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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: mishedlo who wrote (49231)	1/9/2006 1:42:37 PM
From: Tommaso	Respond to of 110194

Shostak is so concerned to limit the definition of money as strictly as possible that he says that money deposited in a bank is totally the property of the depositor and that the cash he deposits is his cash and his alone. He does not state clearly that a bank will never hold more than some prescribed percentage (it seems to vary with federal and state banking requirements) of those demand deposit totals in either cash or as a deposit with a Federal Reserve bank. It may be that by arguing this way, he means to argue that demand deposits SHOULD be 100% backed by cash, i.e. Federal reserve notes. But in trying to define what money is, he says that demand deposits ARE backed by cash. It seems to me that whatever reserve requirements existed for checking and savings accounts fifty years ago were sound. Maybe I can look them up. Fractional reserves are the essence of banking. I have run out of time right now and have to sign off.

To: mishedlo who wrote (49231)	1/9/2006 3:10:55 PM
From: gpowell	Read Replies (1) \| Respond to of 110194

Do you believe the production of money is in need of regulation? Or, alternately, that a free market in money will be inherently unstable and prone to failure? And if the answer is yes, then please indicate what are the failure mechanisms.

To: mishedlo who wrote (49231)	1/9/2006 4:15:56 PM
From: Tommaso	Read Replies (1) \| Respond to of 110194

My copy of Paul Samuelson's book "Economics" includes on page 298 a table of reserve requirements for Federal Reserve Banks in May, 1975: For demand deposits: First $2 millon: 7.5% $2-$10 million: 10% $10-$100 milllion: 12% $100-$400 million: 13% Over $400 million: 16.5% Time Deposits under $5 million: 3% Over $5 million 30-179 days: 6% Over 180 days: 3% Mr. Shostak either does not know or chooses not to take notice of the fact that it is perfectly legal for a bank to have a billion dollars in demand deposits and only have 150 million dollars in actual cash. Yes, I know that the real situation is more complex than this, but Mr. Shostak cannot seem to grasp even an oversimplified description, that no student can pass Economics 101 without grasping. Any good economics textbook will explain the way in which the interbank transactions, using excess reserves for loans or to buy bonds, mutltiplies the effect of any addition of actual cash (or Federal Reserve credits) and expands the money supply. Perhaps Shostak is just pretending that all bankers are frauds and criminals because they do things differently from what he thinks they ought to be doing. It does make you wonder if he would say that the earth is flat. After all, if the earth were curved into a ball, you would always be going uphill or downhill, wouldn't you? Well, it is hard to argue with people who refuse to deal in realities. I used to argue about inflation with a (now former) brother-in-law, a highly-qualified lawyer. He was sure that all inflation could be explained by energy prices. At one point he finally did say to me, "Are you trying to tell me that there is more paper money in existence than there was ten years ago?" As if that were a perfectly ridiculous thing to say! He had never taken a look at any monetary statistics, not even the figures for actual currency in circulation. I did not ask if he thought we were still on a gold standard, but he probably did.