You are viewing an obsolete version of the DU website which is no longer supported by the Administrators. Visit The New DU.
Democratic Underground Latest Greatest Lobby Journals Search Options Help Login
Google

Reply #22: Guest Post: More Evidence that Banks Create Credit Out of Thin Air → Washingtons Blog. [View All]

Printer-friendly format Printer-friendly format
Printer-friendly format Email this thread to a friend
Printer-friendly format Bookmark this thread
This topic is archived.
Home » Discuss » Latest Breaking News Donate to DU
Demeter Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Mar-24-10 06:56 AM
Response to Original message
22. 
Edited on Wed Mar-24-10 06:56 AM by Demeter
http://www.nakedcapitalism.com/2010/03/guest-post-more-...

I recently provided evidence that banks create credit out of thin air.

Ive just found two more pieces of evidence:

(1) William C. Dudley, President and Chief Executive Officer of the Federal Reserve Bank of New York, said in a speech last July:

Based on how monetary policy has been conducted for several decades, banks have always had the ability to expand credit whenever they like. They dont need a pile of dry tinder in the form of excess reserves to do so. That is because the Federal Reserve has committed itself to supply sufficient reserves to keep the fed funds rate at its target. If banks want to expand credit and that drives up the demand for reserves, the Fed automatically meets that demand in its conduct of monetary policy. In terms of the ability to expand credit rapidly, it makes no difference

(2) On February 10th, Ben Bernanke proposed the elimination of all reserve requirements:

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.

Of course, Bernankes proposal is the exact opposite of the 100% reserve system proposed by Nobel prize winning economist Milton Friedman and Laurence Kotlikoff, former Senior Economist for the Presidents Council of Economic Advisers.

More importantly, if banks dont make loans based on available reserves, but can enter into loan agreements first and then borrow any reserves needed, that means:

(1) This was never a liquidity crisis, but rather a solvency crisis, as I and many others have repeatedly tried to explain. In other words, it was not a lack of available liquid funds which got the banks in trouble, it was the fact that they speculated and committed fraud,so that their liabilities far exceeded their assets. If you dont understand what Im saying, please read this

http://www.washingtonsblog.com/2008/10/problem-was-neve...

and

(2) The giant banks are not needed, as the federal, state or local governments or small local banks or credit unions can create the credit instead, if the near-monopoly power the too big to fails are enjoying is taken away, and others are allowed to fill the vacuum.
Printer Friendly | Permalink |  | Top
 

Home » Discuss » Latest Breaking News Donate to DU

Powered by DCForum+ Version 1.1 Copyright 1997-2002 DCScripts.com
Software has been extensively modified by the DU administrators


Important Notices: By participating on this discussion board, visitors agree to abide by the rules outlined on our Rules page. Messages posted on the Democratic Underground Discussion Forums are the opinions of the individuals who post them, and do not necessarily represent the opinions of Democratic Underground, LLC.

Home  |  Discussion Forums  |  Journals |  Store  |  Donate

About DU  |  Contact Us  |  Privacy Policy

Got a message for Democratic Underground? Click here to send us a message.

© 2001 - 2011 Democratic Underground, LLC