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  • Reports Of Housing's Demise Have Been Greatly Exaggerated [View article]
    Housing relies on jobs, and this is the weakest jobs recovery in modern history.
    But, we are seeing expansion, albeit much slower than normal.
    Housing should follow that slow expansion.

    We are in a slow motion cycle.
    And housing is still below its long term trend line.
    Sep 30 03:02 PM | Likes Like |Link to Comment
  • Why Can't Academic Economists Understand Endogenous Money? [View article]
    I agree that it makes no sense to place someone's loan agreement against your deposit. But, that is NOT how it works. Your deposit account is an obligation of the bank to you, an IOU. The loan is an obligation of the borrower to the bank, an IOU. The two are not tied together, except by the fact that the bank is a party to each agreement. You are not making the loan. But, the bank has used funds from its pool of depositors (including you) to fund the loan.

    The loan agreement satisfies (and maintains) the asset side by replacing the the funds disbursed. The bank's accounting requirements are fully satisfied by replacing one asset with another.

    If the borrower takes the loan proceeds as cash, there nothing more to it.
    The bank receives a loan agreement (IOU) and disburses cash funds.

    But, if the borrower deposits his loan proceeds in the bank, this creates an asset (the funds deposited) and a liability (the deposit account) that balance each other. The bank's accounting is fully satisfied, again.
    And, the borrower's Deposit also provides more loanable funds for the bank to make the next loan.
    Sep 26 09:03 PM | Likes Like |Link to Comment
  • Why I Agree With (Some Of) Friedrich Hayek [View article]
    I think the biggest fundamental difference between liberals and conservatives is HOW they think the world could be better.

    And as Soros stated, both sides see their view as correct, and the other side as wrong. And there is often the inclination to think that those who advocate the opposite view must have evil intent. Why else would they advocate the "wrong" solution?

    Tackling the world as it is can fit with any view of how to improve it.

    Letting bias interfere with the evaluation of reality can impair the quality of the evaluation. This includes the evaluation of the other side's views.
    Sep 24 02:43 AM | 3 Likes Like |Link to Comment
  • Can General Electric Return To Its Previous Blue-Chip Dividend Growth Stock? [View article]
    Comeback stories can be very long in the making...
    I don't have much confidence in this one.

    In the 1990s I bet very heavily on GE, with great satisfaction.
    GE (& GE Capital) had dynamic energy, and great exposure to the best places to be at that time. And the stock was on a tear!
    I also used GE as a proxy for the economy in general, as I would use a broad ETF today. And it was in my 401k company match...

    But, I sold everything in 2000, including GE. In fact, especially GE!
    We used to say that GE had a severe Y2K problem - the expected retirement of Jack Welsh. Not only because of his planned departure.
    But because the mandates leading up to his departure pushed extremely hard on very short-term results at the expense of the future.

    I feel like GE lost it's mojo after he left...
    And, so many years later it still looks lost to me.
    So, I don't hold it anymore, just 1,000 shares to track it, and whatever it comprises in the ETFs I hold.
    Sep 24 12:24 AM | 3 Likes Like |Link to Comment
  • The Worst Call Of The Last 5 Years [View article]
    Reserve requirements reduce the ability to lend.
    The fractional reserve is an amount that the bank can Not lend.

    Reducing the reserve amount to zero, by having no reserve requirement would let 100% of each deposit be reissued as a loan, over and over, instead of only 80% or 90% each turn. The theoretical multiplier would then be infinite.

    Banks are restricted by their fractional reserve requirement.

    As a non bank, I have no such reserve requirement.
    I can lend 100% of any funds I have, whether borrowed or my own.
    Of course, I am not legally allowed to collect "deposits" - but I can borrow money from anyone who is willing to lend it. And do with it as I please, unless those who lend to me place restrictions on me, which a smart lender would do.

    Branches of a tree are not the trunk being counted many times over.
    And they are not created out of thin air.
    Although, some might think so.
    Sep 23 11:38 PM | Likes Like |Link to Comment
  • Why Can't Academic Economists Understand Endogenous Money? [View article]
    A depositor's funds create an asset and a liability on the bank's balance sheet. The funds received are an asset to the bank, and the deposit account balance is a liability owed to the depositor.
    For the depositor it is a trade of a cash asset for an IOU asset.

    A loan is the reverse. For the borrower it creates an asset (the loan proceeds) and a liability (the debt). For the bank it is a trade of a cash asset (the funds disbursed) for a loan asset.
    Sep 23 11:16 PM | Likes Like |Link to Comment
  • The Worst Call Of The Last 5 Years [View article]
    Sovereign entities and their central banks are able to create money from thin air, as they own the “printing press” and control the regulatory environment.

    The Federal Reserve creates money and money supply out of thin air by distributing new money. Essentially IOUs, whether as paper money or electronically created.

    By purchasing assets in the market the Fed increases the quantity of money in the hands of those who sold the assets to the Fed.
    The Fed purchases increase the supply of money, and reduce the available supply of securities in the market, leading to an increase in the price of securities and a reduction of their yield. This also increases deposits, drives up other asset prices and reduces interest rates.

    Credit expansion by the banks will coincide with increased borrowing and spending in the economy, and will further increase the observed measure of the aggregate money supply, as all deposit accounts are counted in the aggregate money supply statistic, without netting out the offsetting debt. The same money is counted many times over as it circulates through the bank(s).

    Banks need funds to disburse funds. Banks can certainly commit to a loan before having sufficient funds, and then go get those funds.
    They get their funds from deposits, capital and borrowing.

    It is true that IF a loan is "funded" as a deposit in the same bank, there is no disbursement of funds. On the surface this appears as if the loan is funded by the loan itself. But, this is not yet a disbursement of funds.
    It is a trade/swap of IOUs, with the borrower (or his payee) getting an IOU from the bank in the form of the deposit account, and the bank getting an IOU from the borrower in the form of the promise to repay the loan. Of course, the borrower can draw from his account at any time.
    And, once the borrower does spend the loan proceeds, the bank will have to actually disburse funds, resulting in a net decrease in funds, and returning the deposit balances to the level before making the loan.
    Of course, these amounts will shift to another bank.

    If the loan proceeds were disbursed directly to a third party (as in a home purchase), or deposited at a different bank, the lending bank would have to disburse funds immediately. The aggregate measure of the money supply will increase as the other bank records a deposit, and receives the funds. But, the lending bank’s funds would decrease, while its total deposits would be unchanged.

    As a practical matter, a bank lending from a sufficient base of funds will seemingly not use any funds, if deposits and disbursements are occurring in comparable amounts. But lending will drain funds from the bank, as borrowers use the funds committed by the bank loans. Other deposits will be needed to replace the temporary deposits of the borrowers.

    It should also be remembered that banks are exposed to significant liquidity risk, as their main sources of funds (deposits) tend to be short term, while their main uses (loans) tend to be longer term. Banks generally strive to attract relatively stable deposits to better match/support their loans.

    Bank lending does facilitate an increase in the observed aggregate measure of the money supply in circulation.
    This is not the same as being able to disburse funds from thin air.
    Sep 23 10:40 PM | 1 Like Like |Link to Comment
  • U.S. Tax Competitiveness Stinks [View article]
    Yes. The G20 recognizes the problem of disparate tax structures.

    Any move to an international standard, and uniformity of taxation would result in lower taxes on US corporations. The current disparate mix of tax structures internationally gives non-US companies a competitive advantage over US-based companies. And, it drains jobs, production, and tax base away from the US and other high tax countries.
    Sep 23 06:40 PM | Likes Like |Link to Comment
  • U.S. Tax Competitiveness Stinks [View article]
    Yes. Fairness is important. But who ultimately pays is not as it seems on the surface. In the long run we all pay the cost even if it is collected from others. Prices of goods and wages adjust to reflect the tax costs imbedded.
    Sep 21 02:33 PM | 1 Like Like |Link to Comment
  • Market Timing Report: Indicators Are Cued Up For A Bear Market [View article]
    I rarely buy on dips because I stay fully invested.
    To buy on dips I would have to sell before the dip, or have idle cash during the rising market.
    Sep 21 02:30 PM | Likes Like |Link to Comment
  • The Worst Call Of The Last 5 Years [View article]
    Like the single dollar passed around the room, the apparent observed money supply is really a combined measure of money and velocity.
    It is multiple counting of the same money. But, for policy and analysis of the economy this is fine if the method and practices do not change materially. We can track apples to apples changes over time, even if the measure is really just a rough proxy.

    The problem is when people think that a bank can actually create funds from thin air. The bank must have deposits, equity or other sources of funds from which to make loans. It cannot magically create funds to lend out. This is basic accounting, and the point of my comments.
    Sep 21 02:30 AM | Likes Like |Link to Comment
  • The Worst Call Of The Last 5 Years [View article]
    Asbytec, I explained how the accounting works, and the movement of the funds. If you want to understand it you should review some basic accounting principles. Assets must equal liabilities. Your explanation violates that principle. You are not following the trail.

    As for gold certificates, they are merely IOUs.
    The question is whether the issuer can make good on that IOU.

    Your bank account is also an IOU (from the bank to you).

    Loans do not create deposits. You cannot fund a loan with proceeds from the borrower because the borrower has no funds until after you make the loan. If you could, then we could all become billionaires by simply lending money to each other.
    Sep 21 02:11 AM | Likes Like |Link to Comment
  • The Worst Call Of The Last 5 Years [View article]
    No, you have a promise from the bank to pay you $100 on demand.
    You do not have $100 of money. Just a credit/IUO from the bank.

    When Jones deposits the $90 in the bank he no longer has $90 cash.
    He now has a promise from the bank to pay him $90 on demand.

    If everyone went into the bank to withdraw their money (or tried to spend it all at once), the bank could not pay them because it does not have the money on hand - it has been loaned to others.

    If we all pass a single dollar around the room, no matter how many times we pass the single dollar, there is still only one dollar.

    However, the number of transactions could be huge, giving the impression that there are more dollars. But, it is an illusion.

    The money supply statistic does count bank deposits.
    But this is just a crude method of estimating the money in circulation.
    Like the single dollar passed around, it includes movement of money.
    Bank deposits reflect velocity combined with money supply.
    It is not a true or pure measure at all. But, it is a useful proxy.
    Sep 21 01:59 AM | Likes Like |Link to Comment
  • Why Can't Academic Economists Understand Endogenous Money? [View article]
    They don't take the money out of your account with a debit.
    That is not how bank accounting works.
    Your account is just an obligation of the bank.
    The money is not sitting in a vault waiting for you.
    The bank lends that money to borrowers, without changing the amount they owe to you, and show in your account.

    They keep some money on hand for the expected withdrawals, but not all of it. They are also required to keep some money in reserve (=not lent out) to satisfy regulatory concerns about leverage and solvency.

    Excess reserves are reserves in excess of the amount required by the regulators. Reserves are funds that are NOT lent out to borrowers.
    That is why they are called "reserves" - they are funds held in reserve.
    Sep 21 01:43 AM | Likes Like |Link to Comment
  • The Worst Call Of The Last 5 Years [View article]
    Sure, there are various ways a bank can obtain more funds.
    It can borrow funds if it is credit worthy, or attract more depositors, or sell stock to raise capital. But, they must have the funds in order to lend them out. The point being that they can not create money out of thin air.
    Sep 21 12:08 AM | Likes Like |Link to Comment