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#15117805
Senter wrote:Ok guys, this is a hypothetical scenario question. I'm interested in data, ... in facts and probabilities, ....--not partisan nonsense.

Let's imagine for a moment that the US government decided to nationalize the banking industry. All banking in the US, top to bottom, is now owned and operated by the government, as is all loaning processes.

The decision is made to eliminate all interest being paid on savings and other accounts that previously paid interest to the depositor. Also, all loans are to be made interest-free. All loans to businesses and consumers alike, are "zero-interest" loans. If you want to borrow money to buy a house or a car or a business (or anything else) you fill out the usual application, the application is evaluated, the money is loaned against collateral, and the loan is completed.

What might be the effects and/or results of such no-interest arrangements and why? Maybe inflation could be kept close to zero?

It occurs to me that in the context of world-wide banking connections it may not be possible for this zero-interest idea to be done unless it were to be a world-wide change followed by all.

Comments?


How does the fed factor into all of this?

Personally I would bury all my money in my backyard if this every happened. :D
#15119338
Senter,
I'm not an economist, but this is an advantage. I never even took one course in economics.

IMHO, it's an advantage because current economic teaching is deeply flawed.
Two studies over a decade apart showed that about 90% of economic graduate students believe that learning about the real world, like economic history will NOT be useful to them.
This is because current economic teaching is divorced from reality. It starts from assumptions and proves things. One problem is that many of the assumptions are known to be false. An example, it is assumed that the "Market" consists of one man who will never die and sells stuff to himself, and obviously buys stuff from himself.
Another example, banks loan out their depositor's money, in fact banks just create new money with each loan they make.

I have been trying to get people to look at Modern Monetary Theory as a better theory of economics. You can try to ask the people on Bill's blog (below) your question.

You can learn about MMT by ---
I posted a thread here about a High School level introduction to MMT.
Dr. Randall Wray has a "primer" to teach MMT.
Dr. Bill Mitchell has a blog I read. Link :: http://bilbo.economicoutlook.net/blog/

So, IMHO, the opinions of "economists" about you question are likely to be useless. The gut feelings of people who believe the world is flat are not likely to help you know how to position GPS satellites properly.
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#15121818
Puffer Fish wrote:Well, one question would be where is the money going to come from? Because people normally lend money to banks because they will receive an interest rate.

Now, you could theoretically have the government subsidize the cost of operations, and there would probably still be many people who would put their money in banks out of convenience. Likely it would be less money in banks, because people would be seeking returns on their money in other places. .....

This is funny, actually. Currently bank interest rates on depositor accounts run around 0.05%!! It might as well be zero!! And guess what!.... people still have savings accounts.
#15121819
Puffer Fish wrote:Well, one question would be where is the money going to come from? Because people normally lend money to banks because they will receive an interest rate.

Yeahright. Tell me about it. Rates are currently running about 0.05%. How motivated are you to lock in that rate? And banks still have depositors. So you don't seem to be thinking of the current realities.
#15122272
Senter wrote:Yeahright. Tell me about it. Rates are currently running about 0.05%. How motivated are you to lock in that rate? And banks still have depositors. So you don't seem to be thinking of the current realities.

Maybe you don't realize this, but that is a partially disingenuous statement. Banks have depositors because those depositors can still pull their money out any time.

Yes, there will always be a segment of people looking to park money in the economy who will not demand an interest rate, but once that segment of the economy becomes saturated, once the debt levels exceed the easy availability of this money, there is going to be pressure for higher interest rates.

And right now there is relatively low inflation (or at least the perception of such). If expectations change, that could easily change.


Let me also point out that both your and my side is kind of besides the point, since if there's easy availability of money like that, it may not matter (in terms of lending interest rates) much whether banks are nationalized or kept the way they are.

If there are a ton of people willing to put money in the bank and only get a 0.05% interest rate, then that by itself should be enough to keep interest for loans relatively low (assuming natural market pressures and bank competition), correct?
#15122512
Puffer Fish wrote:Maybe you don't realize this, but that is a partially disingenuous statement. Banks have depositors because those depositors can still pull their money out any time.

Yes, there will always be a segment of people looking to park money in the economy who will not demand an interest rate, but once that segment of the economy becomes saturated, once the debt levels exceed the easy availability of this money, there is going to be pressure for higher interest rates.

And right now there is relatively low inflation (or at least the perception of such). If expectations change, that could easily change.


Let me also point out that both your and my side is kind of besides the point, since if there's easy availability of money like that, it may not matter (in terms of lending interest rates) much whether banks are nationalized or kept the way they are.

If there are a ton of people willing to put money in the bank and only get a 0.05% interest rate, then that by itself should be enough to keep interest for loans relatively low (assuming natural market pressures and bank competition), correct?

You and Senter just ignored my post.

Banks don't need deposits to make loans.
Once they make a loan, that money is just deposited into an account at the lending bank. The borrower almost always soon spends that money by writing a check. Most times a check to someone who will cash it by depositing it at his different bank. This moves the money to a different bank. The money therefore, becomes a deposit at that bank. Almost *all* spending just moves the money to a different bank.
. . . A week later, when the lending bank needs to meet its 'reserve requirement' with the Fed., it can borrow the money for 1 night/day on the special market just for this. The rate is always way lower than the rate on the original loan, so the lending bank is making a profit.
. . . The ONLY way for this to not be true is if many people take cash out of their bank and hide it somewhere. If they spend it then it will almost certainly just be moved to a different bank. OK, another way is if many people move or transfer their money to a foreign bank, which I see as almost impossible to see happen. By 'many people', I mean trillions of dollars being transferred overseas or held as cash.
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#15122844
Steve_American wrote:Banks don't need deposits to make loans.
Once they make a loan, that money is just deposited into an account at the lending bank. The borrower almost always soon spends that money by writing a check. Most times a check to someone who will cash it by depositing it at his different bank.

It's more accurate to say that the bank needs collateral to make a loan, or that the bank can convert debt into money.

The bank can't just create money out of totally nothing and then lend that.

Do you agree with this?


From one perspective, one could say that the "money" the bank is loaning to one person actually represents the amount of debt-obligation that someone else owes.
Most commonly, this debt-obligation is secured by some form of collateral, so (in that case) we could say that the "money" the bank is loaning represents a stake of ownership equity in a house.
It still required something of value to exist for a loan to be made to someone else.

That is very different from a bank just entering numbers into a computer account and lending money that does not exist.

(Also I do not want to get into a semantic argument with you. It is difficult to precisely word everything in a way that is both literally correct and easily understandable. You should know what I am saying here, the meaning of what I am trying to convey through these words. If I actually was completely technically accurate with everything I was trying to say, it would be so long and complicated that very few people would be able to or want to take the time and mental effort to actually understand it)
#15122968
Puffer Fish wrote:It's more accurate to say that the bank needs collateral to make a loan, or that the bank can convert debt into money.

The bank can't just create money out of totally nothing and then lend that.
Do you agree with this?

From one perspective, one could say that the "money" the bank is loaning to one person actually represents the amount of debt-obligation that someone else owes.
Most commonly, this debt-obligation is secured by some form of collateral, so (in that case) we could say that the "money" the bank is loaning represents a stake of ownership equity in a house.
It still required something of value to exist for a loan to be made to someone else.

That is very different from a bank just entering numbers into a computer account and lending money that does not exist.

(Also I do not want to get into a semantic argument with you. It is difficult to precisely word everything in a way that is both literally correct and easily understandable. You should know what I am saying here, the meaning of what I am trying to convey through these words. If I actually was completely technically accurate with everything I was trying to say, it would be so long and complicated that very few people would be able to or want to take the time and mental effort to actually understand it)

No, I do not agree with that.
Why? Because it leads straight into the "loanable funds theory" of money. MMTrs totally reject this theory because it is false and is used to keep Gov. deficits low by claiming the Gov. bonds sold are sucking up money that banks need to make their loans.
OTOH, I can see your point about about the bank's loans being a representation of the assets it as as a result of other loans it has already made. But, the amount a bank can loan out is NOT constrained by anything, functionally. My MMTers are quite angry that many economists say that banks use the QE money the Fed. has been giving out for many years to make their loans. My MMTers say that banks don't loan out "reserves dollars" either, that they create dollars out of thin air as they loan it.

I'm not an expert, so have to rely on others who I believe are experts. This is why I keep saying "my MMTers".

All MMTers, who have PhDs and the other MMTer, Warren Mosler, who was a banker for many years, say that banks "create the money they loan out of thin air".

Some of them go on to say that, functionally, they are licensed by the Gov. to do this. Others point out that the "Land Banks" in the UK (I hope I remembered their name correctly) do *not* (or did not) have this license. I have never heard it said about US Savings and Loan "banks".

I explained how the system currently works above & below.

Many economists don't want the people to know this, so they lie about it.
Maybe, because their sugar daddies tell the to.

In 2014 an experiment was done in Germany.
Link ==> https://www.sciencedirect.com/science/a ... 1914001070
A Ger. bank lent 200,000 euros to a Pref. while his students watched all the bank's officers to see what they did. The Prof. wrote a check and deposited it in a different bank. Days later he repaid the loan in full.
. . . At no time did an banker check to see if the bank had "enough euros in any way to make that loan". When a pawnbroker makes a loan, he uses cash he has and gives it to the borrower. He reduces his cash on hand. It goes into his books that way. When a bank makes a loan the bookkeeping is different. There the bank enters a liability for the amount in the borrower's account and a corresponding asset for the note the borrower signed. What does *not* happen is for the bank to move money it already has from some account to the account of the borrower.

Some days later, the bank has to meet its reserve requirement with the Fed. Res. Bank. This requires the bank to have on deposit 10% of the value of its outstanding loans. Yes, the bank has assets or initial investments [I ask the readers to cut this non-expert some slack, if I can't remember the actual name for these initial investments]. However, the bank loans out far more than the total of its deposits and initial investment. It only needs 10% of the total of its loans to meet the Fed's reserve requirement.
The Federal Reserve requires banks and other depository institutions to hold a minimum level of reserves against their liabilities. Currently, the marginal reserve requirement equals 10 percent of a bank's demand and checking deposits.

Are Reserve Requirements Still Binding? - FEDERAL ...

Link => https://www.google.com/search?rlz=1C1CH ... ent=psy-ab

My MMT Profs. explain that this is why all central banks gave up trying to control the "money supply" many years ago because they found it to be impossible because banks are also creating money with loans. ["Also", because the Gov. does it with every deficit spending check it writes.] Later, the Gov. sells a bond to cover the check it kited. Most MMTers don't want the Gov. to sell bonds at interest because they see this as giving free money to the rich, who they don't think need more free money. I disagree with them on this.
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#15125609
Puffer Fish wrote:Maybe you don't realize this, but that is a partially disingenuous statement. Banks have depositors because those depositors can still pull their money out any time.

That's irrelevant to my post.

Yes, there will always be a segment of people looking to park money in the economy who will not demand an interest rate, but once that segment of the economy becomes saturated, once the debt levels exceed the easy availability of this money, there is going to be pressure for higher interest rates.

As I already said, my given scenario involves loan applications and approval. Applications can be structured to control lending rates. And who will borrow money with their house as collateral to risk it in the stock market? (Just in case the thought might cross your mind.)

And right now there is relatively low inflation (or at least the perception of such). If expectations change, that could easily change.

?? :eh: Can you connect that to this conversation for me?

Let me also point out that both your and my side is kind of besides the point, since if there's easy availability of money like that, it may not matter (in terms of lending interest rates) much whether banks are nationalized or kept the way they are.

If there are a ton of people willing to put money in the bank and only get a 0.05% interest rate, then that by itself should be enough to keep interest for loans relatively low (assuming natural market pressures and bank competition), correct?

Money is cheap NOW. Consequently corporations have borrowed heavily and consumer debt is higher now than it was just before the 2008 crash. But in the run-up to the 2008 crash, many, many loans were provided to people who really shouldn't qualify for the loans, and that was a big cause of the crash. And it resulted in an explosion of foreclosures. Such abuse of the privilege of borrowing money can be controlled if a government wants to control it. But in a capitalist society, capitalism calls the shots, and government won't often act against top, leading corporate wishes. OTOH, if a government is actually structured and organized to govern FOR the people, it is obligated to do what's right for the people. In that case your concerns are not justified.
#15136621
@Senter,
So Senter,
It has been over a month since I posted my proof that banks can and do create money out of thin air with every loan they make
And, because of this, it really doesn't matter how much cash from deposits or from the Fed. and OE or whatever program, when t comes to either interest rates or the amount of loans banks can make.
All banks will loan money to every "credit worthy" customer who will sign the loan papers. This worthiness depends on their income and the collateral they put up.

So, are you convinced or are you going to explain why and continue the discussion?
.
#15137025
Steve_American wrote:No, I do not agree with that.
Why? Because it leads straight into the "loanable funds theory" of money. MMTrs totally reject this theory because it is false and is used to keep Gov. deficits low by claiming the Gov. bonds sold are sucking up money that banks need to make their loans.

I personally am not a believer in MMT.
I have tried to understand it and it just seems like a flawed, ultimately illogical theory to me. But maybe I just do not properly understand it well enough.
This view of mine specifically applies to the "loanable funds theory" as well. Or at least what I have read about it in a few minutes from quickly looking it up. Admittingly I am even less familiar with the loanable funds theory than the rest of MMT.

It's also very hard being able to have a discussion about some of these types of things without getting into a semantic argument. Or I mean not being sure if we are actually just fighting over semantics, rather than the real meaning of words. That is how I feel sometimes. These are complicated concepts and it is really difficult to describe them with simple words.

An example, the notion of "making money appear out of thin air" actually carries a kind of ambiguous meaning and could mean several different things. It can be hard to know exactly which one of them someone is talking about, especially in economics where there are different beliefs about how things work.
Unfortunately, we can't really take anything for granted, since what an economist of one school may take for granted, an economist of a different school may disagree with.
#15137208
Puffer Fish wrote:I personally am not a believer in MMT.
I have tried to understand it and it just seems like a flawed, ultimately illogical theory to me. But maybe I just do not properly understand it well enough.
This view of mine specifically applies to the "loanable funds theory" as well. Or at least what I have read about it in a few minutes from quickly looking it up. Admittingly I am even less familiar with the loanable funds theory than the rest of MMT.

It's also very hard being able to have a discussion about some of these types of things without getting into a semantic argument. Or I mean not being sure if we are actually just fighting over semantics, rather than the real meaning of words. That is how I feel sometimes. These are complicated concepts and it is really difficult to describe them with simple words.

An example, the notion of "making money appear out of thin air" actually carries a kind of ambiguous meaning and could mean several different things. It can be hard to know exactly which one of them someone is talking about, especially in economics where there are different beliefs about how things work.
Unfortunately, we can't really take anything for granted, since what an economist of one school may take for granted, an economist of a different school may disagree with.

What is it that you don't grok about how the loanable funs theory is wrong?
Did you click and read my linked article on it? Maybe it was too slow getting to the actual experiment, that is, the actual evidence.

Let me try the explain the "out of thin air" thing. The article and my MMTer prof. economists say that when a person takes out a loan they sign a note to repay it and put up collateral. Then an officer of the banks credits their account at the bank (it may have just been created) with the loan amount. Note that, the officer doesn't move money from one account on the banks books to the borrower's account.
. . . I think this is just like if a hacker could, somehow, break into a bank's computer system and add money to his account at the bank. The money goes into his account, but it doesn't come from anywhere except, thin air.

Like I said, the banking laws make this perfectly legal when loans are made. The laws let the bank wait a little over a week to actually come up with the deposits to meet the bank's reserve requirement, and the bank can borrow it from the bank that the loan's borrower sent the money to when he spent the money, like when he bought a house. On a pinch, like in the GFC/2008, the Fed. will gladly loan the bank the money to meet its reserve requirements.
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#15141457
Steve_American wrote:@Senter,
So Senter,
It has been over a month since I posted my proof that banks can and do create money out of thin air with every loan they make
And, because of this, it really doesn't matter how much cash from deposits or from the Fed. and OE or whatever program, when t comes to either interest rates or the amount of loans banks can make.
All banks will loan money to every "credit worthy" customer who will sign the loan papers. This worthiness depends on their income and the collateral they put up.

So, are you convinced or are you going to explain why and continue the discussion?
.

Oh heck, Steve, I've been convinced from the beginning!

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