Joey, this is one of those things where US English and British/Colonial English differ. For example something is learned in the US because we loaned to much to folks. However, the same lesson is learnt over there in Pommieland, where they lent too much to folks. It wouldn’t have been so bad if they had given up loaning for Lent.
rohufish Wrote: ------------------------------------------------------- > bchad: > > you’re mixing up the foreign exchange reserves and > the central bank balance sheet. forex reserves are > used to manage exchange rates. the balance sheet > is used to manage money supply. > > the size of the balance sheet is the value of > reserves in the financial system (pure, root money > which expands by money multipliers when lent and > relent by banking system). the fed has basically > doubled reserves recently, but the money supply > has not expanded 100% (vs. 3% or so if kept in > sync with econ growth) because banks are not > lending against those reserves. when they start > lending, actual money supply will expand, and the > fed will need to sterilize by withdrawing reserves > (reducing the size of its b/s), otherwise, MS will > expand way too fast, and inflation will result. Interesting… I did not know this… I know about reserve requirements for banks, but does that mean that they actually have to keep the reserves over at the Fed itself? I know it meant that they had to keep money available, does it actually have to be held by the Fed? And is that what all those night deposit cylinders are on the sides of bank buildings? Who uses those?
wow, thanks - i didn’t realize i had that little vestige of english english left in my vocab 18 years into my americanization. thanks for helping me rip out that little weed, henceforth, money will be loaned, not lent.
from google: ************************** What should “lent” and “loaned” be used? The word lent is the past tense of the verb to lend. For example: * I lent you my bicycle last week. Why haven’t you given it back yet? * When I lent you my book, you promised not to write in it. * No-one lent a hand with my suitcase. The word loaned is the past tense of the verb to loan. For example: * He loaned me a thousand pounds to start my business. * If you had loaned me the money when I asked for it, I’d have succeeded. * When I loaned him my tractor, I had no idea what he was going to do with it.
Innerestin… I didn’t stop to think that to lend and to loan were separate verbs. I remember when I was teaching english, one of my fellow instructors asked if I could explain the difference between “to rob” and “to steal.” I couldn’t figure it out until she said… "well, if you’re ‘robbed,’ it means that someone took something from you… but if you’re ‘stolen,’ that’s something else entirely. Learned and Learnt is definitely a difference between US and UK english.
Something else I saw… interesting… it suggests that Brits don’t tend to use “loan” as a verb… just as a noun… they prefer “to lend.” (seems to be like how they don’t like to use rent… they just have places toilet). http://www.thebobandrobshow.com/website/blog/?p=142 ‘Lend’ versus ‘Loan’ This week we’re going to look at two words which have some dissimilarities on both sides of the pond (The Atlantic Ocean). Lend and loan are semantically similar as they refer to borrowing something (often loan is used with money), but in America loan can be used as a verb whereas this is not so common in Britain, where loan is usually only used as a noun. However, there are numerous instances where both are now accepted in standard English. For example, Could you possibly lend me your umbrella? Could you possibly loan me your umbrella? One other difference between these two words is that only lend can be used in a metaphorical way. For example: Can you lend me a hand? We can NOT say “Can you loan me a hand?” But if you want to lend or loan me any money, then please feel free to do so ~Rob
money created without any real assets backing it is a pure liability -an act of faith in the govt.essentially “thin air”. once the faith runs out we know how the value of such liabilities vanish ,very rapidly thanks to the leverage caused by fractional reserves. financial assets are usually just acts of faith (bonds,equities).so having “maiden lane” on the fed’s BS doesnt inspire any confidence . The difference between the Fed and the Treasury issuing money is that the Treasury needs to get permission from Congress before selling bonds money is supposed to be the measure of supply and demand of goods and services.it beats me how changing the measuring unit (money ) helps in assessing the correct value of the underlying demand and supply in an economy. in anycase all the money created is not inflationary (in the price increase sense) until it is loaned out (or lent out?) thru the banking system.as long as the banks hoard it by depositing it back with the fed there is no problem. the feds pump priming will be useless if the money is not lent out.and if it does,run away prices/asset bubbles loom large
rohufish Wrote: ------------------------------------------------------- > from google: > > ************************** > What should “lent” and “loaned” be used? > > The word lent is the past tense of the verb to > lend. For example: > > * I lent you my bicycle last week. Why haven’t > you given it back yet? > * When I lent you my book, you promised not to > write in it. > * No-one lent a hand with my suitcase. > > The word loaned is the past tense of the verb to > loan. For example: > > * He loaned me a thousand pounds to start my > business. > * If you had loaned me the money when I asked > for it, I’d have succeeded. > * When I loaned him my tractor, I had no idea > what he was going to do with it. I just called up my linguistic expert friend who suggest that rohu may be right (and maybe he didn’t use th term “may be”). shit
rejoining the discussion… then why would the government go through the trouble of issuing “expensive” debt when, according to JDV and company, all they have to do is crank up the Fed’s liability by any amount they wish? Really back to bchad forgotten question.
The Fed legislation was created to try to keep the management of the money supply in the hands of “professionals,” rather than “professional politicians.” It’s really a rather remarkable act for the government to choose to limit itself in this way, and was created at a time when people were confident in the power of science and reason to resolve economic problems. In times of severe crisis - like today - the Fed and the treasury and the Congress can try to work together, but in normal times, this curbs the ability of politicians to give away nice freebies before an election or to become completely irresponsible (though over the years, we’ve figured out ways around that, it seems). My question is really evolving - some people have talked about “what I was originally asking,” but it’s clear to me that I didn’t really understand this process well enough to generate a clear question, and I am glad for everyone’s response (and hope there is more). What I’m trying to wrap my head around now is what to make of the Fed’s balance sheet. What are the most important things to think about when analyzing the Fed’s balance sheet. If it has gotten much bigger, is that a good thing or a bad thing? Or is it the quality of things on the balance sheet - bars of gold vs. stacks of CDOs - that matter? And if the Fed can issue a bunch of Federal Reserve Notes anyway, what does it matter what’s on the balance sheet? Obviously some of this relates to whether people will want to keep using dollars as a reserve currency. I have a better feel for what happens when other countries start printing money (literally or through interest rates/fractional reserves), but a lot of that has to do with how those bank’s reserves are connected to the dollar. I’m not sure how to think about all this money creation when it is done in the world’s main reserve currency.
Dreary Wrote: ------------------------------------------------------- > rejoining the discussion… then why would the > government go through the trouble of issuing > “expensive” debt when, according to JDV and > company, all they have to do is crank up the Fed’s > liability by any amount they wish? Really back to > bchad forgotten question. the govt can’t make the fed do anything - in principle. they cannot ‘crank up the fed’s liability’. only the fed can do that if they feel it meets their growth-inflation balanced mandate. the fed is a check and balance on the govt.
bchadwick Wrote: ------------------------------------------------------- > > What I’m trying to wrap my head around now is what > to make of the Fed’s balance sheet. What are the > most important things to think about when > analyzing the Fed’s balance sheet. If it has > gotten much bigger, is that a good thing or a bad > thing? Or is it the quality of things on the > balance sheet - bars of gold vs. stacks of CDOs - > that matter? And if the Fed can issue a bunch of > Federal Reserve Notes anyway, what does it matter > what’s on the balance sheet? if there are losses on the fed’s balance sheet, the problem is not the loss (the fed can just make it up with fresh money) but the fact that no one will buy that asset back for the same money amount, so the loss represents a permanent increase in money. thats why the fed is not supposed to buy risky assets. it risks losing control over money supply. as for the size of the B/S, it represents the amount of root money (reserves) in the system. multiply that by the money supply multipliers and you get various measures of money supply. to take a simple example, if the balance sheet doubled, but the money supply multiplier halved due to a credit crisis, net effect is money supply is flat/unchanged. you have to watch the fed balance sheet, as well as all the multipliers and MS measures, to make sense out of what is happening. frankly, this part i am still learning, so others can fill in more color. > > > Obviously some of this relates to whether people > will want to keep using dollars as a reserve > currency. I have a better feel for what happens > when other countries start printing money > (literally or through interest rates/fractional > reserves), but a lot of that has to do with how > those bank’s reserves are connected to the dollar. > I’m not sure how to think about all this money > creation when it is done in the world’s main > reserve currency. reserve currency status holds up the value of the dollar. dollar depreciation will impact US interest rates indirectly via inflation imported due to a weak currency. also, a weak currency will stimulate exports production, capacity util, and that stokes inflation too. as core inflation will go up, the fed will need to raise rates. if the trade sector had been small for the US, the dollar weakness wouldn’t really impact domestic rates.
rohufish, in principal the Fed can “print money” in the sense that you described, hwever, it is not that simple, and it really does not do it like that at all, at least not since the Accord of 1951. It now resorts to all kinds of tactics to buy and sell government securities in order to control the money supply. If you have some time, go through some Fed balance sheets and see how painful it is for them to come up with the money nneded to control money supply. For example, try to investigate how they operate their Term Auction Facility (TAF), The Primary Dealer Credit Facility (PDCF), The Term Securities Lending Facility (TSLF), the CP program, and really the whole TARP program. You will realize that it is not a matter of simply changing accounting entries. In short, there is a major misconception of what the Fed is able to do, and I admit it is not easily explained.
“how painful it is for them to come up with the money nneded to control money supply” they pull the money out of their a** so i guess it must be painful all these programs are basically some version of the following: buy assets from world, pay for them with money from nothing sell those assets back to the world later, turn money into nothing or lend (in honor of joey) out money from nothing, with some asset taken as collateral get repaid for that loan, turn the money into nothing, return the collateral thats all, mate, nothing fancy about all that. they certainly don’t go looking with probes and all for ‘painful to find money’.
I’ll end it on a sour note by saying that you have a very simplified view of this topic and urge you to read up a little on it. Cheers.
this is a very good thread - one that i haven’t seen for a long time
Back on the English discussion. Do you guys have a loaning crisis or lending crisis at the moment. The former sounds weird to me, but then again I am British. Oh, and another good interesting thread.
lending of course.
Dreary Wrote: ------------------------------------------------------- > rohufish, in principal the Fed can “print money” > in the sense that you described, hwever, it is not > that simple, and it really does not do it like > that at all, at least not since the Accord of > 1951. It now resorts to all kinds of tactics to > buy and sell government securities in order to > control the money supply. > > If you have some time, go through some Fed balance > sheets and see how painful it is for them to come > up with the money nneded to control money supply. > For example, try to investigate how they operate > their Term Auction Facility (TAF), The Primary > Dealer Credit Facility (PDCF), The Term Securities > Lending Facility (TSLF), the CP program, and > really the whole TARP program. You will realize > that it is not a matter of simply changing > accounting entries. > > In short, there is a major misconception of what > the Fed is able to do, and I admit it is not > easily explained. That’s just not true. Sometime ago, CFAI put out some little book about how the Fed controls the money supply and had a section on each of the big 3. But of course, they have a fourth - their balance sheet. They try not to use it, but they sure as heck can. The Fed can do whatever it wants and could start up the presses and qunitruple the money supply in a very short time.
speaking of money from thin air…i heard the best idea for solving the social security entitlements problem: sentence bernie madoff to a lifetime job as director of the social security administration. he’d be a perfect fit. [note to non-americans on the board: social security in the US has a pay-as-you-go funding basis (mother of mothers ponzi scheme, lol)]