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Atle Willems, CFA  

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  • The Stock Market Euphoria And Record Money Supply To Savings Ratio Signal Looming Recession [View article]
    Hello Rseye
    I'm short US mid-caps through MYY as I belive a stock market correction is a likely outcome going forward.
    Feb 22, 2015. 08:50 AM | 4 Likes Like |Link to Comment
  • Why Do Banks Want Our Deposits? Hint: It's Not To Make Loans [View article]
    JasonC,
    Just a quick comment though your comment deserves a longer answer.

    Yes, totally agree that how a specific investment is financed does not directly determine its outcome. However, whenever new investments and spending exceed prior savings, an economy sets itself up for some sort of trouble ahead. There is simply no way to avoid it. The bigger the gap the bigger the damage. In short, it's not more money that generates economic wealth.
    Oct 28, 2014. 03:51 PM | 3 Likes Like |Link to Comment
  • Why Do Banks Want Our Deposits? Hint: It's Not To Make Loans [View article]
    sethmcs,
    When you invoice your customers, you buy money with whatever you sell. Your customer buys your goods or services with money. This is a simple exchange and no money is created. When banks lend however, money is created out of thin air without the bank having to give up anything. This is a free lunch for banks which the many (some more than others) pay for through an increase in the money supply (and a corresponding decrease in purchasing power) and other damages to the economy (bailing out banks).
    Oct 28, 2014. 02:04 PM | 4 Likes Like |Link to Comment
  • Why I Agree With (Some Of) Friedrich Hayek [View article]
    Friedman did actually change his position towards the end: http://bit.ly/1rk6CXm
    Sep 24, 2014. 10:47 AM | 1 Like Like |Link to Comment
  • Why I Agree With (Some Of) Friedrich Hayek [View article]
    Spot on. I stopped reading Soro's article right there as it is a good chance the rest is packed with errors as well.
    Sep 24, 2014. 10:21 AM | 1 Like Like |Link to Comment
  • U.S. Banks Are Now Operating With 100% Reserves - Is Full-Reserve Banking The Next Step? [View article]
    RS055
    To my knowledge, the current excess reserves far exceed any liquidity requirements other than the standard reserve requirements as well. Capital is of course another matter and it is very low as always for the average bank (10.86% currently, vs 10.62% the week before the banks collapsed in min Sep-08). Do you have more details about what you are referring to? Here is an interesting link: http://bit.ly/1um90Pp
    Sep 10, 2014. 03:18 PM | Likes Like |Link to Comment
  • U.S. Banks Are Now Operating With 100% Reserves - Is Full-Reserve Banking The Next Step? [View article]
    Thanks for your comments Doug. I beg to differ however that ending fractional reserve banking "...would pretty much destroy banking as we know it". Banks would likely make substantially lower profits if it was ended and they would have to change their business model. But that would not destroy banking. Banks would become true financial intermediaries instead, passing savings on to borrowers instead of creating money out of thin air (and making a profit on it).
    Sep 10, 2014. 03:08 PM | 2 Likes Like |Link to Comment
  • U.S. Banks Are Now Operating With 100% Reserves - Is Full-Reserve Banking The Next Step? [View article]
    Could you please elaborate on that Christopher? Bank equity to M1 is today about 57%, compared to an average of about 41% since 1975.
    Sep 10, 2014. 02:57 PM | Likes Like |Link to Comment
  • Why The Wealth Effect Doesn't Work [View article]
    An excellent read. Below I simply put forth a few more/different arguments supporting the article's view.

    Before Keynes came along, a distinguishing feature of an economist (a proper one that is) was that he or she did not dispute the fundamental message of Say's Law (there can be no demand without supply), viz. produce first, then consume.

    Adam Smith once apparently said “What is prudence in the conduct of every private family can scarce be folly in that of a great kingdom.”

    I am yet to speak with a person who has said he or she is spending (does not include investments in this case) as much as possible to get out of financial difficulties. Macro is the sum of all micro. That so many mainstream economists still have not figured this out is mind boggling to put it mildly. Yes, the article's point about savings is a plausible one. Another possibility as to why these so-called economists advocate such nonsense (i.e. spend instead of save) must be that they put the short-term ahead of the long-term, i.e. create some activity, no matter how unsustainable, in the short-term and hope for the best long-term. In other words, economic quackery.

    A short note on the "wealth effect" in general: Assume everyone in an economy owns a house. If everyone then agree to swap houses at prices well above current market prices, does this make the economy as a whole wealthier? Of course not. Government and the Fed's oppsession with pushing house prices up is simply to inflate banks' assets (or protect them from falling) to allow monetary inflation to continue and the banks to survive. This can result in little else than increased debt, malinvestments and over-consumption. Hardly a recipe for increased prosperity, but an excellent cocktail for continued artificial booms followed by very real depressions (called recessions these days).
    Aug 21, 2014. 03:54 PM | 4 Likes Like |Link to Comment
  • Growth In Lending Increases Even As Banks' Equity Ratios Approach 2008 Levels [View article]
    Neil
    I'm short of time, but here's a quick one for you to dwell on over the week end. I am not suggesting that the Fed should be the one to create money (instead of banks). But rather, why, and for what reason(s), should any institition, at all, be able to create new money?
    Aug 15, 2014. 06:25 PM | Likes Like |Link to Comment
  • Growth In Lending Increases Even As Banks' Equity Ratios Approach 2008 Levels [View article]
    Neil,
    Thank you for digging further. Yes, all new money is created out of thin air, I'm not arguing about that at all. I'm merely pointing out that there is a difference in lending money previously saved and lending newly created money (the former is possible).

    You are absolutely correct that most loans are indeed created out of thin air. I suggest it should be otherwise: banks should carry much more reserves and lend money which they actually possess (and not create new ones). The creation of new money puts the interest brake out of action thereby removing the self-correcting forces that would work in a free market system not distorted by an increase in the quantity of money.

    Friedman said something along the lines that it was a mistake not to provide more liquidity during the depression. Bernanke has lived by Friedman's statement and he wrote his phd on the subject if I remember correctly. I point out that the damage had already been done during the easy credit "roaring 20s" - providing more liquidity just postpones the inevitable correction (you can't cure a problem with more of what caused it in the first place).

    If you would like some links to further readings on this subject then please let me know.
    Aug 15, 2014. 03:58 PM | Likes Like |Link to Comment
  • Growth In Lending Increases Even As Banks' Equity Ratios Approach 2008 Levels [View article]
    Oh, but it does very much matter where the money come from and creating money out of thin air is indeed the problem. If a bank merely lends what others have deposited, there is no change in the money supply.

    As for your last point you are overlooking that the damage was done during the 1922/3 to 1929 period, a period of easy credit and rapid expansion of the money supply. This had to come to an end eventually (and Friedman was wrong).
    Aug 14, 2014. 02:02 AM | Likes Like |Link to Comment
  • Growth In Lending Increases Even As Banks' Equity Ratios Approach 2008 Levels [View article]
    Remember that the Fed being the lender of last resort is a fundamental reason why we keep having these so-called "economic shocks", which are usually just plain banking crisis that naturally spread to the real economy.

    Low reserve requirements and the Fed always standing ready to bail out banks increase moral hazard, i.e. banks leverage up their balance sheets more than they would do otherwise. Without the Fed, banks would be much more cautious and carry substantially higher reserves as having a sound balance sheet would then be of great importance.

    Also see this short piece: http://seekingalpha.co...
    Aug 13, 2014. 05:11 AM | Likes Like |Link to Comment
  • Growth In Lending Increases Even As Banks' Equity Ratios Approach 2008 Levels [View article]
    Yes, lending is indeed essential, but you need to distinguish between lending money previously saved and lending money created out of thin air. The latter expands the money supply and is the fundamental cause behind all banking crisis and the economic problems that come with it.
    Aug 13, 2014. 04:55 AM | Likes Like |Link to Comment
  • Growth In Lending Increases Even As Banks' Equity Ratios Approach 2008 Levels [View article]
    Thank you for your comment. I can't comment on what these other authors' views were, but I can say that I have actually participated in this bull market. However, as I believed the probabilities of further gains had been dramatically reduced for some time (and as the Fed has been tapering), I've been short the U.S. stock market for the last month or so.

    As for Fed chairmen, my guess is that they know more about how an economy works that what they actually say in public. However, their first and foremost responsiblity is to keep the banking system afloat and that is what they have done. At tremenduous costs to society. Creating more money never have, and never will, increase real wealth. If it was that simply, we could all quit working and have the printing presses turned on.

    In this article I try to point out an important shift which is now occuring in the U.S. economy, namely that banks are increasingly, once again, taking on the role as the chief money creator. This creates new risks to the economy. Just as monetary inflation created by governments in tandem with central banks is not sustainable, the same applies to bank credit. This became very apparent during the 2008 banking crisis when credit had expanded rapidly for years. This is now starting all over again, but it remains to be seen how far it is pushed this time.

    Running correlations was outside the scope of this article and are best left to others. Personally, I don't find them very useful.
    Aug 9, 2014. 11:04 AM | 1 Like Like |Link to Comment
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