Marshall Auerback: QE2 – The Slogan Masquarading as a Serious Policy

By Marshall Auerback, a portfolio strategist and hedge fund manager Cross posted from New Deal 2.0.

Bernanke’s QE2 program has hurt savers, done nothing for banks, and eviscerated middle class living standards.

The U.S. Federal Reserve signaled the end of its controversial $600 billion bond-buying program as planned. And not a moment too soon. This was probably the most over-hyped event since the launching of the Titanic. Frankly, I’m not surprised by the lack of impact of QE2. I’ve always regarded it as a slogan, rather than a policy, and contended that its effects were oversold and predicated on a fundamental misunderstanding of basic monetary operations. The Fed introduced a program whose central thesis was that the unprecedented central bank intervention would reboot bank lending. Yet three years later, total bank loans are lower than they were before the Fed undertook quantitative easing.

The inability of monetary policy initiatives to do anything more than stabilize a very shaky financial system was always clear from the outset, if only policy makers truly understood what the problem was. There wasn’t a shortage of credit nor were interest rates punitive with respect to intended borrowing. People just didn’t want to borrow because the economy was collapsing and they were carrying too much debt.

As Stephen Randy Waldman has noted, the mainstream belief that quantitative easing would stimulate the economy sufficiently to put a brake on the downward spiral of lost production and increasing unemployment was nonsensical and based on a completely wrongheaded understanding of basic monetary/banking operations. He quotes from Winterspeak:

People believe that fractional reserve banking, in some weird way, has banks taking deposits, multiplying it (through what seems like a strange and fraudulent process), and then making a larger quantity of loans. In fact, banks make whatever loans they think make sense from a credit perspective, and then borrow the money they need from the interbank market to meet their reserve requirements. If the banking sector as a whole is net short of deposits, it can borrow the extra money it needs from the Fed. If you think this is a weird and pointless regulation you are correct. Canada, for example, has no reserve requirements and yet seems to have a banking sector. The quantity banks can loan out is constrained by capital requirements and credit assessments.

Reserves, then, are like a bank’s checking account at the Fed. A bank can lend those reserves only to another institution that is allowed to hold reserves at the Fed. Banks do lend reserves to one another in the fed funds market, but since banks already have more than a trillion dollars in excess reserves, there is no need to give them more in order to encourage them to lend to one another.

Those who point to the success of QE2 make the following observations: In the US, growth accelerated after the implementation of QE2 from a 1.7% annualized pace in the second quarter to 2.6% in the third quarter and 3.1% in the fourth quarter. Inflation expectations ceased falling and began rising back to normal levels. Confidence rose. And the pace of hiring improved meaningfully. In both February and March, private firms added over 200,000 jobs. Since the Fed’s policy began, the unemployment rate has fallen a full percentage point.

But just because a rooster crows first thing in the morning doesn’t prove that this is what causes the sun to rise. These are two separate occurrences with no underlying causation. The very deficits now decried so loudly by the deficit hawks and ratings agencies are likely what engendered recovery, not QE2.

So what has QE2 actually achieved? Little in the way of positive impact, but much in terms of its deleterious impact by fomenting additional speculative activity, notably in the commodities complex — gas and food prices. Obviously, with other determinants of aggregate demand in question, commodity prices and the gasoline price in particular now matter. The price of gasoline is almost as high as it was at its brief peak in May-July 2008. In the past, increases in expenditures on gasoline could be managed by consumers because they had access to credit. That is certainly less true today. Rising fuel prices could tip the economy towards greater weakness. As it now stands, the U.S. economy has been growing around trend (2.7%) and the first quarter was probably below that. Tipping the economy towards weakness would bring growth way below the current optimistic above trend consensus.

Though it cannot be proved, in the minds of many the current wave of speculative and investment demands is tied to the Fed’s emergency measures of ZIRP and QE. Within the Fed itself, a number of inflation hawks have reflected this belief, notably Dallas Fed President Richard Fisher and former Kansas President Tom Hoenig. If so, this inadvertent adverse consequence of QE means that the Fed might be hoisted on its own petard.

In sum, whether one wants to focus on the bank reserves or the deposits created by QE2, it does not increase the “ability” of banks to create loans or the private sector to spend that did not exist before. In both cases, the effect of QE2 is to replace a longer-dated treasury with shorter-term investments within private portfolios, which on balance reduces income received by the private sector. Whether or not that increases spending would depend on whether the private sector wishes to borrow more or to reduce saving out of current income (things they can do anyway with or without QE2). Again, it makes little sense to encourage households and firms to increase debt or to reduce saving within the current context of record private sector debt. But the current prevailing deficit hysteria is, perversely, encouraging precisely that state of affairs.

Ultimately, QE2 screwed savers by robbing them of income through the Fed’s treasury purchases, undermined banks’ earnings by in effect swapping a higher yielding treasury with bank reserves that today yield a mere .25%, and eviscerated the living standards of the middle class by helping to spike the speculative punch bowl in the commodities space. Not a bad trifecta for a Fed Chairman who claims to be doing everything in his power to prevent us from becoming the next Japan but who in fact is hastening our arrival at that very destination.

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  1. Veri

    We know this. We have known this for some time. The policy makers (in lieu of law) know this to. They are not that stupid. Who are the stupid people? Everyone else.

    You have to ask yourself this question: Has QE, QE1.5, and QE2 actually achieved all that its designers set out to do?

    If you answer ‘yes’, you are on the right track.

    The simplest explanation, in this case, in light of all the apparent failure and inexplicable inability to explain the failures – suggest Occam’s Razor. The simplest explanation is that all the QEs are working as intended.

    1. Ralph Musgrave

      I’m all in favour of simple explanations. The simplest explanation for the fact that the Sun travels across the sky every day is that the Sun goes round the Earth.

      1. F. Beard

        The Sun does go around the Earth if one’s coordinate system is Earth centered. I proved it to myself with a Solar System simulator.

  2. financial matters

    I thought Ellen Brown in “Web of Debt” had an interesting explanation of ‘fractional reserve banking’. The point seems to be how much actual capital is backing the outstanding debt..

    “”The Shell Game of the Goldsmiths Becomes “Fractional Reserve” Banking

    Trade in seventeenth-century Europe was conducted primarily with gold and silver coins. Coins were durable and had value in themselves, but they were hard to transport in bulk and could be stolen if not kept under lock and key. Many people therefore deposited their coins with the goldsmiths, who had the strongest safes in town. The goldsmiths issued convenient paper receipts that could be traded in place of the bulkier coins they represented. These receipts were also used when people who needed coins came to the goldsmiths for loans.

    The mischief began when the goldsmiths noticed that only about 10 to 20 percent of their receipts came back to be redeemed in gold at any one time. They could safely “lend” the gold in their strongboxes at interest several times over, as long as they kept 10 to 20 percent of the value of their outstanding loans in gold to meet the demand. They thus created “paper money” (receipts for loans of gold) worth several times the gold they actually held. They typically issued notes and made loans in amounts that were four to five times their actual supply of gold. At an interest rate of 25 percent, the same gold lent five times over produced a 100 percent return every year – this on gold the goldsmiths did not actually own and could not legally lend at all! If they wre careful not to overextend this “credit,” the goldsmiths could thus become quite wealthy without producing anything of value themselves. Since more money was owed back than the townspeople as a whole possessed, the wealth of the town and eventually of the country was siphoned into the vaults of these goldsmiths-turned-bankers, while the people fell progressively into their debt.””

    1. Cedric Regula

      There is more to the story too. Whenever the King needed to fund a war with France or Holland, he would send the troops to borrow “money” from Goldsmith-Banker. Since The King had to pay soldiers in hard siver or gold, that is what left the vaults of Goldsmith-Banker. But at least the nice soldiers with muskets left an IOU for the amount signed by the King. The government bond was born. It was then that Goldsmiths discovered the notion of demand deposits. Inter-goldsmith lending was not very well developed at the time, and frequently they found themselves in a position similar to Lehman after other goldsmiths spied the Kings men leaving a fellow goldsmith’s place of business carrying heavy sacks.

      I suspect handbills were printed and circulated by competitors with the headline “Goldman Sacked”, and then goldsmiths discovered “The Bank Run”. But that is just speculation on my part.

  3. anon

    “a program whose central thesis was that the unprecedented central bank intervention would reboot bank lending”

    That’s very questionable. The central thesis was more about the desired effect on long term interest rates and risk taking in general, including non-bank behavior. The discount rate for asset pricing (including equities) was a consideration as part of this. But the bank lending channel was quite secondary as it specifically related to QE.

    What’s your Fed source for your view that the “multiplier” was the primary Fed consideration? Any speech, etc.?

    1. anon

      At the press conference today, Bernanke answered a question specifically about the effectiveness of QE2. In doing so, he mentioned absolutely nothing about bank lending as a criterion of its success, in his view.

      Again, you are correct to dismiss the “multiplier” as a mainstream textbook fantasy, but wrong to paint Fed policy with the same brush.

      1. Yves Smith Post author

        Ahem, remember how the rationales for why we went into Iraq changed a zillion times (well 23 the last tally I saw). Same thing happened here.

        QE was most assuredly presented as a way to facilitate credit extension. The Fed talked repeatedly about using it to lower spreads at the time. It’s all over the record and in this blog too.

        1. anon

          That’s right about credit spreads, which in fact he mentioned today, and which is a legitimate factor for credit demand. But that’s unrelated to a “multiplier” argument about credit supply.

          1. RebelEconomist

            I agree; I think the MMT people are too scathing of what is a simplified explanation of how monetary policy works in normal times. In normal times, starting from an equilibrium in which reserves are held according to their cost and utility, selling more reserves makes it profitable for banks to expand their balance sheets, hence the multiplier, but first the financial crisis and then the payment of interest on reserves altered the balance of their cost and utility. The multiplier collapsed, and it was necessary to add reserves just to serve the existing size of banks’ balance sheets. Moreover when QE involves asset purchases from non-bank counterparties, its initial effect is to expand banks’ balance sheets anyway.

            MMT people are railing largely against the simplified understanding of people who do not conduct monetary policy, and they are unlikely to establish a dialogue with the kind of operational staff in central banks who do know how monetary policy works as long as they tell everyone who disagrees with them that they “don’t understand the monetary system”, “don’t get it”, etc.

          2. rogue

            What do you mean by “selling more reserves makes it profitable for banks to expand their balance sheets”? That banks lend their deposits to other banks? So what is the point of the Fed flooding the whole system with reserves then? With that reasoning, QE2 ensured that no bank will need to borrow anymore, and that no one will need deposits anymore.

            What do you mean “payment of interest on reserves altered the balance of their cost and utility”? That many commercial loans were priced out of the market by the interest on reserves? Is that how low lending rates have gone? Again, this begs the question then why would the Fed flood the market with reserves only to borrow them again from the banks with interest?

            What do you mean by “it was necessary to add reserves just to serve the existing size of banks’ balance sheets”? What did exchanging Treasuries for reserves “add” to “serve the size of bank balance sheets”?

          3. Nathanael

            To put it most bluntly, the “money multiplier” is an accurate depiction of how banking works WITHOUT a currency-issuing Lender of Last Resort — i.e. without the Fed. In a classic gold-backed system, for instance.

            It’s simply not applicable to the current system, because the Fed promises to supply arbitrarily large amounts of reserves.

  4. anon

    “Ultimately, QE2 screwed savers by robbing them of income through the Fed’s treasury purchases”

    Then why does MMT in some cases promote a “zero natural rate of interest”?

  5. Birch

    How does QE relate to devaluing the U.S. dollar? I assume that this devaluing was the primary objective of QE, in which case it has been working as intended, but that’s just my outside view of events.

    Nice to know that Canada has no reserve requirement at all. I’ve been trying to confirm that suspicion for quite a while, but it certainly isn’t something that is publicized. The BoC website has frustratingly little on the issue. Any idea where that information came from?

    1. Birch

      Okay, I followed the links and figured out Brian Mulroney’s government got rid of reserve requirements in the early 90s. He phased them out over 25 months (3% lower per month) with a bill that was passed very quietly. I have heard many times that the requirments were lowered then, but I hadn’t realized they were gotten rid of altogether.

      This begs the question: so what?

      1. Jim Haygood

        ‘Brian Mulroney’s government got rid of reserve requirements in the early 90s.’

        Interesting factoid; thanks. In fact the US did the same thing in 1994, when the Fed quietly approved overnight sweeps from demand deposits (which require reserves) to savings deposits (which don’t). This fraudulent subterfuge effectively eliminated reserve requirements for money center banks which implemented overnight sweeps.

        Although ‘required reserves’ remain as window dressing, they are trivial in size compared to total deposits. Reserves now are too tiny to serve the safety function they once did, of assuring that a bank could meet an unexpected demand for deposit redemptions. As the events of 2008 proved, the Federal Reserve has centralized the function of backstopping banks against redemptions. The trivial level of reserves held at TBTF banks was a non-issue during the crisis.

        All of this supports Marshall Auerback’s thesis. If reserves are just an evolutionary appendage, like the appendix in the human body, then pumping up excess reserves to a trillion dollars accomplishes nothing but disfiguring the banking system and enfeebling the dollar.

        QE2 demonstrates that the Federal Reserve, having no idea how to fight the economic demons circling the campfire, decided to just fire wildly in the dark in all directions. This is also called ‘panic.’ It’s not a very effective survival or coping strategy. But put a bunch of PhD Econs out in a scary dark forest, and after uselessly peppering the trees with their panicky fusillade, they’ll be dialing 911 and crying for Mommy. That’s where we are now.

  6. Anjon Roy

    Fantastic cross post from an MMT perspective. I find it fascinating how QE and monetary policy in general splits many of the traditional politcal-economy camps. Many “main-stream” institutional guys from the right and left like Paul Krugman and most Chicago school “monetarist” support it (it’s basically Milton Friedman / Anna Schwartz on what Fed Policy should have been during the 1929-32 period). But folks outside the “institutional mainstream (whatever that is) like David Stockman and more radical hard-money right Austrians as well as “left-leaning” MMT folks see perils in QE, especially because of potential asset inflation mixing with continued wage/labor deflation – a particularly noxious cocktail.

    The part i found most interested is Marshall’s take that “the effect of QE2 is to replace a longer-dated treasury with shorter-term investments within private portfolios, which on balance reduces income received by the private sector.”

    Is this really true? Would it depend on specifically who’s losing longer dated treasuries for shorter dated securities? Furthermore, under this framework, should we be raising rates as a way to channel funds into the over leveraged private sector

  7. F. Beard

    How are fractional reserve bankers different from counterfeiters? Because they lend out their money rather than spend it?

    Yet liberals and progressives are comfortable with this theft and think that with proper rfegulation it can be made to work.

    So is He who commanded “Thou shalt not steal” non-existent or is He mocked?

    1. joebhed

      Totally agree with this assessment, esp as relates to MMTers.

      They profess to being the most progressive thinkers on money, and it is true that their thinking is very far along the economist-monetarist way of looking at things.
      But their embracing of fractional-reserve banking to me leaves them as far from progressive thinking as anything that has come down the pike.
      A forest for the trees way of seeing things.

      Yes, it is not only the immorality, but also the un-economy that compound interest forcefully results in the centralizaton of monetary assets.

      Modern monetary thinkers ought to move beyond the limits of fractional-reserve embracing MMT.

      German economist Dr. Bernd Senf lays out this, again, impossible and unsustainable monetary paradigm – it’s really the debt-money paradigm that surrounds fractional-reserve banking – in this English-language presentation on what he terms “monetative” thinking.

      He describes the cumulative effects of compounding interest and centralizing monetary assets as both against democracy and against the scientific understandings of how money must work.

      MMTers need to address this private central bank abomination in their work.

      1. F. Beard

        Fractional reserves are wicked but some form of private money creation is necessary, I would bet, for optimal economic growth. So all I really insist on is that the current government enforced monopoly money supply for private debts be eliminated.

        And if that monopoly was truly abolished so that all money forms could compete equally wrt government then I’d also bet that fractional reserve lending would be reduced to insignificance.

    2. Jim Haygood

      Good point, Father Beard. 99.9% of discussion and analysis of QE2 is pragmatic, concerned only with its effectiveness.

      Printing hundred-dollar bills in your basement is an effective way of increasing personal wealth. But it’s also socially destructive (robbing other currency holders of their purchasing power) and illegal.

      Precisely the same principle applies to central bank liquidity creation. It’s socially destructive; it’s crude theft; and under the common law of fraud, it remains an indictable offense.

      So to answer your question, He is mocked … for now. But the days of central banks’ institutionalized fraud are numbered.

      Up against the wall, Bennie. This is a citizens arrest.

      1. F. Beard

        Good point, Father Beard. Jim Haygood

        LOL! Actually my nom de plume is a South Park character that tickled me.

        99.9% of discussion and analysis of QE2 is pragmatic, concerned only with its effectiveness. Jim Haygood

        Which is short term thinking as you point out.

    3. Nathanael

      There’s nothing wrong with counterfeit money as long as everyone accepts it and there isn’t “too much” of it, “too much” meaning that it induces rampant inflation.

      Go back to psychological basics here.

      Now, the people printing the counterfeit money are getting something for nothing — *just like everyone who prints money*. This is called seignorage. I’m OK with our democratically elected governments doing this money-printing and getting something for nothing that way — they are supposed to represent the public interest.

      Alternatively, I’m OK with everyone being allowed to print money if they can convince people to take it — bully for them.

      I’m not OK with a government-granted monopoly power on money-printing being given to a private interest, that just seems like giving away public powers to private interests. :-P

  8. Charles Peterson

    I’m not sure I understand QE, but it seems like many of my favorite progressive economists such as Paul Krugman and Brad DeLong favor it (though might have favored expansionary fiscal policy even more), and would in fact have favored far more aggressive QE. OTOH, it seems most who oppose it are deficit hawks, inflation hawks, and goldbugs, the very people who care far more about inflation or the remote possibility of inflation rather than the 20% underemployment we now suffer from most. On tribal basis, I go with the progressives, and I think left populists are mostly confused.

    I think it was well intended but largely ineffective. My solution to the Great Recession is huge new public investment in the development of renewable energy and transportation based on it. The macroeconomic part of that would be even more deficit in the short term. But the cure is not simply in the numbers, but in the DIRECTION. We’ve been leaving the ultimate direction of our economy to the wall street casino for the last 30 years, and it has done no good for most, only for the super rich, and to the long term destruction of everyone. A people’s government needs to set the direction, which ought to be as I just described, toward a renewable energy based sustainable society. Unfortunately, the people are woefully misinformed about peak everything and global warming, the true natures of our present reality. And the government mostly operates in coin operated mode nowadays, which works to make the rich ever richer, everything else be damned.

  9. paul tioxon

    It seems that the ruination of the middle class by QE is the collateral damage of the currency wars of the USD vs Yuan. Since the CCP has trillions of US$, giving them no interest allows them to park cash in Treasuries with little or no cost to the US Taxpayer. And, of course little or no profit for them. Considering the next biggest asset class and previous to bank-failure-palooza was prime American Real Estate, i.e. Rockefeller Center, Pebble Beach etc, these depreciating assets are not a good place for cash. So, the money is safely being held or trapped, by the Fed, in cryonic near absolute zero stasis. And this might have helped our balance of trade if we were willing to sell to CCP the Aegis Weapons System and Stealth Bombers and all of our goodies that we sell to the Arabs to get the petro-dollar entente. But China has not signed on to the some epi-cycle of international monetary mystification.

    There are a lot of balls in the air, and China’s USD cash horde and its relation to its own currency has yet to worked out, so we are forcing the issue. The consequences to us domestically are not so much unintended as not even much of an after thought. The Chinese and other bankers seemed to have screamed murder at the outset of this QE measure and that was the point. Not a domestic making whole of nation whose total private debt of $52 TRILLION exceeds the US Public debt of $14. We need jobs, and those of us that work need a raise, not suppression. The Republicans have a new slogan, voter suppression, wage suppression and political oppression

    1. Cedric Regula

      There is a silver lining in any cloud if you search hard enough. QE II did whack about 10% off the dollar, so US multinationals are able to sell more Chinese made stuff in Japan and Europe.

      Of course the Chinese, Japanese, Europeans and vast majority of Americans are not happy with how that all works, but you can’t make everyone happy all of the time.

  10. dippy

    There should be only one class…citizen…till that is archived enjoy the circular jerk off.

    dip…no base…no hope.

  11. SH

    Just to see myself think I love this analogy. Monetary policy is a blunt instrument is like a neurosurgion extracting a tumor with a hammer, chisel and butter knife.

    To the point though, Bernanke’s counterfactual is that things would be worse without QE2. Romer probably stated this case better. The concept is the portfolio rebalancing theory is similar to musical chairs. The Fed bought 25% of the chairs and now everyone else is fighting hand over foot to get to the other 75% chairs when in an honest game, you would only have to fight for one chair. The available chairs become more expensive regardless of what the price says.

    Marshall, how do you argue against the Fed’s counterfactual of things would be worse if they did not do this? That would be a good post.


  12. Random Blowhard

    The entire focus of QE2 was, and will forever remain so, to serve the TBTF banks via infinite free money and no risk profits via treasuries. That is the ONLY FOCUS of the fed and it will happily nuke the entire net worth of every citizen of the United States to serve it’s Wall Street masters.

  13. roger erickson

    Several comments here seemed to have missed the fact that we no longer use fractional reserve banking – which applies only to the gold std. Since going off the gold std, reserves are not required at all in order to make loans. As several others noted, loans create reserves in our current system, and have since ~1933.

    1. RebelEconomist

      Reserves may not be required in advance to make a loan, but assured access to reserves certainly is required if the loan involves an expansion of the bank’s balance sheet.

      1. anon

        you’re probably aware of this, but MMT gets around that by defaulting into borrowing from the CB – they consider that as assured

          1. skippy

            Jobs are just an oxymoron for creation of more zero reserve currency.

            Skippy…to whom does this state benefit, I know redundancy.

    2. skippy

      The move from paper to electron is in full court press these days see:

      Skippy…Does everyone get it now, they want to find the Higgs boson so they can create a fractal well of fiance…kidding…but seriously, a world dies as we search for a medium exchange that is not exponential and is not horded to increase power to a few…sigh

      1. F. Beard

        …but seriously, a world dies as we search for a medium exchange that is not exponential and is not horded to increase power to a few…sigh skippy

        LOL! Who says there must only be one? Abolish the government backed and enforced counterfieiting cartel and any number of private currecies would spring up. As for government money, it must remain pure fiat to avoid favoritism (too bad you fascist gold-bugs!) but should only be legal tender, in fact as well as law, for government debts, not private ones.

        Don’t sigh, just get out of the way.

        1. skippy

          currency / money in all form’s is a sin, in the way back. It steals your breath, takes the most fundamental choices away.

          Your ability as an individual to choose your own fate, with the creator, if your into that.

          Skippy…religion is out side the realm of exchange for a profit, it supersedes it, in totality. live it or go to hell…eh.

          1. F. Beard

            currency / money in all form’s is a sin, in the way back. skippy

            Not so. Common stock, (in principle) is a completely ethical money form that shares wealth rather than loots it.

            FB – that word “all” is dangerous, no?

          2. skippy

            Common stock if utilized as a currency will suffer the same fate as all before it, from stones to paper to electrons. Large holding / warehouses / issuers, create potential and this potential has historically followed the same trajectory ad-infinity.

            If common stock is a right to resources, to enable life (all living things) I’m up for that.

            Skippy…your creator did say something about kingdoms on earth and how they fair…eh…currency is the might of a kingdom, we will repeat. funny that.

  14. Matt

    “In fact, banks make whatever loans they think make sense from a credit perspective, and then borrow the money they need from the interbank market to meet their reserve requirements.”
    Bingo. The banks control interest rates not the FRB.
    What do Marshall Auerback and Stephen Randy Waldman say about the thesis that the FRB only follows interest rate demand and does not lead?
    The banks literally own the FRB and appoint directors and chairmen at the regional banks. The reason the banks are taking 0.25 percent on 1.5 Trillion in excess reserves is that the banks would rather the FRB own the longer term MBS and Treasuries.
    This month the required reserves are only 74 Billion.

    So the net is that QE, QE2 and QE3 have nothing to do with controlling short term interest rates, since the banks and the bank “market” control them. The opposite, raising rates at the discount window has no effect because banks do not borrow at the discount window unless they are going out of business and or want a FRB audit.

    Historically back in 2007, the FRB already held 700 or 800 Billion in Treasuries. So the QEs have only meant that the FRB bought MBS and about 35 percent of the long term Treasuries.

  15. Marshall Auerback


    MMT does advocate a 0% rate of interest (effectively to euthanise the rentiers and get rid of this stupid legal constraint whereby the government constrains the use of fiscal policy via things like a debt ceiling). BUT the offset would be lower tax rates to offset the lost income impact.

  16. joebhed

    Good points about fractional-reserve banking.

    The real issue is private creation of bank credits by issuing all money as debts denominated in the currency of the nation. The entire focus of which comes first, reserves or loans, is a useless rabbit hole chase.

    This has been especially true for the last 30 years or so where “money” , in the form of US-dollar-denominated financial assets that give shape to bank balance sheets, has PRIMARILY been created by the shadow banking system – which never heard of a reserve requirement.
    Unfortunately, the unlimited leveraging of the shadow bankers in the $US-denominated financial assets (financialization) was very closely tied to the real economy and the commercial(regulated) banking arena.
    So we have the national economy at risk belonging to unbridled and unregulated currency-denominated non-money creators, and we argue whether there is any such thing as fractional reserve banking.

    1. F. Beard

      The real issue is private creation of bank credits by issuing all money as debts denominated in the currency of the nation. joebhed

      Bingo! The real power of the usury and counterfeiting cartel is the government enforced monopoly money supply for private debts. The Liberals and Progressives fell into their trap either unwittingly or because they thought the system would nevertheless be for the public good. We see how well that has worked.

  17. F. Beard

    Common stock if utilized as a currency will suffer the same fate as all before it, skippy

    Some would, some would not. Competition keeps many of us more honest than we otherwise would be, I’ll bet.

    If common stock is a right to resources, to enable life (all living things) I’m up for that. skippy

    Government and the social safety net would still exist. Moreover, there would be less need for governemnt and a healthier economy to tax too.

    Skippy…your creator did say something about kingdoms on earth and how they fair…eh…currency is the might of a kingdom, we will repeat. funny that. skippy

    My Creator commands us to “do justice” and to “be in the world but not of it”.

  18. flow5

    Another stupid article. Legal reserves are a credit control device. All prudential reserve systems have heretofore come a cropper. The money supply can never be managed by any attempt to control the cost of credit. Keynes’s liquidity preference curve is a false doctrine.

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