naked capitalism

rosethorn says:

Come on. The key phrase in the Dudley speech is “Based on how monetary policy has been conducted for several decades”…the implication is that prior to Greenspan monetary policy was conducted differently.

FESTAN says:

Here is the translation via google:

4.4 Creation of the banks money
Money is created by “money creation”. Both state and private commercial banks, central banks can create money. In the euro monetary system arises mainly through the granting of loans, as well as the fact that central banks or commercial banks to buy assets such as gold, foreign currencies, real estate or securities. If the central bank granted a loan from a commercial bank and crediting the amount in the account of the bank at the central bank, created “central bank money.” The banks will require it to meet their reserve requirements, to satisfy the demand and cash for payments.

Money creation by commercial banks
The commercial banks can create money itself, the so-called bank money. The money creation process through which commercial banks can be explained by the related postings: If a commercial bank to a customer a loan, they booked in its balance sheet as an asset against a loan receivable
the client – for example, 100,000. At the same time, the bank writes down the customer’s checking account, which is run on the liabilities of the bank’s balance sheet, 100,000 euros good. This credit increases the deposits of customers on its current account – it creates deposit money, which increases the money supply. The newly created commercial bank can use the bank customer to pay for the purchase of goods and services. At first glance one might think that the credit customer has become richer through the creation of money. But this is not so. Because its the Borrowing incurred credit is offset by equally high commitment, namely, the obligation to repay the loan again. He must also pay ongoing interest on the loan.
Forced to pay interest in a strong incentive to take credit only exists if the associated funds are actually needed. For a company, this means that there needs to be productive with the credit so that it generates income from which is at least the interest expense will be covered. Lending and associated money creation thus lead to investment, increased productivity and an economic value added. However, this value is not due to the act of creation of money itself, but – inspired by the interest rate – by the productive, value-added use of the loan.
How to increase if the borrower credit and Giralgeldschöpfung also in the commercial bank’s assets and liabilities in exactly the same extent. Even if it occurs through the act of Giralgeldschöpfung not in itself a profit. The bank, however, the commissions earned on lending and the current
Savings. This prospect of gain, however, is the risk that a customer does not repay its loan. Then the bank takes a loss. This risk is the bank an incentive to leave for lending and Giralgeldschöpfung caution.
Once created, the money circulates in the economy. Either it flows from account to account, for example, when paid by bank transfer. Or will it be withdrawn in cash from the account and then goes in the form of banknotes and coins from hand to hand. Will be paid off the loan and is not replaced by a new one, then that is created through him, the circulation of money withdrawn. In the jargon this is known as a “waste of money”.

Frontiers of money creation
The above description might leave the impression that the commercial banks are able to draw an infinite amount of money in bank accounts. If this were really so, this could be inflationary. The central bank therefore takes effect on the extent of lending and money creation. It requires commercial banks to hold the reserve.
To illustrate the principle, will continue here the simple example from the previous section
(in reality) are the processes more complicated:
If the commercial bank lending increased by its customer deposits to 100,000 euros, it must increase to their account at the central bank also their minimum balance. Since the reserve ratio is currently two percent in the Eurosystem, it needs in this example, 2,000 euros of additional central bank money.
Central banks, commercial banks can typically obtain only by the fact that the central bank granted them credit. For these loans, commercial banks have to pay the central bank interest rate. Increase this rate, the central bank, the “prime rate”, the commercial banks usually raise their part, the rates at which they lend themselves. There will be a general rise in interest rates. This, however, dampens the tendency of businesses and households, the demand for loans. By raising or lowering the key interest rate the central bank can thus influence the business sector demand for credit – and thus on
Lending and Giralgeldschöpfung.
The commercial banks need central bank money to cover not only for the reserve, but also to the cash needs of its customers. Each bank customer may be credit in the bank account into cash to pay off. If the stocks of the banks in cash to be in short supply, the central bank can create only remedy. Because only they are permitted to bring additional notes in circulation. To meet the cash needs of its clients, the commercial bank must therefore include, where appropriate, with the central bank for a loan. This leads to the creation of central bank money. The so-purchased assets for central bank money can pay off the commercial bank in cash
let. Thus, the cash is in circulation: from the central bank to commercial banks and from these to the bank customers.
Central Bank money is also to cover the non-cash payments are required: a customer transfers money from its credit to a customer at another bank, this results in many cases led to the sending bank central bank needs to transfer money to the receiving bank. The central banks then moves from one bank to another.
Even the act of creation by central banks, no one is rich: The assets and liabilities on the balance sheets of commercial banks and the central bank to participate individually in lockstep. The Central Bank shall thereafter interest, they must pay the commercial banks for loans. Interest income goes into the profits of the Central Bank book. This gain is distributed to the state budget and is therefore ultimately benefit the public.
In normal times, the Eurosystem provides the banking system on the weekly refinancing operations, especially with so many central banks, such as commercial banks need to cover reserve and cash needs as a whole. Then comes perhaps at short notice and on a smaller scale to ensure that excess liquidity in the banking system is available. Requires a commercial bank short-term central bank money – for example, if a customer has paid a large sum to a third bank – they occur as customers of the so-called Money market. Typically, they will find another bank that has just over a surplus of central bank money ( “liquidity”) and is willing to lend her the required amount. Should the banking system in total are short term in a surplus or a shortage of central banks, the Eurosystem has to address this market situation, additional instruments are available, such as refinancing operations with a one-day duration.
After the outbreak of the financial crisis in the summer of 2007, the money market was at times severely disrupted. The otherwise normal balance between the commercial banks’ liquidity from the money market did not take place. For, given the general distrust many shy away from commercial banks to lend surplus cash to other banks. Other banks were not therefore able to cover their needs for central bank money. To counter the so-conditioned “Liquiditätsnot” to put the euro on the banking system available.
The stock of reserves in the banking system exceeded by the demand that resulted from reserve and cash flow.
This excess amount, the so-called excess liquidity is not remunerated by the Central Bank. But the commercial banks have to create the possibility of an excess of central bank money over night in a special account at the Fed. On assets in this “deposit facility”, the central bank pays interest – albeit
relatively low.
The commercial banks can use the surplus of central bank money and to award additional credits to businesses and households. As previously described, arises from the award of additional credits
additional demand for central bank money – which can be covered in this special situation of great uncertainty among banks by the existing excess liquidity. The abundant supply of liquidity relief, a bank that wants to provide a loan, from the traditional consideration of how much money they
need after the award of credit is, how it is constituted, and at what cost. Using the so-called money creation multiplier can be estimated how large the potential for additional
Credit limit is.
An example illustrates this: Suppose the overall surplus reserve amounted to 100 billion euros. Suppose that, secondly, that commercial banks have to keep at the central bank a reserve in central bank money equal to two percent of the deposits of their customers. Assuming that the third is that people stand out from the newly created commercial bank, on average, 20 percent in cash.
With the money creation multiplier can be calculated that the banking system a total of around 463 billion.
In additional loans could be forgiven. For according to the assumptions will be lifted off of which about 92.6 billion euros in cash. To the increased deposits of 370.4 billion euros to commercial banks would have an additional 7.4 billion euros to maintain minimum reserves with the central bank.

I’ve written an article on this subjekt before. When I succeed in translating it I will post it here or elsewhere.