Welcome Guest [Log In] [Register]


Reply
Australia interest rates to go lower, for longer
Topic Started: 5 Aug 2013, 07:13 PM (9,981 Views)
b_b
Default APF Avatar


Elastic
8 Aug 2013, 10:57 AM
This explanation isn't quite right because your example, shows the bank (NAB) buying the asset before it has the liquidity to do so.
I think this is a very important distinction.
Due to QE the banks will be left with large amounts of excess deposits (liabilities) and will be left with no choice but to buy assets .
I think the Fed was hoping the banks would lend these deposits to businesses and home buyers but instead they bought into the sharemarket and high yielding foreign currencies.
A banks liquidity is it's reserves my example includes this. The liquidity was transferee from nab to cba. Cba lent the reserves back

Reserves are never spent into the economy - as my example shows. Reserves are so banks can settle transation for their customers. That is why qe has no impact on lending growth.
(S – I) + (T - G) + (M - X) = 0
Profile "REPLY WITH QUOTE" Go to top
 
Elastic
Member Avatar


b_b
8 Aug 2013, 11:32 AM
A banks liquidity is it's reserves my example includes this. The liquidity was transferee from nab to cba. Cba lent the reserves back

Reserves are never spent into the economy - as my example shows. Reserves are so banks can settle transation for their customers. That is why qe has no impact on lending growth.
Ok I see that the banks are being left with excess reserves.
Something from Wikipedia;

Quote:
 
On March 20, 2013, excess reserves stood at $1.76 trillion.[19] As the economy began to show signs of recovery in 2013, the Fed began to worry about the public relations problem that paying dozens of billions of dollars in IOER would cause when interest rates rise. St. Louis Fed president James B. Bullard said, "paying them something of the order of $50 billion [is] more than the entire profits of the largest banks." Bankers quoted in the Financial Times said the Fed could increase IOER rates more slowly than benchmark Fed funds rates, and reserves should be shifted out of the Fed and lent out by banks as the economy improves. Foreign banks have also steeply increased their excess reserves at the Fed which the Financial Times said could aggravate the Fed’s PR problem


Excess reserves

However, there is no indication that these reserves can't be lent into the economy if the banks chose to do so.
Edited by Elastic, 8 Aug 2013, 12:30 PM.
Only a rat can win a rat race.

Profile "REPLY WITH QUOTE" Go to top
 
Sydneyite
Member Avatar


Elastic
8 Aug 2013, 12:28 PM
However, there is no indication that these reserves can't be lent into the economy if the banks chose to do so.
This all makes sense I think, except for this part - banks are not constrained by reserves for lending remember - their constraint is capital, and finding credit worthy customers. Reserves help with, and are required only for, operational liquidity in the modern system.

Having said that, I also think it is quite possible that a bank may choose to deploy excess reserves as it sees fit on short term asset (FX, equities, commodities and so on) plays? Are there any rules / regulations that explicitly disallow this?

So based on b_bs other posts etc, I am still not sure exactly sure what the Fed thinks the purpose / benefit of QE is? I am still leaning towards the view that they believe it lowers long term interest rates on government bonds, and that somehow the excess reserves created will encourage once or even twice-bitten banks to be confident around any operational liquidity risks that might otherwise have resulted from their lending?
For Aussie property bears, "denial", is not just a long river in North Africa.....
Profile "REPLY WITH QUOTE" Go to top
 
b_b
Default APF Avatar


Sydneyite
8 Aug 2013, 04:18 PM
Elastic
8 Aug 2013, 12:28 PM
However, there is no indication that these reserves can't be lent into the economy if the banks chose to do so.
This all makes sense I think, except for this part - banks are not constrained by reserves for lending remember - their constraint is capital, and finding credit worthy customers. Reserves help with, and are required only for, operational liquidity in the modern system.
Yes - spot on.
Quote:
 
Having said that, I also think it is quite possible that a bank may choose to deploy excess reserves as it sees fit on short term asset (FX, equities, commodities and so on) plays? Are there any rules / regulations that explicitly disallow this?

Banks can not "lend out" or spend reserves. The reserves simply shuffle between the banks to settle transactions on behalf of customers (and in some instance, on the account of the bank).
Quote:
 
So based on b_bs other posts etc, I am still not sure exactly sure what the Fed thinks the purpose / benefit of QE is? I am still leaning towards the view that they believe it lowers long term interest rates on government bonds, and that somehow the excess reserves created will encourage once or even twice-bitten banks to be confident around any operational liquidity risks that might otherwise have resulted from their lending?

The only problem is QE2 and QE3 has increase bond yields because the punters think it is stimulus. But bond yields fell signifiicantly after QE2 ended. So if this is all about lowering bond yields, then the progam has failed, twice.

I know where you are coming from Sydneyite. But never assume someone like Bernanke is smarter than you. Remember he said there was no property bubble in the United States. And we know how that ended.
(S – I) + (T - G) + (M - X) = 0
Profile "REPLY WITH QUOTE" Go to top
 
newjez
Member Avatar


b_b
8 Aug 2013, 09:10 AM
We are basically saying the same thing except
1. sovereign debt is not a burden so long as it is in your own currency. The UK will never run out of Sterling, so why so worry about interest payaments?
2. As I posted to NewJez, Net spending adds to private sectore savings and income. Interest is net spending. So the payment of interest on gov debt is a benefit (income) to the private sector

So In GenX's example of removing interest expense for the government via QE, is the same as removing interest INCOME for the private sector.

So as I have said, qe is channeling income to the government and away from the private sector. It has the same operational effect as a tax

EDIT: To be really clear, the central bank of England has always funded government debt - well before the introduction of QE. Re-read my post at #67 for the explaination.

No problems NewJez. Your clearly could not fault my logic, so you simply say I am wrong without any supporting argument.

Thats ok. I make my decision based on facts not superstition. Each to their own I guess.
Well come on - if you put forward a theory, and it doesn't fit the reality - you can't just say it's magic. It may be that there are other factors in play. But if a theory can't be applied - does it have any value? You need to do better than placebo - because that is a cop out.
Whenever you have an argument with someone, there comes a moment where you must ask yourself, whatever your political persuasion, 'am I the Nazi?'
Profile "REPLY WITH QUOTE" Go to top
 
Elastic
Member Avatar


Are the banks using excess deposits to purchase bonds in the first place?
I'm still unsure of the distinction between these excess deposits and reserves.
Only a rat can win a rat race.

Profile "REPLY WITH QUOTE" Go to top
 
b_b
Default APF Avatar


newjez
8 Aug 2013, 04:31 PM
b_b
8 Aug 2013, 09:10 AM
We are basically saying the same thing except
1. sovereign debt is not a burden so long as it is in your own currency. The UK will never run out of Sterling, so why so worry about interest payaments?
2. As I posted to NewJez, Net spending adds to private sectore savings and income. Interest is net spending. So the payment of interest on gov debt is a benefit (income) to the private sector

So In GenX's example of removing interest expense for the government via QE, is the same as removing interest INCOME for the private sector.

So as I have said, qe is channeling income to the government and away from the private sector. It has the same operational effect as a tax

EDIT: To be really clear, the central bank of England has always funded government debt - well before the introduction of QE. Re-read my post at #67 for the explaination.

No problems NewJez. Your clearly could not fault my logic, so you simply say I am wrong without any supporting argument.

Thats ok. I make my decision based on facts not superstition. Each to their own I guess.
Well come on - if you put forward a theory, and it doesn't fit the reality - you can't just say it's magic. It may be that there are other factors in play. But if a theory can't be applied - does it have any value? You need to do better than placebo - because that is a cop out.
I have put forward much more than a theory. I have put forward the operational relatities of the Banking System. How banks interact with the CB. How QE works. And how deficit speding is conducted.

I have taken the time to do this for your benefit, because you asked the question.


To date, you can not refute any one of them. Not one. Instead, you debase the argument to "your wrong, so nah, nah, ne nah nah".

For FS sake, mount and argument or just drop the topic.

EDIT: as for does not fit reality. Well it does fit reality. All this "money printing", and inflation is....wait for it.......
1.8%
Edited by b_b, 8 Aug 2013, 04:42 PM.
(S – I) + (T - G) + (M - X) = 0
Profile "REPLY WITH QUOTE" Go to top
 
Sydneyite
Member Avatar


b_b
8 Aug 2013, 04:25 PM
Banks can not "lend out" or spend reserves. The reserves simply shuffle between the banks to settle transactions on behalf of customers (and in some instance, on the account of the bank).
b_b - are we 100% certain that the payments made from the Fed to the trading banks under QE in exchange for bonds are classified as reserve funds? Is it possible that it counts as capital? In which case the banks can do with it as they please right? At least within the regulatory constraints.
For Aussie property bears, "denial", is not just a long river in North Africa.....
Profile "REPLY WITH QUOTE" Go to top
 
b_b
Default APF Avatar


Sydneyite
8 Aug 2013, 04:41 PM
b_b
8 Aug 2013, 04:25 PM
Banks can not "lend out" or spend reserves. The reserves simply shuffle between the banks to settle transactions on behalf of customers (and in some instance, on the account of the bank).
b_b - are we 100% certain that the payments made from the Fed to the trading banks under QE in exchange for bonds are classified as reserve funds? Is it possible that it counts as capital? In which case the banks can do with it as they please right? At least within the regulatory constraints.
It is 100% reserves. No new equity. I know this because
- for a US bank to issue equity it required an SEC filing (
(S – I) + (T - G) + (M - X) = 0
Profile "REPLY WITH QUOTE" Go to top
 
Elastic
Member Avatar


I'm of the same mind given that the Fed constantly complained that the banks were not prepared to lend out these reserves.
Only a rat can win a rat race.

Profile "REPLY WITH QUOTE" Go to top
 
2 users reading this topic (2 Guests and 0 Anonymous)
Go to Next Page
« Previous Topic · Australian Property Forum · Next Topic »
Reply



Australian Property Forum is an economics and finance forum dedicated to discussion of Australian and global real estate markets and macroeconomics, including house prices, housing affordability, and the likelihood of a property crash. Is there an Australian housing bubble? Will house prices crash, boom or stagnate? Is the Australian property market a pyramid scheme or Ponzi scheme? Can house prices really rise forever? These are the questions we address on Australian Property Forum, the premier real estate site for property bears, bulls, investors, and speculators. Members may also discuss matters related to finance, modern monetary theory (MMT), debt deflation, cryptocurrencies like Bitcoin Ethereum and Ripple, property investing, landlords, tenants, debt consolidation, reverse home equity loans, the housing shortage, negative gearing, capital gains tax, land tax and macro prudential regulation.

Forum Rules: The main forum may be used to discuss property, politics, economics and finance, precious metals, crypto currency, debt management, generational divides, climate change, sustainability, alternative energy, environmental topics, human rights or social justice issues, and other topics on a case by case basis. Topics unsuitable for the main forum may be discussed in the lounge. You agree you won't use this forum to post material that is illegal, private, defamatory, pornographic, excessively abusive or profane, threatening, or invasive of another forum member's privacy. Don't post NSFW content. Racist or ethnic slurs and homophobic comments aren't tolerated. Accusing forum members of serious crimes is not permitted. Accusations, attacks, abuse or threats, litigious or otherwise, directed against the forum or forum administrators aren't tolerated and will result in immediate suspension of your account for a number of days depending on the severity of the attack. No spamming or advertising in the main forum. Spamming includes repeating the same message over and over again within a short period of time. Don't post ALL CAPS thread titles. The Advertising and Promotion Subforum may be used to promote your Australian property related business or service. Active members of the forum who contribute regularly to main forum discussions may also include a link to their product or service in their signature block. Members are limited to one actively posting account each. A secondary account may be used solely for the purpose of maintaining a blog as long as that account no longer posts in threads. Any member who believes another member has violated these rules may report the offending post using the report button.

Australian Property Forum complies with ASIC Regulatory Guide 162 regarding Internet Discussion Sites. Australian Property Forum is not a provider of financial advice. Australian Property Forum does not in any way endorse the views and opinions of its members, nor does it vouch for for the accuracy or authenticity of their posts. It is not permitted for any Australian Property Forum member to post in the role of a licensed financial advisor or to post as the representative of a financial advisor. It is not permitted for Australian Property Forum members to ask for or offer specific buy, sell or hold recommendations on particular stocks, as a response to a request of this nature may be considered the provision of financial advice.

Views expressed on this forum are not representative of the forum owners. The forum owners are not liable or responsible for comments posted. Information posted does not constitute financial or legal advice. The forum owners accept no liability for information posted, nor for consequences of actions taken on the basis of that information. By visiting or using this forum, members and guests agree to be bound by the Zetaboards Terms of Use.

This site may contain copyright material (i.e. attributed snippets from online news reports), the use of which has not always been specifically authorized by the copyright owner. Such content is posted to advance understanding of environmental, political, human rights, economic, democratic, scientific, and social justice issues. This constitutes 'fair use' of such copyright material as provided for in section 107 of US Copyright Law. In accordance with Title 17 U.S.C. Section 107, the material on this site is distributed for research and educational purposes only. If you wish to use this material for purposes that go beyond 'fair use', you must obtain permission from the copyright owner. Such material is credited to the true owner or licensee. We will remove from the forum any such material upon the request of the owners of the copyright of said material, as we claim no credit for such material.

For more information go to Limitations on Exclusive Rights: Fair Use

Privacy Policy: Australian Property Forum uses third party advertising companies to serve ads when you visit our site. These third party advertising companies may collect and use information about your visits to Australian Property Forum as well as other web sites in order to provide advertisements about goods and services of interest to you. If you would like more information about this practice and to know your choices about not having this information used by these companies, click here: Google Advertising Privacy FAQ

Australian Property Forum is hosted by Zetaboards. Please refer also to the Zetaboards Privacy Policy