The government creates credit by spending where the credit so created has moniness
Moniness is something you refuse to allow to exist.......hence the name change and inability to predict what is likely to happen.
However for sure our future will be decided one way or another by the moniness of the large amount of government debt our money system is creating where only a credible government has the luxury of creating money like debt.
Fundamentally you dont get it. Or you refuse to. Gold for example has moniness but it is no more money than wheat or tinned beans where all commodities and objects have moniness
I have no idea what that comment means and i doubt i ever will.
If cash reserves build up in the commercial banks at the same time they become reserves of the central bank. The central bank then either buys assets or lends against the assets as security. I'm sure you are aware of the type of assets they deal in. The government will borrow money and spent it back into the market.
The next trick of our glorious banks will be to charge us a fee for using net bank!!! You are no longer customer, you are property!!!
If cash reserves build up in the commercial banks at the same time they become reserves of the central bank. The central bank then either buys assets or lends against the assets as security. I'm sure you are aware of the type of assets they deal in. The government will borrow money and spent it back into the market.
Ah so now we are back to Wulfies stupendously awesome brain creating his own version of reality, where the government is forbidden from creating more money and instead has to borrow it!
Did i get it right? Even in the greatest financial crisis of all time the most powerful government on the planet is not allowed to create whatever amount of money is required to keep things liquid and they have to obey a secret agreement that only the stupendous wulfie brain knows about.
Ah so now we are back to Wulfies stupendously awesome brain creating his own version of reality, where the government is forbidden from creating more money and instead has to borrow it!
Did i get it right? Even in the greatest financial crisis of all time the most powerful government on the planet is not allowed to create whatever amount of money is required to keep things liquid and they have to obey a secret agreement that only the stupendous wulfie brain knows about.
It depends on the use of the words "create" and "borrow".
When gov/CBs "create" money they apply a debit against themselves equal to the amount of money they create. This happens with QE and bank note issuance. They actually owe an amount equal to the money which gets created and this liability is entered in their accounts. This is equivalent to borrowing.
You might claim that the debits which a gov/CB applies to itself when it creates money (QE/reserves/bank notes) is money it owes to itself and is therefore different than borrowing. This is not true. Govs/CBs create themselves liabilities to others when they create say bank notes. This liability is to the holders of the bank notes which it issues. It is just as clear with the creation of monetary reserves through QE. The government creates itself a liability to the seller of the assets which the gov/CB purchases by crediting the reserves of that seller, which represent a liability of the government to that seller.
The creation of money by gov/CB through QE and bank note issuance is effected by the creation of indebtedness of the gov/CB to the beneficiaries of the money created. This indebtedness is no different to any other form of borrowing.
Wulfie is right. Governments/CBs create money by creating a debt to the private sector ie by borrowing from the private sector. They even pay interest on QE borrowings (ie reserves) so of course it is government debt. Reserves and bank notes are government debt (ie borrowings), owed to the private sector.
In the case of the FED there are 1,229,746 million in FRN currency in circulation. Against this liability an equal asset in Treasuries is kept. Until the GFC this was mostly what the FED balance sheet was. With the GFC the major banks became reluctant to lend which means and asset of cash reserves would have built up. From what I can figure the excess cash reserves are automatically available to the central bank on an at call term (zero maturity).
Currently the FED balance sheet totals 4 trillion way beyond the currency issue. They have 2.1 trillion worth of treasuries currently which is way beyond what they need to back the currency, along with that they have 1.5 trillion of MBS. The other 0.4 trillion in asset being a collection of smaller instruments.
Reserve balances with Federal Reserve Banks 2,540,722 M$. This figure is what amounts to at call deposits with the FED by the retail banks.
So if cash comes to the FED it boomerangs it immediately back to the market via loans or outright purchases of treasuries or MBS. Otherwise deflation on a massive scale would occur virtually over night. There is obviously some policy in place that governs how much cash is in circulation outside the retail banks. From what I can figure they follow the Milton Friedman doctrine of increasing the cash in circulation by a measured amount on constant basis to keep a "small" degree of inflation in the works. This doctrine seems to have been adopted under Basel One to prevent the ad hoc currency inflation of the 1970's and 1980's amongst the world tradable floating currencies. Many large and small second world nations still operate under the old system of a quasi fix to the US dollar. But Euro, Anglo, Japanese and other Anglo centric Asian currencies float on the world market as a type of commodity. The world currency traders knowing these are only devalued at a steady "low" rate and hence are conformable in retaining reserves.
If the FED didn't keep the current huge balance sheet then the sell off of treasuries and Mbs would result in skyrocketing interest rates. The ECB has gone against trend and contracted its balance sheet by 25% over the last 12 months.
The next trick of our glorious banks will be to charge us a fee for using net bank!!! You are no longer customer, you are property!!!
It depends on the use of the words "create" and "borrow".
When gov/CBs "create" money they apply a debit against themselves equal to the amount of money they create. This happens with QE and bank note issuance. They actually owe an amount equal to the money which gets created and this liability is entered in their accounts. This is equivalent to borrowing.
You might claim that the debits which a gov/CB applies to itself when it creates money (QE/reserves/bank notes) is money it owes to itself and is therefore different than borrowing. This is not true. Govs/CBs create themselves liabilities to others when they create say bank notes. This liability is to the holders of the bank notes which it issues. It is just as clear with the creation of monetary reserves through QE. The government creates itself a liability to the seller of the assets which the gov/CB purchases by crediting the reserves of that seller, which represent a liability of the government to that seller.
The creation of money by gov/CB through QE and bank note issuance is effected by the creation of indebtedness of the gov/CB to the beneficiaries of the money created. This indebtedness is no different to any other form of borrowing.
Wulfie is right. Governments/CBs create money by creating a debt to the private sector ie by borrowing from the private sector. They even pay interest on QE borrowings (ie reserves) so of course it is government debt. Reserves and bank notes are government debt (ie borrowings), owed to the private sector.
Strindberg
What you are saying and what Wulfie is saying are totally different
You are saying that when the government creates money it amounts to a defacto debt. In reality we dont know at the time of money creation if a debt is created or the money is simply 'stolen' from all of the holders of the various forms of fiat money including bank credit, so that it will become stolen in the form of inflation.
What Wulfie is saying the government can only do QE is by borrowing from the banks rather than borrowing from the entire private sector.
However what Wulfie is saying has no material difference to what you or I are saying. Wulfies unique theory changes nothing at all other than it is crazy to consider that powerful countries are constrained in money creation so that they are powerless to create money without an actual willing borrower.
Count du Monet
20 Dec 2013, 04:48 AM
From what I can figure the excess cash reserves are automatically available to the central bank on an at call term (zero maturity).
The fact of the matter is that the money system is set up in such a manner that at all times the central banks targeted interest rate is targeted! If the banks are unwilling to lend excess reserves to other banks, then the actual cash rate in the market must rise and the central bank supplies money until it falls so that the actual cash rate and the target rate are aligned!
As soon as the banking system began freezing up and actual money market rates began spiking the central banks would automatically have supplied money to the market via the clearly established channels that already exist in normal times to avoid fluctuations in the actual market cash rate.
In the case of Australia the private banking systems ownership of registered approved securities can be computer programmatically reasigned to be owned by the RBA in return for RBA reserve balances without a phone call. Therefore automatically if the banks stop lending reserve balances or stop selling banknotes, the banks who require this money can get, in the first instance, reserve balances from the RBA, by right, without a phone call automatically via computer systems at the micro second the money is required, and therefore the amount of excess reserves in the system will have risen as required to maintain the cash rate at the target.
All of this stuff is totally transparant and there is no need for guesswork or secret conspiracy theories as to how it works.
No, the government can borrow money from whoever will buy their treasuries. Although essentially it is the primary sales to investment banks where they "borrow money". However the Secondary sales are important or the market wouldn't be liquid. The central bank will typically buy secondary to maintain liquidity of government debt.
The only act that can be defined as money creation is when the central bank issues more notes into circulation than they retire. You can check the central banks balance sheet and note the increasing issue of paper money over time. But the central bank takes deposits from commercial banks and also lends to them traditionally short term.
The government borrows and spends, you can call that "creating debt" if you like. The market does have use for the "safe" although lower return government bonds as a trading instrument.
The next trick of our glorious banks will be to charge us a fee for using net bank!!! You are no longer customer, you are property!!!
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