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House Price Crash Forum


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Everything posted by Police

  1. A trade deficit is importing more that you export. Period. The foreign currency buy and selling is irrelevant to this with regards to liquidity in a currency zone. You buy foreign goods - you either have the fx already, or you buy the fx using your own currency, or you buy the goods in your home currency allowing the seller to do his own fx. It's irrelevant to discussing monetary flows - because they are not monetary flows - they are capital flows. The only body which can influence the amount of liquidity in a currency zone is the central bank.
  2. You seem a bit confused on this. Pounds can only be stored in the british banking system. They can't leak out. Liquidity is cash. If I receive pounds in return for goods sold in britian and I repatriate my capital to the eurozone - I need to find someone willing to accept pounds in exchange for their euros. My "capital" leaving is someone's capital returning. Nothing is leaking out of the currency zone. You may however have to offer more pounds for the euros to entice people to make that trade. Bid and ask.
  3. No, the trade deficit is irrelevant. If someone sells pounds - someone has to buy. Trade deficits have nothing to do with monetary flows....only capital flows. Different concept entirely.
  4. Ruffles doesn't seem to appreciate that banks only settle net flows. They have an imperative to draw their liabilities into higher maturities to reduce the outflows and maybe encourage inflows - and these actions constitute "funding". But to say banks have to have the "readies" to lend is a real misunderstanding - only an analysis of the "capital" and funding profile can tell you what a bank is likely to do. Securitization is just another way of securing inflows. If the banking flows between the banks were equal each and every day - cash would be an operational irrelevance. The banking system seeks to attain this goal. The fact that net flows aren't equal provides a mechanism for monetary policy.
  5. What's your point? It's an expected cash flow. If it stops performing you write it down. It if starts performing you write it up. If you run out of capital, you liquidise the assets. The fact it is "unrealised" is irrelevant. Stock can be realised to a degree by selling it on an exchange. It's not "my balance sheet cheat" - it's how capitalism functions and its a perfectly good and highly beneficial system if allowed to work. The regulator weights the assets according to their type and limits lending accordingly. I see no problem with this as a system. I only see a problem with the people who corrupt it - and any system can be corrupted.
  6. That's your measurement of regulatory capital - not total balance sheet capital. If the loan is $100 - being serviced - and recorded at $100. There is no need to write down balance sheet capital. Your balance sheet would never balance if you entered your equation on the books. If the value of the asset is now only $50 - and you recorded it as such - then of course you would need to write down capital too.
  7. This clearly shows your lack of understanding. If I am a bank and I have £101 in cash - and assuming I don't owe any one except the original investors (which you appear to have assumed)....... If I lend out £100...leaving me with £1 in cash.... The "reserve" capital of my bank is not £1. It is still £101. Balance sheet capital is the value offered by assets once normal liabilities are taken away. It is the residual value of the company. This is an accounting identity - it cannot be untrue. The owners of the banks can afford to lose that $100 loan without being insolvent - because they have $101 in CAPITAL. So £101 in assets (the loan document + £1 cash), minus £0 in normal liabilities, leaves capital of £101. The only thing that changed was the risk-weighting applied to the assets vs the "capital" - and the structure of the "capital", i.e. the value provided by the assets comes from loans not cash.
  8. You are conflating capital and cash reserves. They are completely different. You can have a lot of capital and little cash - or a lot of cash and little capital.
  9. Which is what I said. A bank will make loans that are in accordance with its existing cash flow / funding profile. Hence why small banks do not make big loans.
  10. I prefer, you can lead a guinea pig to water but you can't make it think.
  11. Sorry, but you are talking rubbish. If all banks in a currency area grant $1 million each in loans....creating deposit liabilities on their books...and each of these new deposits are withdrawn into other banks in a circular fashion - what is the net flow of cash between the banks at the overnight settlement? That's right, ZERO. No bank required any cash to make loans. All they would have required was an adequate capital structure. Banks only need cash to service the NET FLOWS between them. They do not need to be in possession of the all the cash for all the loans. They just need to have an adequate capital buffer and the ability to service the settlement system. Banks grow their loans books at pretty much the same rate - and they KNOW this simple fact. Much effort goes in the reducing the amount of liquidity (cash) required to service overnight payment systems remittances. Check out the statistics for the average overnight settlements at the Bank of England vs the value of broad money transactions. Obviously they do not want to incur liabilities without obtaining cash flow generating assets. Also, they want to draw their liabilities into higher maturities so the can plan their loans books effectively - but this is irrelevant to whether they need cash to make loans. Cash is irrelevant - except for keeping score.
  12. Get your head out of your **** and look at the example he gave. The bank started with zero (0,0) ...then according to him "magicked a liability and asset (100, 100)". He stated that no money came from any other bank. THERE WAS NO INITIAL DEPOSIT IN HIS EXAMPLE.
  13. It's also the reason you can't buy a Big Mac in Argentina. They have a price for the purposes of the Big Mac Index - you just can't buy them.
  14. No, the stupidy stops with you. There is no initial deposit in his example No incoming deposit - no cash received - ergo no cash "reserve" is possible - and the bank cannot conjure it up. It has to receive it. No change in net position with others banks = no deposit received.
  15. What in reserve? The bank didn't have anything beforehand. Fractional reserve entails keeping a % of cash in back. This bank doesn't have any cash - before or after the loan. If someone tries to withdraw that 100 deposit liability, and that bank doesn't receive new deposits to counter that required cash flow - it's in a bit of pickle. British banks don't practice fractional reserve.
  16. I saw your point in a quote box and missed the original point I think. The unbalanced trial balance made me misinterpret your thinking. I agree with the double entry.
  17. Capital is the residue of value provided by the assets that are left after the normal liabilities are subtracted. This bank had no "capital" before it made the loan - and had no capital after it made the loan. Tier 1 capital is classed as equity capital - plus retained earnings. Tier 1 capital ratio is the ratio of this tier 1 capital to the banks risk weighted assets. This bank doesn't haven't any tier 1 capital - therefore you cannot make an assertion as to its capital adequacy.
  18. Thanks. Further corrections needed I feel. Why is a loan of $100 recorded as $90? If someone owes you $100 - they owe you $100 and you record it as such. Is it because you are counting the $10 "current asset" too?
  19. Your balance sheet / trial balance won't balance.
  20. When did you move in an hand over a deposit? It sounds like they have not deposited the money in the deposit protection scheme as they are required. They haven't got a leg to stand on.
  21. When I said all dealers...I really meant ALL dealers. In Dodge or without.
  22. Where do you buy Krugs when all the dealers are shut down. More importantly, why would you buy krugs when all the dealers are shut down ?
  23. There aren't any savers in the banking system. Only creditors and debtors.
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