Banks now have a NEGATIVE reserve ratio

[Molly1]

That is a really good question: What difference does it make? The difference it makes is this: Banks no longer need to worry about a bank-run because the Federal Reserve has officially sanctioned printing any money needed out of thin air. In addition, the entire US banking system now has negative real reserves. While many people have been warning of this the numbers now confirm that the Federal Reserve is actually doing it.

Based on the Fed's number they are inflating the base money supply at 10% per month. Greenspan recently spoke about the Accelerator effect as illustrated in this chart. Perhaps our current rate corresponds to around June 1922?

Is this why they started hiding the M3?

I wonder if this is all being masked by cheap imports from Asia..

 

[LibertyForAll]

As an impartial observer, without much economics knowlege, but good basic comprehension skills and intelligence, I have to say that jonahtrainer makes the most convincing points, with data to back it up. I don't see any hard facts backing up JordanQ72's argument. Just my observation.

 

[Molly1]

There was something in the debates tonight I didn't understand.

It was that question about our banks getting loans from various Arab countries?

Does anyone know what is going on with that?

 

[AceNZ]

No, it is based on 'non-borrowed reserves' from the non-seasonally adjusted Table 2.

Ah, sorry. The legend for the numbers in your op was confusing me.

For every $1,000 on deposit at the banks they have -$1.40 as reserves. This is INSANE! The bank run is being prevented by the Federal Reserve printing money out of thin air to loan to the banks to covered their 'required' reserves (Term Auction column from Table 1).

I agree that it's insane, and that the reserves are being generated out of thin air.

It seems what's happening is that the banks are moving from non-borrowed reserves to borrowed reserves. That has always been legal, and there's no requirement for banks to have a certain level of non-borrowed reserves. Loans from the Fed have always been considered reserves. It's just that now the loans are larger than they used to be, because the discount rate is so low.

I know it seems strange, but this seems like it's just another by-product of our wonderful fractional reserve banking system and its relationship with the Fed.

 

[JordanQ72]

I didn't ask for your login credentials. I asked for the link, source or cite.

It's a private database containing archived historical economic data, exactly what am I supposed to link to? It's FED H.3 related data going back farther than 1975.

If I don't already have access I am sure I can very quickly find someone in my address book who does.

What were you waiting for then? Go, go find it. You don't need to use my company's specific database. Seriously, how dense are you? What else did you think was being talked about? I mentioned your 'deeper research' only is data going back to 1975 and then you mention yourself that you have data only going back to 1975.

 

[JordanQ72]

As an impartial observer, without much economics knowlege, but good basic comprehension skills and intelligence, I have to say that jonahtrainer makes the most convincing points, with data to back it up. I don't see any hard facts backing up JordanQ72's argument. Just my observation.

Come back in 4 weeks when the TAF loans unwind and we're back to banks borrowing from each other and not the FED and that column goes back to it's previous values. You say you're intelligent, then think their argument over. Jonah claims banks have borrowed from the FED to cover reserve requirements, that the FED is masking a bank run. If that were true, ask yourself, why is there no draw down in vault cash then? Why instead has there been an increase in loan activity equivalent in value to the TAF loans? I'm saying the FED loans went right through the banks, past your untouched deposits, and into the hands of credit seekers on a 28 day term basis.

 

[kyleAF]

So, this looks more like a slugfest than a clarification on the economic issues that are plaguing us all...

 

[kyleAF]

And as a counter to your cherry picked gold chart, here's mine

GOLD IS A HORRIBLE INVESTMENT VEHICLE

Losing 81.5% over the final 2 decades of the century

You seem to imply that you work for a financial firm or something, given the database access you speak of...

Can you plot along-side this, the value of the dollar, as indexed to inflation and compare it to the value of the gold, as indexed to the dollar?

I think that'll clarify things a bit more. Gold is REALLY secure over time. You're right that it sucks as an investment, since it generally just gets stronger as the dollar gets weaker, so your ability to exchange for dollars doesn't affect your purchasing power...in other words, even if gold goes up, you aren't making any real money.

Then again, USUALLY if gold goes down, you aren't losing any real money either (unless you otherwise would have hoarded the paper money against the Fed's old-dollar uptake).

Right?

 

[HOLLYWOOD]

It looks like your stats are based only on vault cash. Fed policy also allows other "assets" to be considered reserves. In particular, loans from the Fed are also reserves (a loan, which is actually a liability, is considered an asset in this case).

A bank can't operate for long without at least some minimal reserves. Differences in day-to-day check clearing dates/order can cause a mini-run on a bank very easily.

YEAH... LIKE "BANK OWNED and REPO HOMES/properties collateral that devaluate by the hour!

 

[kyleAF]

To me, economics is ALL about purchasing power.

In other words, economics deals primarily with energy transfers within the biosphere (and specifically with regard to our species, since we're the only ones who throw the term around ). We've all heard the term: "General standard of living increase" thrown out as a reason to like Capitalism for its efficiency. This is basically the same as: a greater ability of the system to support life. It takes A LOT of coordinated effort to feed 6+ billion people. Money is just a necessary way to carry the equivalent of 10 tons of grain MUCH more easily, since large-scale direct barter is not feasible. Money is not the primary exchange of economics.

Gold doesn't inflate appreciably. There's a certain amount in the ground, and a certain rate of discovery, but that's negligible. And we haven't found the philosopher's stone to convert all the lead yet!! [though if that ever happens, we'll find that the true base-commodity is energy itself].

So we could say that a 20.00 gold coin (1 troy ounce) of the early 20th century could purchase a nice suit (say an 850.00 suit by today's standards). [These numbers may not be quite right, but take them for sake of argument]. Well, today it seems that the same "20.00" gold coin (1 ounce) could purchase...a nice suit...valued at about: 850.00 by today's standard!!

So the purchasing power of the gold hasn't changed much, but the UNIT (dollar) of payment HAS! This is inflation. By this argument, it is indeed much safer to hold onto the non-inflating general payment asset (gold), rather than the inflating general payment asset (paper dollar), as your purchasing power doesn't change much with the former, but decreases DRASTICALLY with the latter. So, it's not an investment in the conventional sense, but when the choice is between: retaining purchasing power over time, and losing purchasing power over time, the choice becomes a bit easier to make.

Now, I'm speaking in terms of "all other things being equal". But, that's not the case, since an economy based on a common medium of exchange (money-based economy), that is left mostly to the free market, will see a GENERAL increase in purchasing power (as mentioned above).

For example, the phrase: "the poor of today, fare better than the kings of yesteryear". This should now be amended to "the middle class of today...." because of the harmful effects of inflation: the upward shift of concentration of wealth. But you get the idea.

Anyway, Gold is a great store of value... and a natural one to boot. Paper dollars: not so much. Especially with the recent increases in everything that is BAD about a fiat system.

 

[jonahtrainer]

Can you plot along-side this, the value of the dollar, as indexed to inflation and compare it to the value of the gold, as indexed to the dollar?

I find it interesting that my most controversial statement generated no excitement. It is that GOLD IS THE RISK-FREE RATE. Contemplate that for a second finance gurus.

Since currency is only good for what it will buy here are a couple charts that may answer the questions you have posed. The first graph shows the effects of the 'strong dollar policy' which is extreme central bank manipulation in the gold market. Banks being able to have real negative reserve ratios and have the shortfalls met by printing the currency out of thin air helps perpetuate this manipulation.

As currency is only good for what it will purchase we can easily see that the US$ is not risk-free as commonly taught in advanced financial management courses.

 

[JordanQ72]

Can you plot along-side this, the value of the dollar, as indexed to inflation and compare it to the value of the gold, as indexed to the dollar?

I have to say I'm a bit confused about what you're asking specifically, but I don't think the person above me answered your question. It sounds like you want me to redo the chart I posted in constant 1980 dollars? Clarify this and I'll get you whatever chart you're interested in.

Then again, USUALLY if gold goes down, you aren't losing any real money either Right?

No, you are, that's what I was saying. If you bought gold in 1980 and then sold it in 2000, you would have lost 81.5% of your purchasing power. At no time between 1980 to 2000 did we experience deflation, so the currency was constantly devaluing in the face of falling gold prices, further magnifying the loss of purchasing power.

 

[AceNZ]

If you bought gold in 1980 and then sold it in 2000, you would have lost 81.5% of your purchasing power. At no time between 1980 to 2000 did we experience deflation, so the currency was constantly devaluing in the face of falling gold prices, further magnifying the loss of purchasing power.

In 1980 it took about 5 ounces of gold to buy 100 barrels of oil. In 2000, it took about 7.3 ounces to buy 100 barrels. So that's a 46% drop in purchasing power by that metric. Between 1980 and 2000, oil was available at many times at the lower price, so the loss in purchasing power wasn't constant.

However, that's close to a worst case. Anyone who bought in 1980 did so at the top of the market (where the Dow could be bought with just 1 ounce of gold). If they held it to 2000, they would have been idiots, not investors.

 

[JordanQ72]

In 1980 it took about 5 ounces of gold to buy 100 barrels of oil. In 2000, it took about 7.3 ounces to buy 100 barrels. So that's a 46% drop in purchasing power by that metric.

How dare you even call that metric. Let's call it what it is: OUTRIGHT BULLSHIT

Yes, like I said in other posts that clearly offended you because they ran counter to your nonsense economic theories, measuring inflation based on two speculative and arbitrary commodity prices, oil and gold, is dumb at best.

Regardless of that, even using your 'metric', there's a decisive loss in purchasing power. You call them idiots, that's rather convenient, because all I see here is constant calls to buy more and more gold right into a top. What happened to gold being a safe store of value?

 

[AceNZ]

How dare you even call that metric. Let's call it what it is: OUTRIGHT BULLSHIT

So you're saying that a measurement of how much oil can be bought with gold isn't a metric? Interesting.

Yes, like I said in other posts that clearly offended you because they ran counter to your nonsense economic theories, measuring inflation based on two speculative and arbitrary commodity prices, oil and gold, is dumb at best.

Who said anything about measuring inflation with oil and gold? I was talking about purchasing power for a single commodity.

Regardless of that, even using your 'metric', there's a decisive loss in purchasing power. You call them idiots, that's rather convenient, because all I see here is constant calls to buy more and more gold right into a top. What happened to gold being a safe store of value?

Gold is not a totally safe store of value (although it can't be debased to zero like a fiat currency can be). Gold is an investment that makes sense at certain phases of the business and commodities cycles, just like any other investment.

Who is suggesting buying gold into a top? Are you saying you think gold is at a top now?

 

[jonahtrainer]

What happened to gold being a safe store of value?

Gold is the risk-free rate.

Now whether other avenues for the allocation of capital are 'expensive' or 'cheap' is an investment decision one has to make.

Gold is just as effective for communicating value as it has ever been. It is not outdated or primitive. On the contrary, banks and central banks are the barbarous relics from a bygone age because now gold can be completely liquid and circulate as a currency in daily transactions.

The DOW crash has continued and the ratio is now at 13.37=12.207/913.30.

 

[scooter]

Let's face facts everyone. Gold does not rise 1-to-1 with the devaluing of the dollar. It is simply a commodity like any other commodity. If you bought gold in 1980 and sold in 2000 you lost a lot of money... and purchasing power too.

I'm not saying gold is overpriced right now, but I'm saying that it's bad advice to just tell everyone to dump it all and put it into gold as if it were unfallable. Gold does not have an interest rate risk, but it does have an EXCHANGE RATE RISK.

 

[jonahtrainer]

Let's face facts everyone. Gold does not rise 1-to-1 with the devaluing of the dollar. It is simply a commodity like any other commodity. If you bought gold in 1980 and sold in 2000 you lost a lot of money... and purchasing power too.

I'm not saying gold is overpriced right now, but I'm saying that it's bad advice to just tell everyone to dump it all and put it into gold as if it were unfallable. Gold does not have an interest rate risk, but it does have an EXCHANGE RATE RISK.

No one is talking about allocating capital into gold. We are discussing using gold as the risk-free rate for capital allocation decisions. Sometimes the DOW is cheap and sometimes expensive ..... but you use gold, not US$, to determine that.

 

[scooter]

And what I'm trying to tell you is that there is nothing "risk-free" about gold. Just like any other currency, it rises and falls in relation to other currencies depending on market action.

 

[jonahtrainer]

And what I'm trying to tell you is that there is nothing "risk-free" about gold. Just like any other currency, it rises and falls in relation to other currencies depending on market action.

That doesn't make any sense as something must be considered the risk-free investment.

Gold doesn't change in value; everything else changes in relation to it. In a relative universe something has to be the standard against which all else is measured. That standard is gold like the sun to our solar system. The planets move around the sun not the sun around the planets. Earth (US$) is not the center of the solar system; gold (the sun) is.

Most people seem to think the US$ or their respective national currency is the risk-free rate. After all, it is the tool they use to perform the mental calculation of value.