Central Banks get their act together

[Swing low, sweet chariot. Comin' for to carry me home.]

I am pretty impressed by the way the Federal Reserve has pulled its act together and have coordinated a worldwide round of interest rate hikes -  the European Central Bank raised its key interest rate a quarter percentage point Thursday, and Central bankers in India and South Korea also unexpectedly raised their key interest rates Thursday.

The board members of the central bank have been making coordinated speeches and are all singing the same tune: "we are concerned about inflation and determined to get out ahead of the curve."

In response:
1) the 10 year note has dropped below 5%
2) the dollar has firmed
3) Gold has dropped more than $100 an ounce in the past month
4) copper is down 25% in the past month

With the housing market continuing to cool, this should help offset the price pressures inherent with 4.6% unemployment and $70 oil.

[??????????]

Glad the copper price is dropping! People are stealing copper wire from off the railroad tracks here!

[Richard]

Anyone that likes the Federal Reserve or approves of its existance is an idiot.  Get a refund on your education.

[Swing low, sweet chariot. Comin' for to carry me home.]

Glad the copper price is dropping! People are stealing copper wire from off the railroad tracks here!

Notwithstanding the price of oil, copper prices worry me the most.  Even with today's 6% drop, copper prices are still 65% higher on the year.

[??????????]

Glad the copper price is dropping! People are stealing copper wire from off the railroad tracks here!

Notwithstanding the price of oil, copper prices worry me the most.  Even with today's 6% drop, copper prices are still 65% higher on the year.

Oh and around here theifs are also destroying people air conditioner units and stripping them of the copper piping! Right out of their yards!

[David S]

Its hard to think of the Fed as inflation fighters since almost all of the long term inflation in the country occurred after the fed was born. Thanks to their policies the dollars has lost 95% of its value.

[Swing low, sweet chariot. Comin' for to carry me home.]

Its hard to think of the Fed as inflation fighters since almost all of the long term inflation in the country occurred after the fed was born. Thanks to their policies the dollars has lost 95% of its value.

The Treasury Department sets dollar valuation policy, not the Federal Reserve.

[Richard]

Its hard to think of the Fed as inflation fighters since almost all of the long term inflation in the country occurred after the fed was born. Thanks to their policies the dollars has lost 95% of its value.

The Treasury Department sets dollar valuation policy, not the Federal Reserve.

If ignorance was bliss, you'd be having an orgasm by now.  The Federal Reserve reports to no one.  It isn't part of the government.  There's nothing federal about it and there are no reserves.

[Swing low, sweet chariot. Comin' for to carry me home.]

The Treasury Department sets dollar valuation policy, not the Federal Reserve.

If ignorance was bliss, you'd be having an orgasm by now.  The Federal Reserve reports to no one.  It isn't part of the government.  There's nothing federal about it and there are no reserves.

In case you haven't noticed, you are choosing to act like an ass, so please allow me to retort:

Your comments regarding whether or not the Federal Reserve should exist and whether it is actually "federal" were NOT the topic of this thread.  So, responding to me as if I were addressing those issues is ignorant.  At least introduce your tangential remarks as topics that should be discussed, instead of acting as if you’re giving an intelligent response.

Furthermore, it is an established fact that the Federal Reserve does indeed exist and that it derives its authority from the U.S. Congress, the legislative branch of the United States federal government, which just so happens to be the overseer of the Federal Reserve.

[Richard]

The Treasury Department sets dollar valuation policy, not the Federal Reserve.

If ignorance was bliss, you'd be having an orgasm by now.  The Federal Reserve reports to no one.  It isn't part of the government.  There's nothing federal about it and there are no reserves.

In case you haven't noticed, you are choosing to act like an ass, so please allow me to retort:

Your comments regarding whether or not the Federal Reserve should exist and whether it is actually "federal" were NOT the topic of this thread.  So, responding to me as if I were addressing those issues is ignorant.  At least introduce your tangential remarks as topics that should be discussed, instead of acting as if you’re giving an intelligent response.

Furthermore, it is an established fact that the Federal Reserve does indeed exist and that it derives its authority from the U.S. Congress, the legislative branch of the United States federal government, which just so happens to be the overseer of the Federal Reserve.

I, however, MADE it the discussion.

$10 in 1780: $10
$10 in 1916: $16
$10 in 2006: over $1,900

Your precious federal reserve steals more money from Americans than any other organization, even the government.

[David S]

Its hard to think of the Fed as inflation fighters since almost all of the long term inflation in the country occurred after the fed was born. Thanks to their policies the dollars has lost 95% of its value.

The Treasury Department sets dollar valuation policy, not the Federal Reserve.

If ignorance was bliss, you'd be having an orgasm by now. 

That's a classic line. I really like that one. Gotta remember it.

The fed sets banking policy. The fed in conjunction with all banks create money out of nothing by making loans with money they don't have. If the banks get $1000 in deposits they can make about $10,000 in loans. Then they collect interest on the money that they created. In the process the extra money in the economy creates inflation.

[True Federalist (진정한 연방 주의자)]

Glad the copper price is dropping! People are stealing copper wire from off the railroad tracks here!

Notwithstanding the price of oil, copper prices worry me the most.  Even with today's 6% drop, copper prices are still 65% higher on the year.

Oh and around here theifs are also destroying people air conditioner units and stripping them of the copper piping! Right out of their yards!

It's also causing a problem with Dixie Beer.  It's brewery got somewhat damaged by Katrina, but more so by vandals systematically stripping the copper tubing and vats.

BTW, did you know that with the increase in the price of nickel and copper, a nickel now contains a little bit more than 5 cents worth of metal.  If nickel and copper went much higher we could have seen a nickel shortage as they started being melted down for the metal.  I guess that means we're back to having a specie currency.

[Swing low, sweet chariot. Comin' for to carry me home.]

The fed in conjunction with all banks create money out of nothing by making loans with money they don't have.

What?...wrong

---

If the banks get $1000 in deposits they can make about $10,000 in loans.

wrong

Banks can loan up to 90% of deposits sitting in transaction accounts, not 1000% of deposits as you claim.  In time deposit accounts (e.g. CDs), the bank can loan up to 100% of the deposits, but NOT over 100%.

---

Then they collect interest on the money that they created.

wrong

banks make money by loaning out up to 90% of their transaction deposits (100% of their time deposits).  They are charging a higher interest rate to loan customers than they pay to customers holding deposits, that's how banks earn their profits.

---

In the process the extra money in the economy creates inflation.

see wrong assumptions #1, #2, and #3 above

---

Safe to say you have never studied banking.  I, on the other hand, have designed and implemented banking systems that deal in exactly this very issue. 

In fact, if you have money in a cash account at a stock broker, chances are that I had a hand in building the system that automatically sweeps money from your cash account held by your broker into a higher yielding savings account at a bank.  There are two types of accounts created by the brokerage in your name at that bank:  transaction deposits and time deposits.  If you can write checks out of your account at your broker, then that money is transferred from the time deposit account into the transaction account.  The bank MUST keep 10% of the money in transaction accounts in reverse, but they can loan out the other 90%.  For the money in the time deposit accounts, the bank loans out up to 100% of the amount deposited, but NOT over 100%.

The customers at the brokerage win because their money is earning a higher interest rate and is protected by the FDIC when it is sitting in a bank.  The brokerage wins because they skim-off and pocket some of the interest paid by the banks to these accounts.  The banks win because they have more deposits to lend out.

Dude, this whole preoccupation you have with bashing the banking system, as well as your problem with how the M3 money supply is calculated, is based on your near TOTAL misunderstanding of the purpose and function of currencies and centralized banking systems.

[Swing low, sweet chariot. Comin' for to carry me home.]

There's nothing federal about it and there are no reserves.

I missed this part of your statement...

The "Reserve" is the 10% part of transaction deposits that the banks MUST not lend out (the other 90% of transaction deposits can be used to make loans).  This 10% is held by the Federal "RESERVE".

So, not only is there a reserve, but it is very real and NOT simply some IOU like the ones sitting the Social Security Trust Fund.  When you open a checking account or hold a balance in a checking account, 10% of your balance is sent to the Federal Reserve to be held in "reserve".

The Federal Reserve uses part of the "reserve" to make overnight loans to banks to cover liquidity imbalances and charges the banks the "Fed Funds Rate" for these overnight loans.  (This very same Fed Funds Rate is the rate raised when the Fed raises short term interest rates.)  And, if I am not mistaken, this Fed Funds Rate is how the Federal Reserve is funded - it is NOT funded by taxpayer dollars, rather it is funded by banks, through the Fed Funds Rate, as part of the cost of doing business within the federally regulated banking industry.

By raising or lowering the Feds Fund Rate, the Federal Reserve can control the cost of liquidity within the banking system.  The cost of liquidity is passed on to those barrowing money through higher interest rates charged to them by lending institutions.  And when the cost of barrowing goes up, the demand for barrowing goes down,,,the economy slows which reduces demand and THEREFORE helps to control inflation by controlling the price paid for goods and services.

[Swing low, sweet chariot. Comin' for to carry me home.]

I, however, MADE it the discussion.

$10 in 1780: $10
$10 in 1916: $16
$10 in 2006: over $1,900

Your precious federal reserve steals more money from Americans than any other organization, even the government.

1) Name one currency that has not experienced inflation. 

2) You claim that money is being stolen from Americans by the federal reserve...but where is this pile of "stolen money" being held?

[bullmoose88]

I'm impressed jmfcst,

Is your knowledge in this realm basically from on the job experience, or did you dabble in banking/economics/finance in college?

[○∙◄☻¥tπ[╪AV┼cVê└]

Lowering unemployment is a lot more important than lowering inflation.

[bullmoose88]

Lowering unemployment is a lot more important than lowering inflation.

If you were aspiring to become Chairman of the Federal Reserve, you would have just killed your chances with that statement.

[○∙◄☻¥tπ[╪AV┼cVê└]

The Treasury Department sets dollar valuation policy, not the Federal Reserve.

If ignorance was bliss, you'd be having an orgasm by now.  The Federal Reserve reports to no one.  It isn't part of the government.  There's nothing federal about it and there are no reserves.

In case you haven't noticed, you are choosing to act like an ass, so please allow me to retort:

Your comments regarding whether or not the Federal Reserve should exist and whether it is actually "federal" were NOT the topic of this thread.  So, responding to me as if I were addressing those issues is ignorant.  At least introduce your tangential remarks as topics that should be discussed, instead of acting as if you’re giving an intelligent response.

Furthermore, it is an established fact that the Federal Reserve does indeed exist and that it derives its authority from the U.S. Congress, the legislative branch of the United States federal government, which just so happens to be the overseer of the Federal Reserve.

I, however, MADE it the discussion.

$10 in 1780: $10
$10 in 1916: $16
$10 in 2006: over $1,900

Your precious federal reserve steals more money from Americans than any other organization, even the government.

That shows that the Hungarian Pengo had more inflation in one week than the US dollar has had in 226 years.

[○∙◄☻¥tπ[╪AV┼cVê└]

Lowering unemployment is a lot more important than lowering inflation.

If you were aspiring to become Chairman of the Federal Reserve, you would have just killed your chances with that statement.

Well it's a pity that no one who has power over the process cares about the working poor, and the economic stimilous that high employment creates.

[bullmoose88]

Lowering unemployment is a lot more important than lowering inflation.

If you were aspiring to become Chairman of the Federal Reserve, you would have just killed your chances with that statement.

Well it's a pity that no one who has power over the process cares about the working poor, and the economic stimilous that high employment creates.

Though why not just let elected officials use fiscal policy to focus on employment...and just let the Central bank focus on inflation?

[Swing low, sweet chariot. Comin' for to carry me home.]

Is your knowledge in this realm basically from on the job experience, or did you dabble in banking/economics/finance in college?

job experience...when I am not on projects involving energy trading transactional systems, I'm on projects involving brokerages and banking. 

Banking is boring, it is usually just dealing with debits or credits, though the nightly sweeping of money into different accounts is interesting.  When your bank is closed for the day, the money is invested overnight...money never sleeps.

[Swing low, sweet chariot. Comin' for to carry me home.]

The Federal Reserve uses part of the "reserve" to make overnight loans to banks to cover liquidity imbalances and charges the banks the "Fed Funds Rate" for these overnight loans.  (This very same Fed Funds Rate is the rate raised when the Fed raises short term interest rates.)  And, if I am not mistaken, this Fed Funds Rate is how the Federal Reserve is funded - it is NOT funded by taxpayer dollars, rather it is funded by banks, through the Fed Funds Rate, as part of the cost of doing business within the federally regulated banking industry.

I had a friend who works for one of my past clients correct me on this during lunch today...

The Fed Funds Rate is used by banks in overnight loans to other banks to help meet their 10% reserve requirements.  When the Fed Reserve loans directly to banks, the Discount Rate is used, not the Fed Funds Rate.

Disclaimer:  The systems I have been involved with only deal with allocating and sweeping money from individual accounts at brokerages into and across transactional and time deposit bank accounts, along with calculating the resulting 10% reserve requirements and the interest accrued and paid to the accounts.  The systems didn't involve overnight reserve loans between banks, which is why I was mistaken on exactly who was loaning the money during the overnight periods...sorry for the confusion.

It is correct, however, that the Fed Reserve is not funded by Congress, and therefore is not funded by taypayers…”The Federal Reserve's income is derived primarily from the interest on U.S. government securities that it has acquired through open market operations. Other sources of income are the interest on foreign currency investments held by the System; fees received for services provided to depository institutions, such as check clearing, funds transfers, and automated clearinghouse operations; and interest on loans to depository institutions (the rate on which is the so-called discount rate). After paying its expenses, the Federal Reserve turns the rest of its earnings over to the U.S. Treasury.” (quote from http://www.federalreserve.gov/generalinfo/faq/faqfrs.htm#6 )

[??????????]

It is correct, however, that the Fed Reserve is not funded by Congress, and therefore is not funded by taypayers…

So then how do they have constitutional authority to print our money?

[Richard]

HOLY CRUNCHIES!  jmfcst, I've never met someone so uneducated about economics.

The fed in conjunction with all banks create money out of nothing by making loans with money they don't have.

What?...wrong

---

If the banks get $1000 in deposits they can make about $10,000 in loans.

wrong

Banks can loan up to 90% of deposits sitting in transaction accounts, not 1000% of deposits as you claim.  In time deposit accounts (e.g. CDs), the bank can loan up to 100% of the deposits, but NOT over 100%.

Ever heard of fractional reserve banking?  Yes, the loan out 90%, but of that 90% another 90% can be loaned out, and of that another 90%.

$1,000 deposited by A
Bank loans $900 to B
$900 deposited by B
Bank loans $810 to C
etc.

In fact, with a 0.1 fractional reserve rate, $1 blow up to $1/0.1 = $10.  $9 created out of thin air, and banks charge interest on this.  How is it that you do not know this?  Did you get an American government education per chance?

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In fact, it is quite safe to say the same for you.

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For Zimbabwe?