311–319 of 319 posts
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What do you think is the difference between saving and investing??
Your savings account will not drop 25% in one week unless you withdraw from it.
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Saving is preservation of capital whereas investing is growing capital. At least that is my take.
Saving is normally expected to be minimal-risk preservation of capital, whereas investing risks capital loss (alongside hoping for capital gain).
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If you write off 2 months out of 12 months, that's a 17% decrease.
I think he was talking about the current situation, not the full year perspective. How is that any different than saying 2 months out of a decade is 1.7%??
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There must be some floor based on default rates right? If 2% of people default you can't go below 2%. And of course default rates go up in recessions.
I personally don’t think there’s a floor, all that matters is spread over treasuries. If we go with your 2% number, that’s the spread between the mortgage risk and the risk-free rate. If risk-free goes to -1%, then it’d make sense for mortgages to go to 1%. This is something that already happens in European countries. I don’t think there’s an inherent reason for the risk-free rate to be a positive number. On a differ…
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The feds mandate is to maximize employment, stabilize prices, and moderate long-term interest rates. A big part of that is trying to avoid the 'bust' part of a boom-bust cycle. As evidenced by your post, the fed should not be accountable to the public because the public cannot be expected to spend anytime trying to understand what they do and their methods of action.
So don't educate people, just trust the Pharisees. Got it.
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No, it's not foolish. We need to keep markets liquid to avoid a lending crisis. That's why the fed announced asset purchases. They don't do them all at once. They buy steadily over a period of time to help keep prices stable. That's very important. They had to do rate cuts now because it takes a long, long time for them to work (measured in years rather than months). That was a preventative measure, not a band-aid. L…
> Look, guys, I promise you the fed knows wtf they're doing. These guys live and breath to be ready to respond to these type of emergencies. There's no possible way this could go wrong.
If the fed hadn't announced that action last night then the hell that would have rained down on Monday would have gone down in history with Lehman and Black Monday.
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Reserve requirements never really limited the ability of banks to create money. Canada hasn't had reserve requirements for >20 years. Neither does the UK, New Zealand, Australia, Sweden and Hong Kong. But all banks are indeed subject to capital requirements, and that does limit money creation Anyway, reserve requirements are generally not effective, including in the USA. Much has been written about this. Banks are us…
Reserve requirement were at 10%. What happens now if someone deposits $100,000, the bank lends out $100k because it can, and the someone tries to withdraw their money?
This is very simplistic. 10% of what? Checking account deposits? Savings account deposits? If savings and checking accounts have different reserve requirements (and afaik they do), then depositors just moving money back and forth between different kinds of accounts can change the bank's required reserves. Banks also have flexibility on how they report their accounts.
Furthermore, the reserve requirement is enforced across a 2 week period. Banks don't need to have all the required reserves all the time, just some of the time.
And what if they don't meet the requirement? Is it that they are forced to close by regulators, or do they just pay a penalty? If it's the latter, then how often in practice do banks actually meet their requirements? Because it might be cheaper to pay the penalty than to meet the requirement.
> What happens now if someone deposits $100,000, the bank lends out $100k because it can, and the someone tries to withdraw their money?
No one's doubting that banks need cash on hand to meet the demands of their depositors, and that they need assets to use for net settlement with other banks. But cash demand on any given day is probably much lower than 10% of deposits (and afaik, the reserve requirements don't expect banks to hold anywhere near 10% of deposits in cash). As for inter-bank settlement, there are a lot of ways to get sufficient liquidity, including borrowing on the repo market and the overnight market.
Holding reserves costs banks opportunity-cost (because they only earn interest-on-reserves, which for most of US history was 0). And there is no shortage of safe, liquid assets out there (US government debt). Even mortgage debt is liquid. And there are tons of reserves sloshing around there, due to QE.
So banks are definitely not reserve constrained... not even close. But banks might be capital constrained. There's a big difference between reserve requirements and capital requirements.
But in many cases, banks might be constrained by neither. They are probably constrained by a lack of demand from lenders. There are not enough people to lend to.
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An option not talked about much yet is cancelling debts. The Romans did it quite a few times. An effective redistribution of wealth from people who own things to people who do things.
Effective sure, but surely you could have a fairer way. For example, one of the variant of debt cancellation I hear about is the proposal by Sanders and Warren to cancel all student debt. Isn't that extremely unfair to people who chose to not go to college because tuition is costly? Isn't it unfair to people who put financial prudence in front of needless consumerism, by saving more to pay down their student debt?
The state of student loans in the U.S. obviously isn't even remotely as despicable as chattel slavery, but it's still deeply immoral and not far removed from loan sharking + debt slavery. Ignoring the moral aspect, it's just wildly counterproductive and detrimental to society (particularly since the generation who allowed this to happen - the baby boomers - never had to deal with this themselves.
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Effective sure, but surely you could have a fairer way. For example, one of the variant of debt cancellation I hear about is the proposal by Sanders and Warren to cancel all student debt. Isn't that extremely unfair to people who chose to not go to college because tuition is costly? Isn't it unfair to people who put financial prudence in front of needless consumerism, by saving more to pay down their student debt?
Ending slavery could be considered "unfair" to a slaveowner who just spent a lot of money purchasing a slave. That doesn't justify slavery. The state of student loans in the U.S. obviously isn't even remotely as despicable as chattel slavery, but it's still deeply immoral and not far removed from loan sharking + debt slavery. Ignoring the moral aspect, it's just wildly counterproductive and detrimental to society (pa…
A better solution still would be a one time initial handout to all us citizens over 18 years of age of 100k$, and then every us citizen that turns 18 100k$ of free money they may use however they see fit.