Uk

[jacinto]

Jacinto,

I think you are getting lost in the detail.

The simple fact is that banks create new money. Nothing more, nothing less.

They also create new money which is a substantial multiple of a deposit. Again, that is all you need to know.

If you read the pdf, examples are given to illustrate these two points.

Fibonelli

i must say i respectully disagree with your observation. that pdf is from 1971. Even Milton Friedman would today tell you its a bit old .

The way economists are taught in universities of how money is created is probably outdated, and with it what is around on the internet for non economists to read

IF you want to get to the nitty gritty of money creation, I suggest you find out the definitions onf M1, M2, M3, etc etc etc.....

all the best

j

Edit: small hint on what to research: look for monetary aggregates, and you could start by searching OECD, FMI. ah, and also see BIS good luck

Edit 2: I used to be a central banker

Edit 3: here is 2 links
http://www.oecd.org
http://www.bis.org/index.htm

 

[Atilla]

i must say i respectully disagree with your observation. that pdf is from 1971. Even Milton Friedman would today tell you its a bit old .

The way economists are taught in universities of how money is created is probably outdated, and with it what is around on the internet for non economists to read

IF you want to get to the nitty gritty of money creation, I suggest you find out the definitions onf M1, M2, M3, etc etc etc.....

all the best

j

Edit: small hint on what to research: look for monetary aggregates, and you could start by searching OECD, FMI. ah, and also see BIS good luck

Edit 2: I used to be a central banker

Edit 3: here is 2 links
http://www.oecd.org
http://www.bis.org/index.htm

Ah hold on there... Wouldn't that imply you have a conflict of interest?

Or

As you did say 'used to be' why the change?



As for me I'm sort of in the middle of the road really. We do need banks and lending.

I think it's too simplistic to say they create money and that's all they do and that's bad.

They also finance business, ideas and inventions and speed along the purchase of what you can't have tomorrow, today. Why wait years to save up? :cheesy:

Can't deny excess liquidity at the mo - I blame the governments not the banks.

As for the independance of the Fed and BoE and Deutchbank or now the great ECB well that is a bonus. Do we really want politicians and governments to run the banks. I don't think so.

 

[jacinto]

Ah hold on there... Wouldn't that imply you have a conflict of interest?

Or

As you did say 'used to be' why the change?



As for me I'm sort of in the middle of the road really. We do need banks and lending.

I think it's too simplistic to say they create money and that's all they do and that's bad.

They also finance business, ideas and inventions and speed along the purchase of what you can't have tomorrow, today. Why wait years to save up? :cheesy:

Can't deny excess liquidity at the mo - I blame the governments not the banks.

As for the independance of the Fed and BoE and Deutchbank or now the great ECB well that is a bonus. Do we really want politicians and governments to run the banks. I don't think so.

ah, finally, an intelligent comment....

used to be......


atilla, we were trained to learn M1, M2, M3, even M4, but we were never trained to learn how other aggregates would arise with financial innovation and technology. that has changed.

It has changed to the extent that central bankers decided to stop targetting exactly that, changes in the Ms, and started to target an inflation rate , and enhanced supervision of risk (if they have any).

the politicians running the banks. no way, keep the "monetary engineers" :cheesy:

j

 

[jacinto]

Developments in the form of CDO's have blown most of this out of the water, banks only need to maintain minimal equity in these vechicles, the rest can be returned as collateral for further loans.

I think the new Basel rules have lifted what little restrictions remain, banks can essentially loan whatever amount that can be supported (or appear to be) by the client, which is exactly what we're seeing from private equity to mortgages at x6 multipules.

and this, if true (not doubting you bugbear) simply puts the "if there is any "risk supervision out there" into place.

rather interesting that the banks have "hedged" (so to speak) default risk....errr, wasnt that what banking was about....

that is really spooky, if default risk is in the real sector.

j

 

[BugBear]

rather interesting that the banks have "hedged" (so to speak) default risk....errr, wasnt that what banking was about....

One presumes a huge number of hedge funds are the counterparties to great deal of these credit default swaps, which is great until something goes wrong, then you have something that makes LTCM appear like a storm in a tea cup.

This is the moral hazard of modern central banking, everything is too big to fail and has implicit backing.

 

[2468steve]

ah, finally, an intelligent comment....





It has changed to the extent that central bankers decided to stop targetting exactly that, changes in the Ms, and started to target an inflation rate , and enhanced supervision of risk (if they have any).



j

Jacinto,
Given your central bank bakground,out of curiosity what would be your definition of inflation...?? If I read your above post correctly it suggests that central bankers are of the opinion that the M's and inflation are different.....

cheers

 

[jacinto]

Jacinto,
Given your central bank bakground,out of curiosity what would be your definition of inflation...?? If I read your above post correctly it suggests that central bankers are of the opinion that the M's and inflation are different.....

cheers

hi,

well thats a tricky question on your end there.

the general definition would be "increases in the general price level". which i know is rather vague, but to the point. it means that it depends how you measure a price level.

it is typically measured by a basket of goods and services to construct a price index. changes of the price index would be the obvious direct definition of inflation for that matter. you can then either add or subtract components as you wish for policy matters (central bankers also sometimes fudge numbers )

one measure of inflation i like to observe is the implicit price deflactor. and this is the price change derived from GDP increases in nominal levels.

confusing, yes, i know, but thats what economists learned to do at school.
"if you can beat the mass, confuse them" :cheesy:

j

 

[2468steve]

hi,

well thats a tricky question on your end there.

the general definition would be "increases in the general price level". which i know is rather vague, but to the point. it means that it depends how you measure a price level.

it is typically measured by a basket of goods and services to construct a price index. changes of the price index would be the obvious direct definition of inflation for that matter. you can then either add or subtract components as you wish for policy matters (central bankers also sometimes fudge numbers )

one measure of inflation i like to observe is the implicit price deflactor. and this is the price change derived from GDP increases in nominal levels.

confusing, yes, i know, but thats what economists learned to do at school.
"if you can beat the mass, confuse them" :cheesy:

j

J,
Thanks for your reply...interesting answer.Also interesting to know young economists are taught this rising price principle at school.This possibly explains why there is perhaps a misunderstanding of inflation from those with the power to control it.

I'd maintain that inflation is by definition a rise in M3,and not general prices....an increase in money supply leads to more paper in circulation,which in turn chases a finite quantity of goods/assets , more paper,same amount of goods = rising prices

cheers

 

[jacinto]

J,
Thanks for your reply...interesting answer.Also interesting to know young economists are taught this rising price principle at school.This possibly explains why there is perhaps a misunderstanding of inflation from those with the power to control it.

I'd maintain that inflation is by definition a rise in M3,and not general prices....an increase in money supply leads to more paper in circulation,which in turn chases a finite quantity of goods/assets , more paper,same amount of goods = rising prices

cheers

sure, no worries. ive actually been away from this kind of stuff for some time. It kind of affects my trading, cause i start having views of the economy, and blurs my mind of where currencies are going.

yeah, increases in the Ms can lead to that conclusion, and under particular circumstances it is the correct conclusion. anyway, dont want to keep on going about it really.

if interested in good readable economic research, then google the next names

Brad Delong (berkley university)
PAul Krugman (Princeton, i think)

and if interested in harder stuff to read, then google

Dornbusch+Overshooting

nice research linking currency movements to inflation, etc. etc. It is a bit old, but still very well regarded.

j

 

[2468steve]

sure, no worries. ive actually been away from this kind of stuff for some time. It kind of affects my trading, cause i start having views of the economy, and blurs my mind of where currencies are going.

yeah, increases in the Ms can lead to that conclusion, and under particular circumstances it is the correct conclusion. anyway, dont want to keep on going about it really.

if interested in good readable economic research, then google the next names

Brad Delong (berkley university)
PAul Krugman (Princeton, i think)

and if interested in harder stuff to read, then google

Dornbusch+Overshooting

nice research linking currency movements to inflation, etc. etc. It is a bit old, but still very well regarded.

j

J,
thanks,I'll have a google...

Ask 5 economists for their views and you'll get 8 different opinions

Enjoy you're trading day.....

Steve

 

[JTrader]

Money as debt -
http://video.google.com/videoplay?docid=-9050474362583451279

 

[fibonelli]

A few of the excellent quotes from the Money as Debt video:-

"Anyone who believes exponential growth can go on forever in a finite world is either a madman or an economist" Kenneth Goulding, economist.

"This is a staggering thought. We are completely dependent on the commercial banks. Someone has to borrow every dollar we have in circulation, cash, or credit. If the banks create ample synthetic money, we are prosperous; if not, we starve. We are absolutely without a permanent money system. When one gets a complete grasp of the picture, the tragic absurdity of our hopeless position is almost incredible, but there it is. It is the most important subject intelligent persons can investigate and reflect upon. It is so important that our present civilization may collapse unless it becomes widely understood and the defect remedied very soon". Robert H. Hemphill, Credit Manager of the Federal Reserve Bank of Atlanta Georgia.

Public Money Private Credit
http://video.google.com/videoplay?docid=-1054706869308133588

 

[welsh_guy]

Right guys / girls i'm no expert on this - but i've recently i've been doing a lot of reading around the subject. We all know what is going to happen - higher interest rates leading to a housing price crash. More and more people getting into higher debt, however i refuse to believe all that money (debt) will go to the banks. There must be ways of making money from what is about to happen. Right?

 

[JTrader]

There must be ways of making money from what is about to happen. Right?

Wait until the crash and buy property while prices are at rock bottom.

If you cannot afford to buy property, look to time getting a mortage at just the right time - when house prices are low & IR's look as though they may be about to fall - i.e. how the conditions were between 1999-2001 - in hindsight, were ideal. :idea:
In other words, BUY LOW!

 

[fibonelli]

Right guys / girls i'm no expert on this - but i've recently i've been doing a lot of reading around the subject. We all know what is going to happen - higher interest rates leading to a housing price crash. More and more people getting into higher debt, however i refuse to believe all that money (debt) will go to the banks. There must be ways of making money from what is about to happen. Right?

Hi WG,

It's a bit like you're in Mar 2000 waiting to buy the Nasdaq at the base of the bubble.

The ironic thing with property is that if it gets really bad, some of the banks/building societies will need to be rescued otherwise you'll lose your money to buy a property.

Fibonelli

 

[JTrader]

Nights out

Anyone else notice how virtually every night of the week in town centres has become its own seperate occassion for a ****-up?

10 years ago, ther'd be Fridays and saturdays, maybe a student night, and one other fairly busy week night. Now it seems that theres' Friday + Saturday + Sundays are becoming fairly busy, fairly busy Mondays, fairly busy Wednesdays etc. in some medium sized towns without a uni etc.

I'm not saying this is wrong, as going out, meeting/making friends is a good thing, if you're not drinking heavily. It just seems like an interesting trend that has developed in the last few years..........

Perhaps due to the lack of opportunity to buy houses etc. young people have become increasingly determined to say, sod this, I'm at least going to enjoy myself!

 

[welsh_guy]

- JTrader: good point, i clearly dont have the money to buy now! ha as they are all over priced anyways - but when the prices come down i'll b ok. One question to you tho - you say buy LOW - when i've traded markets before you have certain indicators that you look for, indicating its the bottom of the market - are they any to look out for?

cheers

 

[JTrader]

- JTrader: good point, i clearly dont have the money to buy now! ha as they are all over priced anyways - but when the prices come down i'll b ok. One question to you tho - you say buy LOW - when i've traded markets before you have certain indicators that you look for, indicating its the bottom of the market - are they any to look out for?

cheers

I don't know if you could apply an RSI/ADX/MACD oscillator type indicator to a chart of housing prices, though i have wondered the same thing myself!

The real skill would be to know when prices are at a low, and interest rates are about to start falling. Perhaps just buying, as house prices have hit the bottom, and already started to rise slightly (i.e. RSI 14 had passed below, and then back above 30 :idea: ) would be the best bet.....:idea:

 

[welsh_guy]

ok :| - i'm a little lost about your last post. What do you mean by "(i.e. RSI 14 had passed below, and then back above 30 ) when you say RSI, do you mean relative strength index? if so how does this apply to the housing market?

Sorry for the confusing or if i'm being dumb?

 

[JTrader]

Hi WG

you asked about identifying tops & bottoms of the house market.
In trading, oscillators are often used to show overbought-oversold conditions such as Relative Strenghth Index, MACD, ADX etc. .......................as for housing market charts, i doubt you could analyse prices with traditional TA, but don't know for sure why not............