Go Back   English Forum Switzerland > Off-Topic > Off-Topic > International affairs/politics  
Reply
 
Thread Tools Display Modes
  #101  
Old 12.04.2011, 17:51
Phil_MCR's Avatar
Forum Legend
 
Join Date: Oct 2009
Location: Basel
Posts: 14,952
Groaned at 295 Times in 199 Posts
Thanked 19,020 Times in 8,000 Posts
Phil_MCR has a reputation beyond reputePhil_MCR has a reputation beyond reputePhil_MCR has a reputation beyond reputePhil_MCR has a reputation beyond reputePhil_MCR has a reputation beyond reputePhil_MCR has a reputation beyond repute
Re: Iceland votes "NO!"

Quote:
View Post
So if I deposit 1000chf in my bank the bank in turn can loan out 10000chf to individuals that require loans. This is "magic beans(1)" the physical deposit does not exist in the first place to match the loaned amount. (We'll ignore deposit multiplication for the moment which can increase that amount exponentially)
No this is wrong and why everybody starts talking about banks creating money from thin air.

Let's assume the way it works is this to keep it simple (it's not the way it works): if you deposit 100, the bank must reserve 10 and thus can lend 90.

So deposits = 100, lending = 90, reserves = 10.

Nothing really wrong with that. Some FRB tin foil hatters will then talk about multiplication, but it always boils down to them counting lending but not corresponding deposits.

Try constructing an example where close to 10x the multiplier is in effect and you'll see reserves should always be >10% of the deposits - if not, you've gone wrong somewhere.

Let's start simple with a bank that is newly founded with zero capital and no deposits. The bank policy is that it will only lend a maximum of 90% of money deposited in it. Now let's say someone deposits 100. Explain to me how the bank manages to lend 1000 from this.
__________________
By replying to this post, you hereby grant Phil_MCR a royalty-free license to use, in any way, anything posted by you on the internet. If you do not accept, stop using EF and delete your account.
Reply With Quote
  #102  
Old 12.04.2011, 17:51
Junior Member
 
Join Date: Mar 2011
Location: Basel
Posts: 65
Groaned at 0 Times in 0 Posts
Thanked 39 Times in 19 Posts
Miss Friis has earned some respectMiss Friis has earned some respect
Re: Iceland votes "NO!"

Quote:
View Post
Actually not sweden, finland and denmark are not that expensive only norge and iceland have that trait.
That´s the first time I´ve ever heard my home country being described as ´not expensive´.....

I guess it depends on what you compare it with!
Reply With Quote
The following 2 users would like to thank Miss Friis for this useful post:
  #103  
Old 12.04.2011, 17:51
Guest
 
Posts: n/a
Re: Iceland votes "NO!"

Quote:
View Post
I don't really get what your argument is though - are you arguing against capitalist principles? Because I have to say, if you are, then on a very basic level you're arguing that all of us (regardless of whether our career path is financial or not) should be out of a job.

Principles aside, the reality of the situation is that we live in a capitalist society, so better get used to it or move to Libya.
My argument is not against capitalism or that we should trade in leeks and goats it's that banks should not be bailed out.

That the Icelandic people should not pay for a private firms mistakes. No taxpayer should ever bail a bank out.

Banks should be far more controlled in what they can and cannot do and people need to be more aware of how the money supply works.
Reply With Quote
This user would like to thank for this useful post:
  #104  
Old 12.04.2011, 17:53
Upthehatters2008's Avatar
Forum Legend
 
Join Date: May 2010
Location: In the kitchen at parties.
Posts: 4,540
Groaned at 204 Times in 120 Posts
Thanked 6,078 Times in 2,378 Posts
Upthehatters2008 has a reputation beyond reputeUpthehatters2008 has a reputation beyond reputeUpthehatters2008 has a reputation beyond reputeUpthehatters2008 has a reputation beyond reputeUpthehatters2008 has a reputation beyond reputeUpthehatters2008 has a reputation beyond repute
Re: Iceland votes "NO!"

Why has nobody mentioned babe Bjork ?

Surely better than Cod ?

Reply With Quote
The following 2 users would like to thank Upthehatters2008 for this useful post:
  #105  
Old 12.04.2011, 18:03
Phil_MCR's Avatar
Forum Legend
 
Join Date: Oct 2009
Location: Basel
Posts: 14,952
Groaned at 295 Times in 199 Posts
Thanked 19,020 Times in 8,000 Posts
Phil_MCR has a reputation beyond reputePhil_MCR has a reputation beyond reputePhil_MCR has a reputation beyond reputePhil_MCR has a reputation beyond reputePhil_MCR has a reputation beyond reputePhil_MCR has a reputation beyond repute
Re: Iceland votes "NO!"

Quote:
View Post
Why has nobody mentioned babe Bjork ?

Surely better than Cod ?

dunno. never eaten cod.
Reply With Quote
This user would like to thank Phil_MCR for this useful post:
  #106  
Old 12.04.2011, 18:07
Guest
 
Posts: n/a
Re: Iceland votes "NO!"

Quote:
View Post
Let's start simple with a bank that is newly founded with zero capital and no deposits. The bank policy is that it will only lend a maximum of 90% of money deposited in it. Now let's say someone deposits 100. Explain to me how the bank manages to lend 1000 from this.
Err, seriously? I really do hope that you're either a) joking or b) don't work in any area even remotely related to finance
Reply With Quote
This user would like to thank for this useful post:
  #107  
Old 12.04.2011, 18:08
Phil_MCR's Avatar
Forum Legend
 
Join Date: Oct 2009
Location: Basel
Posts: 14,952
Groaned at 295 Times in 199 Posts
Thanked 19,020 Times in 8,000 Posts
Phil_MCR has a reputation beyond reputePhil_MCR has a reputation beyond reputePhil_MCR has a reputation beyond reputePhil_MCR has a reputation beyond reputePhil_MCR has a reputation beyond reputePhil_MCR has a reputation beyond repute
Re: Iceland votes "NO!"

Quote:
View Post
Err, seriously? I really do hope that you're either a) joking or b) don't work in any area even remotely related to finance
Seriously. Happy to be proven wrong. I guess step 1 is they can lend out 90 of this, that still leaves 910 to go...
Reply With Quote
  #108  
Old 12.04.2011, 18:13
Guest
 
Posts: n/a
Re: Iceland votes "NO!"

Quote:
View Post
Seriously. Happy to be proven wrong.
Try here, perhaps
Reply With Quote
This user would like to thank for this useful post:
  #109  
Old 12.04.2011, 18:18
Phil_MCR's Avatar
Forum Legend
 
Join Date: Oct 2009
Location: Basel
Posts: 14,952
Groaned at 295 Times in 199 Posts
Thanked 19,020 Times in 8,000 Posts
Phil_MCR has a reputation beyond reputePhil_MCR has a reputation beyond reputePhil_MCR has a reputation beyond reputePhil_MCR has a reputation beyond reputePhil_MCR has a reputation beyond reputePhil_MCR has a reputation beyond repute
Re: Iceland votes "NO!"

Quote:
View Post
Try here, perhaps
seems to support my position
Reply With Quote
  #110  
Old 12.04.2011, 20:55
dino's Avatar
Forum Veteran
 
Join Date: Feb 2006
Location: Zurich
Posts: 1,631
Groaned at 31 Times in 24 Posts
Thanked 1,279 Times in 628 Posts
dino has a reputation beyond reputedino has a reputation beyond reputedino has a reputation beyond reputedino has a reputation beyond reputedino has a reputation beyond repute
Re: Iceland votes "NO!"

Quote:
View Post
Let's start simple with a bank that is newly founded with zero capital and no deposits. The bank policy is that it will only lend a maximum of 90% of money deposited in it. Now let's say someone deposits 100. Explain to me how the bank manages to lend 1000 from this.
If all banks could do was lend out 90% of their deposits and collect the interest differential on that amount, bankers would be barely able to afford the train ticket to get to work.
Reply With Quote
The following 2 users would like to thank dino for this useful post:
  #111  
Old 13.04.2011, 08:34
Nev
 
Posts: n/a
Re: Iceland votes "NO!"

Quote:
View Post
seems to support my position
I think what everybody's trying to explain to you is that banks don't just lend out deposits. They also borrow from central banks and each other (the interbank market) and on-lend those funds at a higher interest rate to their customers. Using borrowings over and above capital to increase their loan book is called leveraging. In the past, most commercial banks have been leveraged over 10:1.
Reply With Quote
The following 2 users would like to thank for this useful post:
  #112  
Old 13.04.2011, 08:56
st2lemans's Avatar
Forum Legend
 
Join Date: Dec 2010
Location: Lugano
Posts: 32,511
Groaned at 2,578 Times in 1,840 Posts
Thanked 39,649 Times in 18,688 Posts
st2lemans has a reputation beyond reputest2lemans has a reputation beyond reputest2lemans has a reputation beyond reputest2lemans has a reputation beyond reputest2lemans has a reputation beyond reputest2lemans has a reputation beyond repute
Re: Iceland votes "NO!"

Quote:
View Post
Err, since you asked, yes apparently so


And it's getting bigger
"Highlights of the museum's collection include a 170-centimeter (67-inch) sperm whale penis preserved in formaldehyde, lampshades made from bull testicles and what the museum described as an "unusually big" penis bone from a Canadian walrus."

Now I understand Islandic people better!

Tom
Reply With Quote
  #113  
Old 13.04.2011, 09:39
Phil_MCR's Avatar
Forum Legend
 
Join Date: Oct 2009
Location: Basel
Posts: 14,952
Groaned at 295 Times in 199 Posts
Thanked 19,020 Times in 8,000 Posts
Phil_MCR has a reputation beyond reputePhil_MCR has a reputation beyond reputePhil_MCR has a reputation beyond reputePhil_MCR has a reputation beyond reputePhil_MCR has a reputation beyond reputePhil_MCR has a reputation beyond repute
Re: Iceland votes "NO!"

Quote:
View Post
I think what everybody's trying to explain to you is that banks don't just lend out deposits. They also borrow from central banks and each other (the interbank market) and on-lend those funds at a higher interest rate to their customers. Using borrowings over and above capital to increase their loan book is called leveraging. In the past, most commercial banks have been leveraged over 10:1.
A bank lends out money it borrows. Whether you call it a deposit or borrowings is just semantics.

What I'm arguing against is the assertion that when a bank borrows 100 from a depositor, it magically creates another 1000 to lend.
Reply With Quote
  #114  
Old 13.04.2011, 09:51
economisto
 
Posts: n/a
Re: Iceland votes "NO!"

Quote:
View Post
A bank lends out money it borrows.
No. It doesn't. It lends out a multiplier of that. It is, by governmental fiat, allowed to create money to a certain ratio to the physical deposits it holds.
Reply With Quote
The following 5 users would like to thank for this useful post:
  #115  
Old 13.04.2011, 13:38
Nev
 
Posts: n/a
Re: Iceland votes "NO!"

Quote:
View Post
Whether you call it a deposit or borrowings is just semantics.
Not really. Banks don't treat the two the same.

Quote:
View Post
What I'm arguing against is the assertion that when a bank borrows 100 from a depositor, it magically creates another 1000 to lend.
It depends how many times it lends out a hard cash deposit and how many times that is then re-deposited.

1. Phil deposits 100 with Bank.
= Bank Deposits 100; Reserves 0; Loans 0
2. Bank lends 90% of Phil's deposit to Nev
= Bank deposits 100; Reserves 10, Loans 90
3. Nev deposits his 90 cash with Bank
Phil's original 100 hard cash has now "magically" turned into deposits of 190
4. Bank can now lend 90% of Nev's new deposit (ie new loan of 81)
= Bank deposits 190; Reserves 19 (10 +9), Loans 171 (90 +81)
Phil's original 100 hard cash has now "magically" created loans of 171

Repeat until Phil's hard cash deposit of 100 creates loans of 1000. Maybe a 1000x is excessive just from deposits alone but as I said, remember banks can borrow to cover reserves.

Notice no new hard cash has entered the bank.

Multiply this across the whole of the global banking system.........

Last edited by Nev; 13.04.2011 at 14:00.
Reply With Quote
The following 3 users would like to thank for this useful post:
  #116  
Old 13.04.2011, 13:48
Forum Veteran
 
Join Date: Jan 2010
Location: Monaco
Posts: 514
Groaned at 61 Times in 27 Posts
Thanked 658 Times in 281 Posts
scrambled has a reputation beyond reputescrambled has a reputation beyond reputescrambled has a reputation beyond reputescrambled has a reputation beyond repute
Re: Iceland votes "NO!"

Quote:
View Post
Not really. Banks don't treat the two the same.



It depends how many times it lends out a hard cash deposit and how many times that is then re-deposited.

1. Phil deposits 100 with Bank.
= Bank Deposits 100; Reserves 0; Loans 0
2. Bank lends 90% of Phil's deposit to Nev
= Bank deposits 100; Reserves 10, Loans 90
3. Nev deposits his 90 cash with Bank
Phil's original 100 hard cash has now "magically" turned into deposits of 190
4. Bank can now lend 90% of Nev's new deposit (ie new loan of 81)
= Bank deposits 190; Reserves 19 (10 +9), Loans 171 (90 +81)
Phil's original 100 hard cash has now "magically" created loans of 171

Repeat until Phil's hard cash deposit of 100 creates loans of 1000.

Notice no new hard cash has entered the bank.

Multiply this across the whole of the global banking system.........
why would anybody redeposit their loan? interest on deposits is like .5% while the bank is charging you 5%+ on loaned amounts.
Reply With Quote
  #117  
Old 13.04.2011, 17:58
Nev
 
Posts: n/a
Re: Iceland votes "NO!"

Quote:
View Post
why would anybody redeposit their loan? interest on deposits is like .5% while the bank is charging you 5%+ on loaned amounts.
You wouldn't. It was just that's where I stopped the example. And the example was simple using Phil's model.
In your low interest rate scenario you'd make sure most of the funds were used.
So let's work on.
Having deposited the loan in his account Nev withdraws the 90 in cash next day and buys himself a new computer. Computer Store Guy takes Nev's cash at the end of the day and puts it in his bank account (assume for this example he banks with Nev's bank). The result's the same. The Bank's customer deposits have gone up by 90. The bank doesn't care how that 90 gets back to them, or from who, as long as it does. And when it does it can re-lend it.

I know you're going to say but that's a big assumption that Computer Store Guy banks at the same bank as Nev. May be he does, may be he doesn't. If he doesn't may be some of it comes back in time further along the spending chain. It doesn't really matter. In the real world you can't look at this just on a single bank level. You can be sure Nev's bank also be will be taking in "magic" (ie non physical) money from other commercial transactions using proceeds of loans backed by multiple deposit creation at other banks. It all the same when aggregated and netted across the system.
Reply With Quote
This user would like to thank for this useful post:
  #118  
Old 13.04.2011, 18:57
Forum Legend
 
Join Date: Oct 2009
Location: At home
Posts: 4,167
Groaned at 208 Times in 133 Posts
Thanked 6,403 Times in 2,719 Posts
Faltrad has a reputation beyond reputeFaltrad has a reputation beyond reputeFaltrad has a reputation beyond reputeFaltrad has a reputation beyond reputeFaltrad has a reputation beyond reputeFaltrad has a reputation beyond repute
Re: Iceland votes "NO!"

Given the fact that finance expats drive Swiss banks, does this argument in that thread mean that you do the same at work with my money too?
Just a question. Open to all kind of answers, even mean ones.
Reply With Quote
This user would like to thank Faltrad for this useful post:
  #119  
Old 13.04.2011, 19:03
economisto
 
Posts: n/a
Re: Iceland votes "NO!"

Quote:
View Post
Given the fact that finance expats drive Swiss banks,
I'm not sure if this is true Faltrad. I'm sure someone who works at UBS or CS can answer better but I believe the top guys are mostly Swiss.
Reply With Quote
  #120  
Old 13.04.2011, 19:09
Forum Legend
 
Join Date: Oct 2009
Location: At home
Posts: 4,167
Groaned at 208 Times in 133 Posts
Thanked 6,403 Times in 2,719 Posts
Faltrad has a reputation beyond reputeFaltrad has a reputation beyond reputeFaltrad has a reputation beyond reputeFaltrad has a reputation beyond reputeFaltrad has a reputation beyond reputeFaltrad has a reputation beyond repute
Re: Iceland votes "NO!"

Quote:
View Post
I'm not sure if this is true Faltrad.
Ah ok. I believe anything you professionals say. I take your word for it, it was just the impression I got from reading EF for months.
Reply With Quote
This user would like to thank Faltrad for this useful post:
Reply




Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Baschi!!! [apparently some Swiss pop "star" has been "spotted"] Gina Daily life 28 22.06.2010 15:27
Should I continue my "college"(elite high school) Or pursue an "apprentissage" Julian_ignacio Employment 39 20.04.2010 15:34
"You'll sit here till you get it right". Ireland votes on the Lisbon Treaty... again sharkey International affairs/politics 16 03.10.2009 15:51


All times are GMT +2. The time now is 01:44.


Powered by vBulletin® Version 3.8.4
Copyright ©2000 - 2022, Jelsoft Enterprises Ltd.
LinkBacks Enabled by vBSEO 3.1.0