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davidhpc

Bank Money Creation - Out Of Interest - Who Thinks

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Central banks control the rate of money creation by setting reserve requirements that allows the fractional reserve banking system to create money.

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Central banks control the rate of money creation by setting reserve requirements that allows the fractional reserve banking system to create money.

i bet they wish they did.....SIVS thwarted that theory.

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i bet they wish they did.....SIVS thwarted that theory.

For a while anyway. That is what allowed too much "money" to chase too few assets driving up asset prices.

Now that the SIV is dead, constant fractional reserve requirements leaves a lot less "money" chasing roughly the same number of assets driving prices lower.

The right thing always seems to happen in the end albeit not as quickly or as smoothly as we would like to see.

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The way I see it, is that the bank facilitates a transaction that allows further double counting of the narrow money supply, so A.

Whether it's fractional reserve banking or capital requirement, once it's followed through to it's most efficient level, the amount of narrow money will be held by the bank and total broad money will be narrow multiplied by the amount leveraged.

I do have a number of questions:

1) How did SIVs help extend this? Was it simply that the bank could insure the debt at say 1%, remove from the balance sheet and lend out the same again (effectively giving them a leverage of 100-1?)

2) Did the authorities themselves allow the banks to leverage normally to a higher level. If so, when?

3) Has the narrow money increased before the current QE?

4) What M are narrow and broad money? or is it a matter of opinion

5) How does interbank lending change leverage? Is it just an increased efficiency? Should it be counted as broad money?

thanks

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