into crap right now are writing for the economist. They are bunch of self appointed genious that write based on theory instead of practice.

 

2. The actual quote is: "In America, outside Wall Street, the banks have lent 96 cents for each $1 of deposits." Which is opposite of what you wrote.

 

2a. There are no sources listed for that information, I've never read it before, and the whole idea of fractional reserve banking makes it highly unlikely that it's true.

 

3. America's wealth is on wall street. Saying "outside Wall Street" makes the whole thing kind of pointless.

[John Adams]

1. The economist. The same people and frame of mind that are running things into crap right now are writing for the economist. They are bunch of self appointed genious that write based on theory instead of practice.

 

2. The actual quote is: "In America, outside Wall Street, the banks have lent 96 cents for each $1 of deposits." Which is opposite of what you wrote.

 

2a. There are no sources listed for that information, I've never read it before, and the whole idea of fractional reserve banking makes it highly unlikely that it's true.

 

3. America's wealth is on wall street. Saying "outside Wall Street" makes the whole thing kind of pointless.

 

That I got the ratio backwards from memory even makes the point more--still, it's close to 1-to-1. US banks are in a lot better shape than their EU counterparts.

 

Ae you sticking with your rough assertion that banks have loaned up to as much as 10X as much as they have deposited? Really? Or is just more fun to attack The Economist?

 

I read plenty more things than the Economist; it was just there that I saw the statistic. The WSJ backs the EU ratio of 1 to 1.4. I didn't find the US ratio easily.

[bills_fan]

Ae you sticking with your rough assertion that banks have loaned up to as much as 10X as much as they have deposited? Really? Or is just more fun to attack The Economist?

 

 

John...they have.

 

Its called fractional reserve banking.

 

Basically, it works like this...

 

A bank has $1.00 (from where does matter, but not for these purposes). The Fed mandates that the bank must keep 10%. So the bank loans out $0.90 to another bank. That bank, with the same 10% requirement, can loan out $0.81. The next bank $0.725. And so on.

 

I realize my example is simplified, and there are many otehr factors affecting this notion, but the basic concept is there.

[Acantha]

That I got the ratio backwards from memory even makes the point more--still, it's close to 1-to-1. US banks are in a lot better shape than their EU counterparts.

 

Ae you sticking with your rough assertion that banks have loaned up to as much as 10X as much as they have deposited? Really? Or is just more fun to attack The Economist?

 

I read plenty more things than the Economist; it was just there that I saw the statistic. The WSJ backs the EU ratio of 1 to 1.4. I didn't find the US ratio easily.

Point number 1 was my own opinion, probably could have been left out, but I really hate that rag. Kind of like Bernanke, less than 3 months ago in a congressional hearing, telling everyone we were fine. I'm sure the quote is off a bit, but something like, Our economy is on as sound a foundation as it has ever been on. 6 weeks later, we need 700B NOW or else the enitre economy will collapse. These are the people we are supposed to trust to do the right things.

 

As for the rest, yes that's what I'm saying. Since Bills_Fan already elaborated, I won't do so again. But even in your scenario, your saying everything is just fine that the bank doesn't have 96 cents of every dollar you have put into it. Even if it were that simple, that's nuts! At that point, they might as well be at 1.4...or 9.8...or whatever. At the end of the day, they still don't have the money they are supposed to have!

 

It's a good thing we have FDIC, even though they really doesn't have any money either. I think the last estimate I read was something like the FDIC could cover 1.5% of money it insures! After the last couple months I'm sure that has gone down...especially since they just more than doubled the amount they are legally able to insure.

 

The whole thing is a SCAM! The sooner people have some sense of that...well, nothing I guess. We're too deep for knowledge to even matter anymore.

[Acantha]

John...they have.

 

Its called fractional reserve banking.

 

Basically, it works like this...

 

A bank has $1.00 (from where does matter, but not for these purposes). The Fed mandates that the bank must keep 10%. So the bank loans out $0.90 to another bank. That bank, with the same 10% requirement, can loan out $0.81. The next bank $0.725. And so on.

 

I realize my example is simplified, and there are many otehr factors affecting this notion, but the basic concept is there.

Actually, now that I looked this over, I think you're moving your numbers the wrong way. They should go up. The FED doesn't mandate that they must keep 10%, it mandates that they have 10% in reserves to what they lend. The bank has a dollar, so they lend out 10.00. So they have 10% in reserves of the total amount they have lent.

 

EDIT: Sorry, I've been trying to get back here for a while to take this back. When I sat and thought about it, I realized we were saying the same thing, you were just being a lot more specific than I was.

[John Adams]

John...they have.

 

Its called fractional reserve banking.

 

Basically, it works like this...

 

A bank has $1.00 (from where does matter, but not for these purposes). The Fed mandates that the bank must keep 10%. So the bank loans out $0.90 to another bank. That bank, with the same 10% requirement, can loan out $0.81. The next bank $0.725. And so on.

 

I realize my example is simplified, and there are many otehr factors affecting this notion, but the basic concept is there.

 

Color me filled in. So is there a number that estimates the ratio of deposits to outstanding loans? And what of the Economist's analysis? Is it wrong?

 

(I am a GD patent attorney who finds himself roughly believing the "facts" in the WSJ, Economist, and Forbes.)

[GG]

Actually, now that I looked this over, I think you're moving your numbers the wrong way. They should go up. The FED doesn't mandate that they must keep 10%, it mandates that they have 10% in reserves to what they lend. The bank has a dollar, so they lend out 10.00. So they have 10% in reserves of the total amount they have lent.

 

That 10% reserve is more than enough to offset risk in normal times, because your defaults don't run at 10% rates, nor do you have 10% of your depositors running away.

 

Now, if you think the whole thing is a scam, and we need to go back to a coin currency with zero lending to remove all risk taking from an economy, then by all means say that. But also, be honest with people to say exactly what kind of an economy you're advocating. It seems that you think that society will benefit by moving back to the standards & conditions of the Middle Ages.

[HopsGuy]

That 10% reserve is more than enough to offset risk in normal times, because your defaults don't run at 10% rates, nor do you have 10% of your depositors running away.

 

Now, if you think the whole thing is a scam, and we need to go back to a coin currency with zero lending to remove all risk taking from an economy, then by all means say that. But also, be honest with people to say exactly what kind of an economy you're advocating. It seems that you think that society will benefit by moving back to the standards & conditions of the Middle Ages.

 

GG is right.

 

Credit has a Latin origin that means "trust". We've all implicitly agreed to trust each other to a certain extent with the remainder being 'risk'. I think DC Tom phrased it pretty well last year we he said something about the price of risk was out of whack. It was, and this is the result.

 

These manias happen from time to time. The hangover (re-pricing of risk, deleveraging) can be brutal, but the benefits of credit have served society fairly well over the years.

 

We'll get through this. In the grander scheme, history has seen much worse.

[Alaska Darin]

Give me a break. This has nothing to do with politics. This is American Economy, plain and simple. The decisions that have brought us here have been being made for decades, and no sitting president or majority congress had done anything but make things worse.

Way to completely miss the point. The "Clinton economy" was a fraud and the current situation is the direct result of it, a fact that is made funnier by the former President constantly lauding himself for same.

The problem with bringing politics into this is that people keep looking to blame someone. It's the republicans fault? We'll vote them out, and everything will be better. Same argument for democrats. It's all bull. Nothing but a complete overhaul of our economic system, starting with the Federal Reserve and Bernanke himself, will do anything to get us out of the hole we are currently falling down.

You're speaking my language.

[GG]

Way to completely miss the point. The "Clinton economy" was a fraud and the current situation is the direct result of it, a fact that is made funnier by the former President constantly lauding himself for same.

 

You're speaking my language.

 

I keep reading that all over the place, yet I haven't seen a single rebuttal that show that there's more stability in the economy without a central bank. You would imagine the period between 1820 - 1908 would give insurmountable proof that the times were better than in 1908-2008. Where's the data?

[Alaska Darin]

I keep reading that all over the place, yet I haven't seen a single rebuttal that show that there's more stability in the economy without a central bank. You would imagine the period between 1820 - 1908 would give insurmountable proof that the times were better than in 1908-2008. Where's the data?

Well, there's an effective argument.

[GG]

Nice strawman.

 

No that is a real question. If there is a valid argument that the Fed intensifies the swings, then someone surely has the data to back it. Where is it? If anything, the lack of a true central bank in Europe is showing how dangerous a situation can get, even though the trouble didn't even originate there.

 

The real strawman argument is the unearthing of centuries' old fearmongering that a central bank is going to take over people's lives. The Revolution is little more than rehashing of dispelled myths.

[Alaska Darin]

No that is a real question. If there is a valid argument that the Fed intensifies the swings, then someone surely has the data to back it. Where is it? If anything, the lack of a true central bank in Europe is showing how dangerous a situation can get, even though the trouble didn't even originate there.

How the hell can you compare the U.S. before the Fed and get any kind of accurate picture? That's completely asinine.

The real strawman argument is the unearthing of centuries' old fearmongering that a central bank is going to take over people's lives. The Revolution is little more than rehashing of dispelled myths.

You mean because it hasn't? Tell that to all the people who just watched their retirement accounts lose 40% in value overnight because the Fed left WAY too much money on the street for almost a decade.

[Acantha]

That 10% reserve is more than enough to offset risk in normal times, because your defaults don't run at 10% rates, nor do you have 10% of your depositors running away.

 

Now, if you think the whole thing is a scam, and we need to go back to a coin currency with zero lending to remove all risk taking from an economy, then by all means say that. But also, be honest with people to say exactly what kind of an economy you're advocating. It seems that you think that society will benefit by moving back to the standards & conditions of the Middle Ages.

I"m not trying to hide anything. And there's no need to go back to coin currency with zero lending. Having currency backed by gold doesn't mean you can't lend money. It means you can't lend money that doesn't exist. It means that the "trust" you speak of is acutally in the right place. Banks earn trust by having 100% reserves. If they didn't first earn that trust, nobody would deposit money with them, period.

 

The only reason for central banking is to push inflation, and yes, I think inflation is a bad thing.

[Stussy109]

keep dropping lower! I am only 33 and I just ramped up my 401(k) contribution.

 

I feel the same way, I'm 27 sitting on some good cash reserves. Obviosuly my savings I had in the market took a beating, I don't care as I see value opportunities everywhere. For some crazy dividend stocks check out HTS, AGNC and KMP.I got the farm riding on the first 2 with more money on the way.

[GG]

How the hell can you compare the U.S. before the Fed and get any kind of accurate picture? That's completely asinine.

 

Because it's the only comp that you can do. You can also compare it to developed nations without a central bank - ie most of Europe right now and see how devastating it can be.

 

 

You mean because it hasn't? Tell that to all the people who just watched their retirement accounts lose 40% in value overnight because the Fed left WAY too much money on the street for almost a decade.

 

Didn't say it can't happen - it's the one downside of capitalism. The point is that it's only happened only twice over last 100 years, vs every 15-20 years in the preceding 100 yrs. Surely that has to mean something.

[GG]

I"m not trying to hide anything. And there's no need to go back to coin currency with zero lending. Having currency backed by gold doesn't mean you can't lend money. It means you can't lend money that doesn't exist. It means that the "trust" you speak of is acutally in the right place. Banks earn trust by having 100% reserves. If they didn't first earn that trust, nobody would deposit money with them, period.

 

The only reason for central banking is to push inflation, and yes, I think inflation is a bad thing.

 

You do realize that the problem we're facing was created outside the traditional "banking" universe, right? Having a gold standard would have done squat to prevent the housing run up. But keep preaching that gold revolution.