Talk:Fractional-reserve banking/Archive 5

This is an archive of past discussions about Fractional-reserve banking. Do not edit the contents of this page. If you wish to start a new discussion or revive an old one, please do so on the current talk page.

Archive 1

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Archive 3

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Lawrencekhoo's revert of my edit to the definition

I believe Lawrencekhoo's contention with the new definition I wrote is with this sentence:

"The remaining demand deposits are backed by loan notes derived from loans given out by the bank."

So my question is: if only a fraction of the deposits are backed by reserves, are the rest of the deposit's backed by anything? If so, what are they backed by? I'm trying to make sense of all the conflicting information about fractional reserve banking thats out there. I believe my definition is/was precisely what fractional reserve banking is, while not conflicting with all the explanations of how it works. Fresheneesz (talk) 18:40, 5 November 2010 (UTC)

Except your explanation was wrong - the rest of the deposits are backed by a priority promise of the bank to give you currency on demand, and insurance from the FDIC, neither a fungible, negotiable instrument. Hipocrite (talk) 19:51, 5 November 2010 (UTC)

Insurance is insurance, not backing. Neither is a promise to pay, backing... just like you can't get a mortgage "backed" by your promise to pay it off.. The whole basis of a banks ability to pay people on demand is because they have the full real value as assets (liquid or illiquid). Those assets include reserves and securities from loans created from deposits. Isn't that what "backing" is? Fresheneesz (talk) 22:46, 6 November 2010 (UTC)

No. The word "backed" has many meanings. I suggest that you are reverting over and over to your preferred version without first getting consensus - or even really understanding what you are writing about - this is problematic behavior, and needs to stop. Hipocrite (talk) 00:39, 7 November 2010 (UTC)

My problem is that you're ignore the fact that my edit is more true to their sources than the definition that was there before. You're claiming that "backed" has many meanings, but you don't mention any of those meanings, and you aren't telling me why my interpretation of the sources is incorrect. I'm certainly open to discussing this and coming to a consensus.

Why don't we start the discussion right now? How exactly did I misinterpret "[Fractional Reserve Banking is] a banking system in which only a fraction of bank deposits are backed by actual cash-on-hand and are available for withdrawal." ? Fresheneesz (talk) 22:18, 7 November 2010 (UTC)

That sentence is unclear, as it seems to state that if you deposit $100, $8 of it is uniquely "backed" by cash. That's both accurate, and not accurate. It's accurate, in that the bank has only $8 of cash on hand per $100 of deposits. It's not accurate, in that the bank does not promise that $8 to you. Hipocrite (talk) 12:37, 8 November 2010 (UTC)

Policy is that the lead should summarize the article. (See WP:LEAD.) The lead shouldn't introduce anything new, or disproportionately highlight any issue; it should reflect in proper proportion, what is in body of the article. I would suggest that any proposals to change the article lead, start by changing the body; and that any changes in the lead should either follow consensus changes to the body, or change the lead to better reflect what is in the body of the article. Any changes to the lead that doesn't follow these principles is going against policy. LK (talk) 14:07, 8 November 2010 (UTC)

Fair enough Lawrence. Hipocrite: I see what you're saying now. But in fact, that $8 is promised to you - actually the whole $100 is promised to you. You're saying, though, that saying its "backed" doesn't make the meaning of that statement clear, right? Fresheneesz (talk) 21:11, 8 November 2010 (UTC)

I noticed that "backed by" has been changed to "kept as". I think this has the same unclarity that "backed by" has. What about saying that "only a fraction of deposits can be withdrawn on-demand" with the possible qualification "even though all deposits are promised to be withdrawable on-demand". Maybe theres a less long winded way to say this. Fresheneesz (talk) 00:59, 10 November 2010 (UTC)

Or is there a more precise way of saying "backed by" such that the meaning we want is clearly the meaning written? Fresheneesz (talk) 01:00, 10 November 2010 (UTC)

Article misleading with respect to how loans originate

deposit mult 1

This article is highly misleading. Banks do not lend deposits as this article suggests. Banks create deposits, and thus create money, with each loan. Loans create deposits. It is illegal for banks to "loan deposits", because a bank cannot debit someone's account in order to loan it to someone else. Every loan creates a new deposit, and thus, increases the money supply by the amount of the loan. A bank's ability to create deposits is limited by its reserves, but the banking system as a whole, which includes the central bank which creates reserves, has no limit to the amount of money that can be created. 68.150.191.166 (talk) 00:17, 14 July 2010 (UTC)

So this is like saying if I deposit $100, then they keep $100 and loan out $400; instead of the article's example of keeping $20 and loaning out $80? That would mean they created $300 out of nothing. Wouldn't their rates be dramatically different? This would lead to much higher rates for depositors and much lower rates for lendees. Also, wouldn't the whole bank run risk be a moot point? All of the depositor's money would still be in reserve. —Preceding unsigned comment added by 99.62.29.93 (talk) 01:01, 9 September 2010 (UTC)

Yes, but your percentages are greater than 100%. The bank keeps 100$ and then loans out a further new 80$ in addition. The result is that the system in total now has 180$ as money, 80$ of which was newly created by the bank. That 80$ can then go to the next bank, when it is spent, as deposits, resulting in 180$ of deposits, total.

I agree with the above. Fractional Reserve Lending is a legal way that banks create money. If you or I, common people, were to practice this it would be called counterfeiting and we'd be thrown in jail. It doesn't surprise me that people are unaware of this practice and don't believe it. It's basically the reason why the banks have the tallest buildings in every city. Quite simply, they get a deposit, they lend out a greater amount of this deposit and thus our money supply grows. Also, if a bank purchases a government bond, they get interest on that bond as well as the ability to lend out more money through the magic of fractional Reserve Lending

e.g. $100 government bond is purchased @ %6 interest
The note is worth $106
The bank lends out $1000 (10x the amount of the bond)
PLUS 6% interest on that amount

so... they aren't just making the 6% interest on the original bond but over %1000 interest (%1166) —Preceding unsigned comment added by 174.3.234.10 (talk) 20:04, 20 October 2010 (UTC)

Does it work like this?:

Notes	Amount in reserve	Value of loan security owned by the bank	Percent in reserve	Amount in original account	Amount In Loanee's account	Total demand deposits
Bank hasn't lent anything out yet	$100	0	100%	$100	0	$100
Bank lends out $900	$100	$900	10%	$100	$900	$1000
Loanee withdraws $100 (reserve requirements violated)	0	$900	0%	$100	$800	$900
Bank sells a loan note to bring its reserves back into compliance	$90	$810	10%	$100	$800	$910
Bank sells most of the rest of loan notes ($720 worth) to cover an $800 withdrawal	$10	$90	10%	$100	$0	$100

Fresheneesz (talk) 21:49, 8 November 2010 (UTC)

As I understand it, the bank does not keep the 100$. When the bank took in 100$, it had its account at the central bank credited by 100$. After it loans out 80$, these reserves are transferred to the account of another bank. Banks are not free to create as much money as they like. Count Truthstein (talk) 14:34, 10 November 2010 (UTC)

Fair enough. As I understand it, the bank can "lend out" as much money as they want, as long as their deposits (amount lent + original deposits) don't exceed a certain amount determined by the reserve ratio.

But my fundamental question is about real money creation (not M1 money supply) - basically, does this system cause inflation? My current understanding is that, no, banks do not create inflation (even though M1 money supply does go up). The reason this is what I think is because, even though there is more money as deposits, there can never be more money in circulation (because whenever someone makes a withdrawal that puts money into (potential) circulation, money is also removed from circulation and put into the bank's reserves (so that they don't dip below their reserve ratio). Even if they only lend out 80$ from that original $100, this question still stands. Fresheneesz (talk) 19:07, 10 November 2010 (UTC)

The short answer is, "no." The long answer could well be a bit too much over the line for WP:NOT#FORUM. Personally, I thought the Fractional-reserve_banking#Example_of_deposit_multiplication section did a pretty good job of conveying the info. Perhaps, re-read it? (Note that one key difference from your "Banks lends out" example above is that the loan amounts are smaller, but cumulative.) BigK HeX (talk) 22:27, 8 November 2010 (UTC)

I understand the stuff there, and I know that banks have the legal ability to lend out $900 on an $100 deposit. But I'm trying to figure out if this whole situation causes any inflation or not. This table indicates to me that it doesn't. Do you know of any sources I can read that talk about any inflationary effects of fractional reserve banking? Fresheneesz (talk) 00:53, 10 November 2010 (UTC)

The way you say that a bank could lend $900 from a $100 deposit, seems to indicate that your understanding is incomplete, and that you are unaware of the intermediate scenarios that could lead to $900 from the original $100 of base money. Below though, Hipocrite seems to have addressed what may be your central question. BigK HeX (talk) 02:44, 11 November 2010 (UTC)

Yeah, I'll continue the conversation there. There are too many contentious points we would have to discuss to properly talk about the above table. Fresheneesz (talk) 19:51, 13 November 2010 (UTC)

deposit mult 2

editor changed mind on this topic

The following discussion has been closed. Please do not modify it.

Related question, in the explanation number 1 I listed, it doesn't seem like much if any money is really created - meaning that it doesn't cause any inflation. To take a 10% reserve requirement as an example, if someone deposits $100, the following table shows what should happen (in my mind of course):

Notes	Amount in reserve	Value of loan security owned by the bank	Percent in reserve	Amount in original account	Amount In Loanee's account	Total demand deposits
Bank hasn't lent anything out yet	$100	0	100%	$100	0	$100
Bank lends out 81.81..% of the deposit	$18.18..	$81.81..	10%	$100	$81.81..	$180.81..
Loanee withdraws $18.18.. (reserve requirements violated)	0	$81.81..	0%	$100	$62.63..	$162.63..
Bank sells a loan note to bring its reserves back into compliance	$16.2636..	$63.63..	10%	$100	$62.63..	$162.63..

So it looks like $1.9164 ($18.18-$16.26) was created, because $18.18 was withdrawn, but only $16.2636 was removed from the circulation (and deposited in the bank's reserves). So i suppose a little inflation happens. But this isn't what this article says at all - it talks about a money multiplier that multiplies the money supply by 10 times at a 10% reserve ratio. This may be the case when adding together loans and original deposits, but it doesn't seem to be as much the case when only considering actual money thats in circulation (which is what matters when it comes to inflation).

I guess my question is: does my example have anything to do with reality? If not, what am I missing here? Fresheneesz (talk) 20:53, 5 November 2010 (UTC)

It seems you're missing the rest of the (potential) multiplying of the money. BigK HeX (talk) 00:59, 6 November 2010 (UTC)

So... where is the money i'm missing exactly? Fresheneesz (talk) 22:28, 6 November 2010 (UTC)

Does FRB cause price inflation / money devaluation

I think my previous questions have confused people, so I want to try to make it more clear. Its pretty clear that FRB increases the money supply, but does FRB cause inflation? Here's a table that describes what I think would happen if the bank decided to lend out a fraction of an original deposit of $100:

Event	Amount in reserve	Value of loan security owned by the bank	Percent in reserve	Amount in original account	Amount In Loanee's account	Total demand deposits
Bank hasn't lent anything out yet	$100	0	100%	$100	0	$100
Bank lends out 90% of the deposit	$100	$90	52.6%	$100	$90	$190
Loanee withdraws $90	$10	$90	10%	$100	0	$100
Depositer withdraws $10 (reserve requirements violated)	0	$90	0%	$90	0	$90
Bank sells a loan note to bring its reserves back into compliance	$9	$81	10%	$90	0	$90

So as you can see, the amount in reserve + the value of the loan securities is always equal to the amount in the original account + amount in loanee's account (ie the total demand deposits). Also, notice that whenever too much money is withdrawn, money has to be taken out of the system to replenish the reserves (this happens by selling some bank assets - ie loan notes).

Because of this, is it fair to say that FRB does not cause inflation? Fresheneesz (talk) 20:49, 10 November 2010 (UTC)

You are ignoring the fact that the Loanee does something with the money. "Inflation" is not the term you want to use - it's "expanding the money supply," and yes, FRB does expand the money supply. Hipocrite (talk) 21:01, 10 November 2010 (UTC)

If FRB worked exactly as described in the textbooks (which it doesn't) then the money supply would indeed inflate up to the limits defined by the reserve requirement - but then after that point it would expand no more. So unless the monetary base gets expanded, FRB will not lead to any further inflation. Reissgo (talk) 11:54, 11 November 2010 (UTC)

"Inflation" is not the best word choice in the context of this thread, as it generally implies "price inflation".

Correct. I should have said "money supply inflation". Reissgo (talk) 13:42, 11 November 2010 (UTC)

Actually, what I'm concerned about it price inflation / money devaluation. Sorry if that wasn't clear. I do understand/agree that the money supply inflates. Fresheneesz (talk) 02:13, 12 November 2010 (UTC)

To bring this to something more relevant with editing this article, I've removed the following excerpt from the "Reason for Existance" section:

A full-reserve banking system with a fixed money supply would result in deflation as the economy grows. However, this deflation is likely to have deleterious consequences if some prices are stickier than others; in particular, wages are often significantly stickier than other prices. Most economists believe that given wage stickiness, the adjustment costs of deflation are significantly higher than an equivalent inflation. As such, mainstream economic thinking prefers the inflation brought about by fractional-reserve banking to the necessary deflation of a full-reserve banking policy regime.^[1]

While lots of that information is probably correct, and is certainly sourced, it's very dubious to me that this has anything to do with fractional reserve banking. It talks about the negative effects of deflation, but it doesn't source anything related to FRB causing inflation. The source itself doesn't mention FRB at all. What it does say is that the Fed can create inflation, which the author of that blog article says is good for society. The Fed can and does cause inflation by printing money, but we should find a source for the assertion that FRB can create inflation in some way. Fresheneesz (talk) 08:31, 12 November 2010 (UTC)

And again, to be clear, when I say "inflation" I mean price inflation / money devaluation. Fresheneesz (talk) 08:32, 12 November 2010 (UTC)

Merger proposal

note that User:PtAuAg below is a sockpuppet of banned POV-pusher, User:Karmaisking. BigK HeX (talk) 02:00, 30 September 2010 (UTC)

Consensus indicates to not merge Weaponbb7 (talk) 02:13, 12 September 2010 (UTC)

The following discussion is closed. Please do not modify it. Subsequent comments should be made on the appropriate discussion page. No further edits should be made to this discussion.

I have nominated Criticism of fractional-reserve banking to Merged, Since most of it is WP:OR the legit stuff can easily be moved here Weaponbb7 (talk) 21:53, 22 June 2010 (UTC)

This Edit is a perfect example of Why its need to happpen [[1]] a BLP issue that is embarrassingly removed by the Person covered in the Article! Weaponbb7 (talk) 00:02, 23 June 2010 (UTC)

Not sure how having the information in a different article would have prevented that. Still thinking about the merge proposal, but haven't decided. If there were a commitment to distribute the criticism throughout this article where it applies, I might lean toward the merge. Otherwise, it'd have all the problems of a criticism section as well as making this article longer when it is already uncomfortably long to navigate. Yworo (talk) 00:23, 23 June 2010 (UTC)

Oppose. there's lots to write about this subject, which is lacking currently.--Namaste@^? 13:08, 23 November 2010 (UTC)
Oppose. We need a place where people can put this stuff which is not the main page; there's too much content here to be summarized in the fractional-reserve banking article. II | (t - c) 03:38, 23 June 2010 (UTC)

Oppose. For the same reasons presented by Imperfectly Informed. Many articles have split off the criticisms section within WP principles and is a perfectly acceptable way of dealing with topic forks that require more detailed information to be inserted. I believe this was actually discussed and resolved over two years ago - it was decided to keep it as its own independent article. It would be too cumbersome to put in the FRB article, and would dramatically limit content size, despite it being an extremely contentious and content-rich topic, with notable economists such as Murray Rothbard, Stephen Horwitz, Jo Salerno, von Mises, and many others all writing many articles and books on the subject. - PtAuAg (talk) 11:54, 23 June 2010 (UTC) — PtAuAg (talk • contribs) has made few or no other edits outside this topic.

And I note that Weapon's "reason" for deleting (arguing that an incorrect edit in the article justifies deletion) defies all logic. The "wrong" reference could equally have been put in the article on full reserve banking or FRB. The error highlighted by Weapon appears barely a week old, and may have been inserted by someone who actually wants the article deleted, so should be completely disregarded in this discussion. - PtAuAg (talk) 12:04, 23 June 2010 (UTC) — PtAuAg (talk • contribs) has made few or no other edits outside this topic.

Oppose - I was undecided but if this was discussed and intentionally split before, let's keep it that way. I agree that it would make this article too long as there are too many points of view to easily contain here without making this article unwieldy. Yworo (talk) 18:07, 23 June 2010 (UTC)

Weak support - The criticism article is untenable in its current state, as much of its original soapboxing remains from its birth as a blatant POV-WP:COATRACK. A rewrite from the ground-up is my suggestion as the best cure, and a well-written merge would accomplish that. Most of the size of the current criticism article is dedicated to puffery which exaggerates the prominence of assertions which have a very dubious notability (not to mention a dubious reliability). A merge would certainly help to expose and prune these exaggerations of weight which run throughout the article -- as the nominator mentions, the legitimate content is a very manageable size. Failing a merge, the WP:UNDUE and WP:POORSRC issues should certainly receive scrutiny and repair. BigK HeX (talk) 18:16, 23 June 2010 (UTC)

The discussion above is closed. Please do not modify it. Subsequent comments should be made on the appropriate discussion page. No further edits should be made to this discussion.

The formula is simplified version that is the end result of a more process that helps it be understandable.

Using a reserve of 5%, a summation formula would be:

1000
 Σ (1-0.05)^i  = 20.0
i=0

This is the sum, incrementing i from 0 to 1000, of the capital fraction available to loan raised to the power of i. This gives a multiplier on whatever the original deposit amount is. (If the increment starts at 1 instead of 0, then you get only the additional money created. (This formula gives you the total of your initial deposit and the created money.)

If you cut the reserves to 2.5% (which was done for some of the major investment banks)you get:

1000
 Σ (1-0.025)^i  = 40.000000
i=0

If we don't extend the iterations out so far though, then the ratio is lower.

500
 Σ (1-0.025)^i  = 39.99987601
i=0

And if we extend it only 100 iterations, it's even less.

100
 Σ (1-0.025)^i  = 36.89882570
i=0

And cutting our iterations even further, the creation ratio is even less.

50
 Σ (1-0.025)^i  = 29.00246401
i=0

10
 Σ (1-0.025)^i  = 9.723144787
i=0

So the m = 1/R formula is true assuming the limit, but not if that limit isn't reached.

Without understanding that the creation ratio is the result of a summation, it is impossible to start to understand what happened with credit default swaps.

Magimathicon (talk) 05:43, 14 December 2010 (UTC)

Reference required

The following lines in the article's introduction appear to be without a reference. "That multiple (called the money multiplier) is determined by the reserve requirement or other financial ratio requirements imposed by financial regulators, and by the excess reserves kept by commercial banks." Please could someone supply a reference from a reliable source. Reissgo (talk) 12:49, 8 December 2010 (UTC)

There is at least on RS paper that disputes the claim, so until a reference is supplied I shall remove the text. Reissgo (talk) 12:25, 9 December 2010 (UTC)

Thanks for sticking to tagging. It is at every editor's discretion, but it's somewhat customary to tag material without a source (especially if you have the feeling that it can be sourced rather easily). If tagged material goes without any attention for months (or maybe weeks, depending on the activity level of the article), then usually an editor can attempt to Be Bold and delete it. However, keep in mind that well-known "scientific consensus" ideas that have no opposition or only some sporadic fringe-level opposition can still generally pass WP:V even without an explicit cite. BigK HeX (talk) 14:16, 9 December 2010 (UTC)

As for my personal opinion and WP:V here, given the current treatment of reserve requirements in monetary literature, I don't find it very likely that most would expect to be able to successfully challenge that the assertions aren't in reliable sources. BigK HeX (talk) 14:19, 9 December 2010 (UTC)

It's easily sourced to any university-level Macro textbook. I'll do so in a minute. LK (talk) 06:32, 10 December 2010 (UTC)

Given that the claim is disputed in a paper in a refereed journal, shouldn't the citation also be from a paper in a refereed journal? Reissgo (talk) 10:08, 10 December 2010 (UTC)

Give me a break. Kindly point out which paper, and where this basic piece of information is disputed. LK (talk) 10:51, 10 December 2010 (UTC)

Also, please do note that one paper does not over-weigh what is stated in essentially all university textbooks. If you want, I'll look this up in the appropriate academic handbook (probably Handbook of Monetary Economics), these handbooks are usually the final arbiter on these matters in academic circles. LK (talk) 10:59, 10 December 2010 (UTC)

With regard your first comment - I am baffled - according to the edit record, you yourself added the words "Endogenous money theories postulate that the supply of money is credit-driven and determined endogenously by the demand for bank loans, rather than exogenously by monetary authorities." - so I feel fully justified in insisting that any statement to the contrary should be supported by a citation of the highest quality. Reissgo (talk) 13:11, 10 December 2010 (UTC)

"supply of money is credit-driven and determined endogenously by demand" is not a rejection of the money multiplier process (rather it is an observation about the behavior of central banks). Even if it were, post-Keynesian theories are not mainstream, see note 2 above. I suggest you have a look in the Handbook of Monetary Economics and let us know if this article contradicts anything there. LK (talk) 08:39, 13 December 2010 (UTC)

I just ordered a second hand copy so I can check it out. You talk about this book as if it was somehow definitive - is there something special about it? Reissgo (talk) 16:59, 13 December 2010 (UTC)

The Handbooks in Economics series by Elsevier seeks to be definitive reference sources for various fields of economics. They are written by invited authors, who are the top academics in those fields. People in academia may quibble about the details, but in general, these handbooks are seen as reliable guides to the state of understanding in the profession.

I must warn you that these handbooks are not easy reading, and that even for academics, they are difficult to understand if one is unfamiliar with the field. Another reliable guide is the The New Palgrave Dictionary of Economics. However, I wouldn't suggest reading either of these without a thorough grounding in Economics. LK (talk) 09:36, 15 December 2010 (UTC)

Regarding "observations of central bank behavior", I've said about as much above. I'm interested in seeing what the high-quality endogenous sources may have to say, because I fear these blog-type sources may be confusing the more academic claims. BigK HeX (talk) 17:10, 13 December 2010 (UTC)

Here are a couple of papers about endogenous money theories.[2][3] Probably the easiest way to interpret endogenous money in the mainstream framework, is to postulate that the LM curve is horizontal at the interest rate target of the central bank, as the central bank will accommodate any changes in money demand in order to keep interest rates at the target. However, there's more to it than that, involving also the behavior of the commercial banking system, and the response of the money supply to changes in the demand for credit. But I can't comment further, as I don't understand the topic all that well. LK (talk) 09:36, 15 December 2010 (UTC)

I have just found even more support for my assertion that the textbook model is known to be false by the senior bankers in charge. In the book "Towards True Monetarism" by Geoffrey Gardiner it states on page 4: "conventional textbook theory needs a slight clarification. Popular textbooks even modern ones seem to imply that there can be shortages of funds in which the Bank of England can supply only by creating new money. There authors may have somewhat misinterpreted the practicalities of the situation through incomplete mastery of the principles of double entry book keeping. They failed to see that all money is debt and that if debt has been created by a bank the money for a balancing deposit has inevitably been created too. Any funds needed to eliminate a shortage must already be on there way to the bank of England because any surplus must show up in the books once the systems brief time-lag has been overcome a permanent creation of new money should therefore never be necessary judging by their private statements bank treasurers well understand this principle[1]" then he gives as the reference: "In a lecture the head of treasury operations of a large clearing bank was most emphatic: 'If we are short of funds we know they have to be around somewhere: it is just a question of finding where they are and then paying the price to get them'". Given this, it seems essential that references to support any statements to the contrary must not simply be textbooks. Only refereed papers will do. Reissgo (talk) 09:31, 19 December 2010 (UTC)

You're free to challenge the academically published textbooks and the majority perspective, due to these small minority assertions if you like. (Though that seems like a pretty fruitless endeavor, IMO.) BigK HeX (talk) 19:47, 19 December 2010 (UTC)

Its not me doing the challenging, its the "the head of treasury operations of a large clearing bank" - that job position is right at the heart of our debate. I bow to his greater expertise. Reissgo (talk) 20:11, 19 December 2010 (UTC)

"...it seems essential that references to support any statements to the contrary must not simply be textbooks."

I'm pretty sure that those are your words. Pick a source and challenge it. Otherwise, if you'd like to avoid wasting time on something that is almost certainly futile, you could instead review WP:NPOV. Wikipedia doesn't report The Truth. Wikipedia discusses viewpoints, in proportion to the prevalence among experts. BigK HeX (talk) 20:25, 19 December 2010 (UTC)

"Wikipedia discusses viewpoints, in proportion to the prevalence among experts" - I agree. But who are "The experts"? I would suggest that the experts are the select few very senior bankers that actually manage the the process of conforming to the regulations. I would suggest that the endogenous money ideas *are* the majority view amongst them. Do you have evidence to the contrary? Reissgo (talk) 17:04, 20 December 2010 (UTC)

For a topic such as this, we can use the literature from respected journals. Certainly it would be convenient for me to disprove your contention, but, sadly, the burden of proof is on you to convince that your contention is worthy of arguing against in the first place. As my final note for this thread, I'll say that I doubt that very many people are much swayed by your suggestion that endogenous money theories are the prevailing views that the Wikipedia article should be reformed for. BigK HeX (talk) 19:07, 20 December 2010 (UTC)

"we can use the literature from respected journals"... you mean like journals that publish papers?... with referees?... I'm in full agreement. So please now replace references number 5 & 6 with the type we are both agreed upon. Reissgo (talk) 14:21, 21 December 2010 (UTC)

Already addressed this textbook complaint. Go ahead and twist my words above about prevalence if you like. I'm done with this time-wasting thread. BigK HeX (talk) 15:11, 21 December 2010 (UTC)

You made me jump through hoops insisting that I produce the highest quality references to support my assertions. I have now done this. But now when it comes to you supporting your assertions, you allow yourself far lower standards. A neat trick. Reissgo (talk) 15:55, 21 December 2010 (UTC)

For posterity, I'll note that Reissgo "jumped through hoops" because he presented fringe sources, such as Rothbard's Austrian stuff and thought the article should be rewritten to prominently present this Truth. I'll further note that the academically published textbook that Reissgo is complaining about is hardly a "far lower standard". BigK HeX (talk) 16:00, 21 December 2010 (UTC)

If it is widely accepted amongst top bankers and monetary specialists that the reserve requirement places a hard limit on the money supply then there would be hundreds of research papers supporting this view. It would be easy to find a supporting reference. The reason you are stuck endlessly arguing with me is because you can't find a reference. You can't find a reference because monetary theorists and senior bankers do not generally agree with you. Reissgo (talk) 16:28, 21 December 2010 (UTC)

I don't "find a reference" because I -- and anyone else -- have no problem with the current one. You can concoct any other silly strawmen that you like. Even correcting your ridiculous distortions of my position is too much of a waste of time now. BigK HeX (talk) 19:07, 21 December 2010 (UTC)

Given the new evidence I have just added this note on the reliable sources notice board: http://en.wikipedia.org/wiki/Wikipedia:Reliable_sources/Noticeboard#Reserve_requirement_and_limits_on_money_creation_-_new_evidence Reissgo (talk) 09:17, 22 December 2010 (UTC)

I'm fairly surprised that you went ahead with this challenge. Though less shocking is that the challenge has been described as frivolous. It may be far more productive to review WP:RS before diverting editorial attention with such strained challenges. BigK HeX (talk) 07:04, 23 December 2010 (UTC)

Reserve requirement - more detail needed

With regard the following sentence: "Central banks generally mandate reserve requirements that require banks to keep a minimum fraction of their demand deposits as cash reserves." This sentence gives the impression that the reserve ratio must not be broken, even for a second, whereas in practice I think the regulations are more complex. Something like the rules must be adhered to on average over some period. Can someone please adjust the wording to reflect this fact - or perhaps give a reference to a document which gives the details. Reissgo (talk) 12:11, 30 December 2010 (UTC)

There will be some variation between different central banks' policies. And then there's Basel II etc. It might be better to summarise these requirements and then link to separate articles for more detail. bobrayner (talk) 12:21, 30 December 2010 (UTC)

Official reading stuff here (English): http://www.bundesbank.de/gm/gm_mindestreserven.en.php — Fritz Jörn (talk) 16:40, 17 February 2011 (UTC)

Time deposits

If banks exclusively lent from time deposits, then this would result in a fixed money supply. Also banks could still make money on people's savings. Should this system be described as fractional reserve banking or full reserve banking? If its classed as a form of fractional reserve banking then I believe it should be discussed on the main page. If its classed as full reserve banking then some of the claims made about fractional reserve banking's advantages over full reserve banking will have to be modified. Reissgo (talk) 12:04, 11 November 2010 (UTC)

Your statement is not accurate. In addition, it's not sourced. Hipocrite (talk) 12:40, 11 November 2010 (UTC)

Which part is not accurate? Reissgo (talk) 12:56, 11 November 2010 (UTC)

"If banks exclusively lent from time deposits, then this would result in a fixed money supply." Imagine an economy where demand deposits were banned, and all deposits were time deposits. I deposit $1mm in a 1 year time deposit. The bank lends some of this deposit to Ralph for a year, who uses it to buy a fleet of cars that he's going to rent out and then sell in a year to repay the loan. The person that sold the cars deposits it in a 30 year time deposit. The bank then lends some of that deposit to someone who buys a house. The person who sells the house deposits the money in a 2 year time deposit. Please don't consider making changes to this article without a reliable source. Hipocrite (talk) 13:03, 11 November 2010 (UTC)

I think you are mistaken. With time deposits, you can never have a situation where more than one person can lay claim to (and spend) the same dollar at the same time. Therefore the number of dollars available for spending at any one instant is fixed at the number of dollars you started with. (This is admittedly only true so long as there are no guarantees given by the banks). I will look for a reference though. Reissgo (talk) 14:21, 11 November 2010 (UTC)

You don't know what a time deposit is. Please review our article on time deposit. It is not putting cash in a vault. Hipocrite (talk) 14:52, 11 November 2010 (UTC)

I do know what a time deposit is. I know that time deposits can be lent out. Reissgo (talk) 15:11, 11 November 2010 (UTC)

Your description above does seem fairly strange. It seems you're trying to say that time deposits cannot be used as to contribute to monetary expansion. I'm not sure why you'd make that claim.... BigK HeX (talk) 16:25, 11 November 2010 (UTC)

Say I have $1000 in the bank and have a cheque book. Say someone borrows $900 of that money, and gets given a cheque book and told he can spend up to $900 with that money then we can both go to the market and spend a total of $1900 at exactly the same instant. The spending power in the market has risen from $1000 to $1900 by virtue of FRB. Now contrast this with timed deposits. Now the situation would be that I go to the bank and say to them "take my $1000, keep $100 of it in a demand deposit which you can not lend out, and keep the remaining $900 in a time deposit which you can lend out for up to one year (or whatever)". During the next year I have only $100 of spending power while the borrower now can have $900. The most we can spend at the same instant is a total of $1000. Reissgo (talk) 16:47, 11 November 2010 (UTC)

Hipocrite wanted a reference... I've just found this quote "On the other hand, a genuine time deposit—a bank deposit that would indeed only be redeemable at a certain point of time in the future, would merit very different treatment. Such a time deposit, not being redeemable on demand, would instead be a credit instrument rather than a form of warehouse receipt. It would be the result of a credit transaction rather than a warehouse claim on cash; it would therefore not function in the market as a surrogate for cash." from "Austrian Definitions of the Supply of Money" By Murray N. Rothbard, From New Directions in Austrian Economics, edited with introduction by Louis M. Spadaro. Kansas City: Sheed Andrews and McMeel (1978), pp. 143–56.] Reissgo (talk) 19:40, 11 November 2010 (UTC)

Everything is clearer now. Please don't take what fringe Austrians say as true - it's mostly wrong. Hipocrite (talk) 19:42, 11 November 2010 (UTC)

I've been reading this thread, and I have to interject at this point. You asked for a source, Hipocrite, and he gave you one. Just because you think Austrian economists are wrong, does not make it so. Your opinion isn't want matters on wikipedia - sourcing and concensus are. By dismissing this source without discussion, you're not contributing constructively to this thread. I, personally, would like to hear your thoughts. But you need to write them down for people to take account of them. Fresheneesz (talk) 01:54, 12 November 2010 (UTC)

So the bank lends out your $900 to someone who in turn spends it on stuff, and then the person they buy that suff from deposits it in a 1 year time deposit. The bank then lends out their $900 to someone else who buys stuff. The person they buy that stuff from then deposits it in a 1 year time deposit. Your $900 has now been lent out twice. Repeat however long you want. I strongly advise that you please consult a reliable source for any changes you'd like to make to the article. Hipocrite (talk) 19:42, 11 November 2010 (UTC)

It doesn't matter that the money gets lent out multiple times. The bottom line is that at any one time only one person at a time is allowed to spend it.

Ok, so I have produced an academic paper giving evidence for my case. If you claim that the mainstream disagrees, then it is clearly your turn to show me a paper that refutes my claim. Reissgo (talk) 19:54, 11 November 2010 (UTC)

No, I'm not interested in debating economics with Austrians. Hipocrite (talk) 19:56, 11 November 2010 (UTC)

Your "refutation" is unsourced, so I shall ignore it. Reissgo (talk) 19:58, 11 November 2010 (UTC)

For the record I am not an Austrian economist. I have many disagreements with them. I am a firm believer in the paradox of thrift for example, which Austrians strongly dispute. Reissgo (talk) 20:08, 11 November 2010 (UTC)

Austrian or not, your understand of fractional reserves is flawed. In particular, you said "It doesn't matter that the money gets lent out multiple times", which is clearly incorrect. I have to agree that with Hipocrite, in that edits to the article based on your understanding would likely be counter-productive. BigK HeX (talk) 22:11, 11 November 2010 (UTC)

However long the chain of lending and relending of the same dollar - only one person has the legal right to spend it at any one instant. This is the difference between the use of time deposits and standard FRB. Wiki does not accept original research - so how about you show me your reference for your assertion that the money supply can grow in a system of time deposits. Reissgo (talk) 22:41, 11 November 2010 (UTC)

Perhaps I should clarify that I am only talking about "genuine time deposits" as mentioned by Rothbard. I'm not talking about a system where you can get your money out early with a small penalty. Also there must be no government guarantees about savers not losing their money if the banks fail. Reissgo (talk) 23:00, 11 November 2010 (UTC)

Doesn't matter what Rothbard calls them. If he says that "'genuine time deposits' cannot contribute to monetary expansion," he would be in contention with pretty much any monetary text. Perhaps you're just misunderstanding his meaning, or perhaps he really is making a contention that defies just about any other source. Personally, I think Rothbard's unconventional view of the money supply and idiosyncratic terminology is confusing you in some way, as you are possibly taking a different meaning from his words than he would have wanted. Regardless though, I'm pretty sure Rothbard's rather novel understanding or attempt to re-define the terms would prove largely immaterial to this article. BigK HeX (talk) 23:43, 11 November 2010 (UTC)

It feels to me that we are talking a cross purposes. This thread is not discussing standard FRB, we're not discussing our current monetary system. We're discussing a theoretical system in which banks could only lend from time deposits and not demand deposits. Please read the thread again right from the top. Reissgo (talk) 00:03, 12 November 2010 (UTC)

I've read the thread. Your opening sentence for this thread is flat-out wrong. I'm trying to tell you that I think there's a fair chance the source doesn't say what you think it does; I haven't read it closely, though. I'm guessing you'll have to have far better sourcing than a fringe economist for such a contentious assertion to merit much discussion here. With the sourcing provided so far, unfortunately, I think the assertion you're investigating here would be rejected as being fringe, non-notable and tiny-minority ... basically WP:UNDUE not to mention WP:REDFLAG. I'm not sure I've ever actually seen a clear example of WP:REDFLAG in a talk page discussion, but this one would qualify in my book. BigK HeX (talk) 00:31, 12 November 2010 (UTC)

I'd like to attempt to restart this thread in a more constructive way. I think everyone needs to chiiill.

Reissgo - I believe your main question is: Are time deposits a form of fractional reserve banking? Should discussion of time deposits appear in this article? - is that right? If so, because time deposits aren't redeemable on demand, then they aren't a form of FRB, and so don't need to be mentioned on the page.

BigK, Hipocrite - Would you agree with that assessment?

The idea related to time-deposits contributing to monetary expansion might be something to discuss on the talk page of that article. I generally agree with the idea that money that is only redeemable by one person at one time cannot contribute to monetary expansion, but I'm not sure that is necessarily the case with time-deposits, because of the way banks may use those time-deposits as the basis for further loans. Fresheneesz (talk) 02:08, 12 November 2010 (UTC)

Time deposits and the money multiplier

To understand this issue, it's necessary to understand that there are as many money multipliers as there are measures of money. The money multiplier is defined as the ratio of broad money (M1, M2, M3, etc) to M0 (money issued by the central bank). There's a multiplier associated with each measure of money. (There's an M1 multiplier, M2 multiplier, etc.) Since each measure is different, each multiplier is different.

Suppose that checking and savings accounts are forbidden, and only time deposits allowed. Then M0 = M1 = M2, and the multipliers associated with M1 and M2 would be equal to 1. Fresheneesz is correct in that there is no money multiplication in terms of any money measure smaller than M3. However, M3 (which includes time deposits) would be larger than M0, and hence, when measuring broad money by M3, there would be secondary money creation.
LK (talk) 04:55, 12 November 2010 (UTC)

"Reissgo - I believe your main question is: Are time deposits a form of fractional reserve banking? Should discussion of time deposits appear in this article? - is that right?" - Yes. But also, if it is not a form of FRB then presumably it should be classed as full reserve banking. And if that's the case then some of the claims made about the advantages of FRB over full reserve banking need to be modified. I'm not entirely clear about LK's position. LK: would you say time deposits constitute fractional reserve banking or full reserve banking? Reissgo (talk) 09:06, 12 November 2010 (UTC)

It's a grey area, but I lean towards calling it FRB, as M3 is a standard measure of money, and time-deposits can usually be withdrawn (with some penalty). We should look to some reliable source to answer this issue, but I'm afraid it's a question largely ignored by the mainstream literature. I believe I've seen descriptions of Full-Reserve banking that include 'no re-lending of deposits', which would imply that this situation would definitely fall into the category of fractional reserve banking. In any case, we shouldn't have a discussion of this situation on the main page, unless it becomes seriously discussed in reliable sources. LK (talk) 10:30, 12 November 2010 (UTC)

"and time-deposits can usually be withdrawn (with some penalty)".. this may be true in practice - but my whole case revolves around a system where time-deposits can not be withdrawn early at all, penalty or otherwise. If they can be withdrawn with a penalty then the situation is very close to ordinary FRB and the money supply can be inflated to levels higher than the monetary base.

You talk about reliable sources. What if we have a situation where I find a famous Austrian economist that supports my case in a serious journal... but the mainstream have simply ignored it and not even attempted any refutation... or none of the wiki editors can find a mainstream refutation... what do we do then? Reissgo (talk) 12:17, 12 November 2010 (UTC)

I just found a reference to support my case in an article criticizing Rothbard! - see here. In it he says "I have no argument with excluding small denomination time deposits as part of money supply". Ok, so this and my previous reference are not the world's greatest, but so far the score is 2-0 to me. Reissgo (talk) 17:03, 12 November 2010 (UTC)

I hope we consider any reliable source, mainstream or not. In this case, the source talks about time-deposits being part of the money supply, but doesn't mention fraction-reserve banking, or reserves in any sense. So the question I have is: Should something be considered Fractional-reserve banking solely because it increases the money supply? I'm inclined to lean toward 'no' on that question. Even if time-deposits can be withdrawn with some penalty, should that really be considered "on-demand" if there is a penalty associated with it? If so, "on-demand" could extend to almost any illiquid asset, right? Fresheneesz (talk) 17:17, 12 November 2010 (UTC)

Whether "genuine" time deposits constitute fractional reserve banking is I think arguable either way. I think that the convention is to refer to such a system as full reserve banking but I can not think of a reference off hand. If time deposits constitute full reserve banking then the claims that FRB is better than full reserve banking because it allows banks to act as intermediaries between lenders and borrowers, is false. Reissgo (talk) 17:52, 12 November 2010 (UTC)

Just found this: "The amount of cash kept in the bank’s vaults ready for instant redemption is called its reserves. Hence, this form of honest, noninflationary deposit banking is called “100 percent reserve banking,” because the bank keeps all of its receipts backed fully by gold or cash." - from here: http://mises.org/Books/mysteryofbanking.pdf. This shows that a system of genuine time deposits is indeed full reserve banking. Reissgo (talk) 21:57, 12 November 2010 (UTC)

I would be more inclined to call time-deposits "zero-reserve" banking (although the withdrawal on demand part doesn't apply), because banks don't (or aren't required to) keep any reserves on time-deposits. This source says that no reserves are required for time-deposits (although I'm not sure how reliable that info is since they also say no reserve requirements are required for savings accounts either - I didn't think that was the case). Fresheneesz (talk) 22:45, 12 November 2010 (UTC)

Regarding:

he says "I have no argument with excluding small denomination time deposits as part of money supply".

and This shows that a system of genuine time deposits is indeed full reserve banking.

I don't have the inclination to elaborate much at the moment, but, given the content he's quoted on the page, Reissgo is attempting to use sources to say something they do not. BigK HeX (talk) 07:15, 13 November 2010 (UTC)

BigK, you need to check yourself. Please assume good faith and argue on the points, not on the person. Thanks. Fresheneesz (talk) 19:49, 13 November 2010 (UTC)

"Checking yourself" would be good advice for you to take. With absolutely no incivility, pointing out what I saw as an inaccurate use of sources IS discussing the issues. I'm not sure what prompted your comment, but it's certainly both unnecessary and inflammatory. BigK HeX (talk) 21:47, 13 November 2010 (UTC)

I have given two references that both state that time deposits should not be considered part of the money supply. This means that in a system where loans can only be made from time deposits, there would be no mechanism for increasing the money supply over and above the monetary base. Any time you attempt to raise the money supply by $X by making a loan, you first have to tie up $X in a time deposit and so remove it from the money supply before it can be lent out. Reissgo (talk) 08:49, 14 November 2010 (UTC)

RE: "there would be no mechanism for increasing the money supply over and above the monetary base"

This is already wrong, as far as I know, but .... just for the sake of argument, what exactly happens in your time deposit scenario when the term on the deposits expires and all of the depositors (who entered into transactions with loanees) decided to withdraw and hold cash? BigK HeX (talk) 16:29, 14 November 2010 (UTC)

You say "all the depositors" as if they all expire at the same moment, this will not be the case. Anyway, nothing in particular would happen. I don't know what event you are concerned about. Reissgo (talk) 17:12, 14 November 2010 (UTC)

It doesn't matter whether the terms expire at the exact same second. But ... OK, let's presume the term on the time deposits is 3 days. Are these short-term time deposits also supposed to somehow lead to a "fixed money supply"? BigK HeX (talk) 20:39, 14 November 2010 (UTC)

BigK HeX brings up an interesting point. Obviously, the economic effect of having term deposits of 3 days would be nearly indistinguishable from normal savings accounts. I can see nothing productive in arguing about what length of time is neccesary before time deposits become different from saving accounts and money market accounts. In any case, the discussion so far is all speculation and OR. The statement that fractional reserve banking (vs full reserve banking) allows banks to serve as financial intermediaries is sourced. Unless equally good sources contend otherwise, there is no disagreement about this issue in the literature, and there should not be a discussion of this issue in the article. Some discussion in the article about Full Reserve banking may be appropriate, but not here. LK (talk) 03:13, 15 November 2010 (UTC)

BigK - wouldn't it be fair to say that once the term of the time deposit is up, then those account turn into normal frb bank accounts? Before the term is up, I don't think its really valid to call it FRB. None of you guys have commented on that point. Does anyone disagree? Fresheneesz (talk) 08:44, 15 November 2010 (UTC)

I'm not sure of the position you hold, but I think everyone else has made rather clear objections to Reissgo's assertion. If I haven't been explicit before, I will say that the minor complication of time deposits does nothing on its own to eliminate fractional reserve banking or that would prevent changes in the money supply. Also, the claim that, "If banks exclusively lent from time deposits, then this would result in a fixed money supply, is quite extraordinary and easily falls under WP:REDFLAG IMO. Though there may be some impact on lending statistics, I believe that fundamentally the FRB process is little changed if time deposits are used instead of demand deposits. BigK HeX (talk) 09:25, 15 November 2010 (UTC)

To answer your question Fresheneesz, the deposit would be rolled over into another 3-day term deposit. The normal money creation and multiplier process would take place. To make it clearer, consider a situation where savings accounts are outlawed but 1-day term-deposits allowed. Such a system would be practically indistinguishable from the situation where savings accounts are allowed. LK (talk) 11:30, 15 November 2010 (UTC)

I'm not sure it makes sense that a 3-day time deposit would roll into another 3-day term. That would mean that a person could never withdraw their money without paying a penalty. Regardless, I don't thin Reissgo's suggestion falls under WP:REDFLAG. Its not that radical. I do believe it would constitute OR, and I don't think the sources have enough information to tie this to this article.

I think its probably time to come to an actionable consensus about this thread so it doesn't go on indefinitely or devolve into bickering. Fresheneesz (talk) 23:00, 15 November 2010 (UTC)

Fresheneesz, I wonder if you've ever had a time deposit at a bank? If not, I should explain that on the day the time deposit comes due, you are given the choice to roll it over or withdraw the deposit without penalty. You can specify which to do before hand, but you can always change your instruction on the day the time deposit is due. So, 1-day time deposits that automatically roll over unless you specify otherwise (e.g. by going to the bank to ask for the money) is practically indistinguishable from a passbook savings account that does not allow ATM withdrawals. LK (talk) 10:05, 17 November 2010 (UTC)

Gotcha, that makes sense to me. Thanks. Fresheneesz (talk) 23:42, 18 November 2010 (UTC)

Maybe I should have made one thing clearer - the banks would not be able to lend long term unless it had sufficient long term time deposits. If a bank agrees to lend out a large sum of money for ten years when all its savers have only deposited money in time deposits for a few days, then this is dangerous. The bank would be relying on finding a continuous stream of new savers as old savers were lost. If new savers didn't come along the bank would be busted. In the system I am talking about, banks would only be able to lend $X for Y years if it had $X already on deposit where the terms were Y years or more. Reissgo (talk) 15:45, 15 November 2010 (UTC)

Resolution recommendations

On the assertions prompting this thread, I'd suggest that the sourcing is not strong enough to support inclusion. BigK HeX (talk) 23:30, 15 November 2010 (UTC)

I'm going to surprise your here and agree! It seems that the debates over different monetary systems have been taking place for centuries and much of the good writings on the subject are in books rather than online. What I have managed to learn about full reserve banking has largely been from lectures and word of mouth. Without the work being online, it it very hard to find the original definitive sources. Having said all that, I am on the case, and hope to come back with a really good source before too long. Reissgo (talk) 09:31, 16 November 2010 (UTC)

Good luck. I've always found the thought of full reserve banking to be intriguing. It's possible that you'll run into theoreticals by researching the Sharia Law Banking systems that do already exist. BigK HeX (talk) 13:20, 16 November 2010 (UTC)

I found this document http://www.positivemoney.org.uk/wp-content/uploads/2010/11/NEF-Southampton-Positive-Money-ICB-Submission.pdf. It proposes a system of full reserve banking. Pay special attention to the part on page 8 starting with the heading "Investment Accounts". Reissgo (talk) 20:41, 17 November 2010 (UTC)

Too bad they are not explicit in that section on the key difference needed for an "Investment Account" to differentiate itself from the time deposits that you brought up earlier. BigK HeX (talk) 20:30, 17 November 2010 (UTC)

I see no difference at all. They are just choosing a different label for the same thing. The document appears to support everything I have claimed from the outset. The only question now is whether this document is a reliable source or not. Reissgo (talk) 20:41, 17 November 2010 (UTC)

It does not support your contention. This time I have examined the source, and you, most certainly, do not understand it accurately, if you think it supports your earlier assertions. BigK HeX (talk) 22:14, 17 November 2010 (UTC)

My main claims were made at the start of this thread: "If banks exclusively lent from time deposits, then this would result in a fixed money supply. Also banks could still make money on people's savings." I now make the additional claim that this corresponds to full reserve banking. This is three claims in total. Which one(s) do you believe this paper does not support? Reissgo (talk) 23:45, 17 November 2010 (UTC)

Pretty obviously your paper does not necessarily support assertions on time deposits, since it does not address time deposits. Remember that this equivalence between time deposits and the paper's "Investment Accounts" is an (inaccurate) presumption that you proposed. It is still left to you to actually show that "they are just choosing a different label for the same thing", instead of only presuming as much. Once you understand the paper's "investment accounts" more accurately, I think the matters here will be cleared up. BigK HeX (talk) 02:37, 18 November 2010 (UTC)

What is the difference between the "Investment Accounts" described in the paper and time deposits? By the way, having looked at the qualifications of one of contributors, Professor Werner, it is clear to me that this is a reliable source. Reissgo (talk) 08:31, 18 November 2010 (UTC)

A few points.

This whole issue is largely ignored in the literature, hence including discussion of it in this article is WP:UNDUE. One article is not adequate to argue for inclusion of a topic. When this issue is actively discussed in respected journals, or in textbooks, then we can include some discussion in the article.
A (non-invited) submission to a government banking commission is not a reliable source, as it comes close to being self-published. It is similar to an 'amicus brief', which are not reliable sources; I could write and submit such a submission myself.
The investment accounts proposed in the paper are unlike fixed deposits in that customers cannot 'break' them early. This is unlike the usual case where customers can withdraw their money early with a penalty.
The paper proposes that reserves need not be kept against these investment accounts. This is unlike the current situation where reserves must be kept against fixed deposits.
The claim that "If banks exclusively lent from time deposits, then this would result in a fixed money supply" is incorrect for two reasons:

Firstly, if one considers short term time deposits as part of money supply (either as a component of M2, as in the US, or as part of M3 as in some other countries), money multiplication still occurs, and there would still be secondary money creation by the commercial banking system.
Secondly, if one considers only cash in circulation and demand deposits as money supply (M1), then the creation of time deposits would shrink the money supply (M1), as banks must hold reserves against these time deposits, pulling cash out of circulation.

LK (talk) 09:55, 18 November 2010 (UTC)

I could argue about points 3, 4 and 5 but it is not worth the effort because I see I can never win against point 1. Obviously LK won't allow anything here until it has become mainstream. The "mainstream" had it all wrong with respect to the last crash. They should hang their heads in shame. The people that were warning of the crash should be held up on a pedestal and listened to. I urge anyone that has come here to research monetary systems to watch the video on this page: http://www.debtdeflation.com/blogs/2010/11/15/why-credit-money-fails/ Reissgo (talk) 11:15, 18 November 2010 (UTC)

There were lots of mainstream economists warning about the potential for a crash as well. Look at it this way: a cargo-cultist could have predicted a crash as well based on, well, something cargo-cultist. The eventual accuracy of that prediction does not demonstrate cause and effect or relevance to the subject, hence undue.Gregalton (talk) 13:14, 18 November 2010 (UTC)

Even if we disregard the warnings from the current crop of mainstream economists and presume that they "had it all wrong", we still generally go with any overwhelmingly common explanations if they exist in the academic literature. Wikipedia discourages attempts to Right Great Wrongs.

In any case, you are simply wrong in your assertions here. While you could disbelieve that, you might take this discussion as an indication that your understanding of full reserve banking (and probably fractional reserve banking) are at a level where their application would be counter-productive to articles on Wikipedia. I say this knowing that you mean well. I suggest you look through more of the literature. Drop by my talk page, if you like. BigK HeX (talk) 13:40, 18 November 2010 (UTC)

I agree with Reissgo that the source he found does indeed talk about time deposits as they are defined, and that the source supports his assertions.

On LK's numbered points:

Issues "largely" ignored in "the literature" do not qualify as having undue weight. You're misrepresenting wikipedia's undue weight policy, which says that viewpoints should be reported "in proportion to the prominence of each viewpoint". You are, contrarily, saying that these viewpoints should not be reported on at all.
Sources have varying levels of reliability. The fact that it is an official submission puts it a nice big step above blogs - which have been widely used as relatively reasonable sources on wikipedia.
I disagree that the papers failure to mention edge cases makes its definition of an "Investment Account" different from a time deposit. Certainly the definition of a time-deposit is still the definition of a time-deposit even if it leaves out a full paged discussion of edge cases, implications, and common usage.
The article Reserve_requirement explicitly says the opposite if your point here - "the required reserve ratio in the United States was ... zero on time deposits and all other deposits." I have also personally seen one or two external sources (that I won't spend the time looking for) that state the same thing.
I don't want to argue your point 5 right now, since I'd like to establish that it makes *sense* to discuss this topic logically (rather than being told its undue weight, OR, or not relevant - which I disagree with). I'll happily come back to this point when we agree on your first 4 points.

I have disagreed with Reissgo's assertion that this topic should appear in this article - and I continue to disagree (simply because I don't see any evidence [or logic] that time deposits can be described as FRB), but I do find major issue with the arguments BigK and LK have presented against it.

Fresheneesz (talk) 00:00, 19 November 2010 (UTC)

Certificates of time deposits could be circulated instead of cash. TFD (talk) 03:06, 19 November 2010 (UTC)

Fresheneesz, WP:Undue applies here, it states "Generally, the views of tiny minorities should not be included at all." The issue at hand is whether a banking system that allows only lending from time deposits, i) should be considered fractional or full reserve banking, and ii) whether it will or will not multiply the money supply. There is no discussion of this issue in the reliable sources, and so there should be no discussion of this issue in the article.LK (talk) 03:33, 19 November 2010 (UTC)

I think your assertions about reliable sources and undue weight are a little bit tautologistic. I would appreciate a tiny bit more logical discussion, and less wiki lawyering. Please?

In any case, I do agree with you that this discussion doesn't belong on this page. Fresheneesz (talk) 19:39, 19 November 2010 (UTC)

@Fresheneesz: To agree that this paper supports a notion about time deposits is to fundamentally misunderstand fractional and full reserve banking. Editing a related article while holding such a misunderstanding would be counterproductive. BigK HeX (talk) 05:31, 19 November 2010 (UTC)

Thats your opinion BigK, and your opinion doesn't constitute truth. I could say the same thing about your misunderstanding of the article. How bout we stick to discussing the issue rather than calling me an idiot in not so many words? Fresheneesz (talk) 19:39, 19 November 2010 (UTC)

Just more generally -- the economic literature is often full of intriguing hypothetical systems, custom tailored to accomplish X, Y, and Z, and address concern U, V, and W, without doing R, S, T. One economist who was right about the crash and often proposes such systems is Robert Shiller. While it's fine to place Shiller on a pedestal and listen to him, if you're so inclined, this does not mean we should go about inserting all the theoretical ideas that have ever popped into Shiller's mind into every article where they may be relevant. We shouldn't overhaul the article on government debt because Shiller's hypothetical growth-indexed bonds, if adopted, would change the characteristics of government borrowing. That's not to pass judgment on the merits of his idea, it's just another perspective, not anchored to this particular article and the tensions of Austrians, to consider as analogy. --JayHenry (talk) 05:23, 19 November 2010 (UTC)

I agree with JayHenry's assessment here. Talking about the hypothetical implications of a hypothetical change is probably not what wikipedia should report on. However, to frame it in such a way as to say something like "time-deposits do not change the money supply" is perfectly valid, and tho it doesn't state that "a system where only time-deposits were allowed would result in a fixed money supply", it does imply such a thing. Never the less, I think this is a topic for the Time deposit article, not this one. Fresheneesz (talk) 19:39, 19 November 2010 (UTC)

With regard to: "I have disagreed with Reissgo's assertion that this topic should appear in this article". At the start of this thread I was not sure whether time deposits should be classed as fractional or full reserve banking. But I have become convinced that the consensus is that it should be classed as full reserve banking. So maybe it does not need to be described in the main article directly. But the claims made about the advantages of fractional reserves vs full, need to be altered. In particular this sentence: "Full reserve banking, on the other hand, does not allow any deposited money to be invested" is plain wrong... and appears to be unsourced. Reissgo (talk) 13:42, 19 November 2010 (UTC)

Exactly how are you convinced that there's any sort of consensus to support that time deposits "should be classed as full reserve banking"? It doesn't really make much sense to classify them as either, but if you absolutely did have to "classify" them, it wouldn't be full reserve banking. Also, the sentence you believe is flawed is not; as I've noted before, your understanding seems to be where the flaw lies. While you are in the process of researching these topics, it could be more productive if you perhaps took a break from raising matters here without a high quality source that directly supports your contentions. For the time being, I'd suggest sticking to clear, reliable, mainstream academic sources for discussion on this talk page, as anything less seems only to just add to your confusion. Please consider just doing more research for the time being, as none of your points here have been accurate. BigK HeX (talk) 15:25, 19 November 2010 (UTC)

I have supplied three references in support of my argument and have had anther editor state how he thought that one reference supported pretty much all of what I have been saying. You have supplied no references at all to support anything you have said. Reissgo (talk) 16:33, 19 November 2010 (UTC)

You have not supplied three references to support what you have been saying. I checked one of them and have already informed you that you are not representing it properly. If you're counting the Rothbard stuff, then I won't bother to read that one, as it wouldn't pass muster anyways. So, again my advice to you is to stick to mainstream academic sources which directly support your assertions if you'd like to raise issues on this talk page ... just for the time being. Once you have a better grasp of the topic, you'll be in a much better position to judge sources of less quality. Right now, your arguments are flawed and editors are taken away from other tasks to address the flaws that are being buttressed by low quality sources. I've stated that the proposed edits are not based on an accurate understanding, which doesn't leave me much else to add here, so I'll likely exit this thread. But if you decide to hold off on these issues on the article talk page, feel free to drop by my talk page as you continue your research. It seems you have a keen interest in these topics, and Wikipedia can certainly use help in advancing the state of these articles, but at the moment that's not what is happening. BigK HeX (talk) 17:03, 19 November 2010 (UTC)

"I checked one of them and have already informed you that you are not representing it properly."

BigK, you are not the source of truth. Informing people of your opinion is near useless without logical discussion. Please realize that you are not the economics god. I would greatly. greatlygreatly, appreciate giving me and Reissgo some assumption of good faith, stop wiki lawyering, and please try to make this discussion as helpful and efficient as possible. Fresheneesz (talk) 19:39, 19 November 2010 (UTC)

This response is not really very civil. BigK Hex has every right to review a source and see if it supports your assertion. And if it doesn't, he has every right to politely say so, which he did. This kind of spew in response is uncalled for, definitely violates our civility policy, and verges on violating our no personal attacks policy. Please comment on the the content and not the editor. Yworo (talk) 19:46, 19 November 2010 (UTC)

I agree that I am becoming a little frustrated with this conversation. I am trying to be as civil as possible. But please realize that BigK has mad many such asserts that he seems to think should be taken as truth without discussion. Such things as:

"is clearly incorrect"
"edits to the article based on your understanding would likely be counter-productive"
"Your opening sentence for this thread is flat-out wrong."
"Reissgo is attempting to use sources to say something they do not."
"you, most certainly, do not understand it accurately"
"your understanding of full reserve banking (and probably fractional reserve banking) are at a level where their application would be counter-productive to articles"
"To agree ... is to fundamentally misunderstand fractional and full reserve banking"
"none of your points here have been accurate"

None of those assertions were backed up by any explanation on his part. Hes also thrown around WP:UNDUE, WP:REDFLAG, WP:NOT, not-notable, and Right Great Wrongs (are the ones I noticed). I imagine, Yworo, that you would like a clear, civil, and meaningful discussion that resolves efficiently. Thats exactly what I want. However I find some of the tactics being used here counterproductive and inflammatory. I would appreciate any help you can give to this conversation in making it more civil Yworo. And of course I welcome your input. Fresheneesz (talk) 01:52, 20 November 2010 (UTC)

Actually, I agree with BigK Hex. If your understanding is correct, you should easily be able to find multiple mainstream sources which say precisely what you assert. Wikipedia doesn't permit original research or the synthesis of multiple pieces of data to arrive at a conclusion. What you are presenting really seems like original research to me. So whether or not you are "right" is much less important than whether you can find mainstream reliable sources that make clear statements on the topic. Yworo (talk) 01:59, 20 November 2010 (UTC)

*I* am not asserting anything at all. In fact, I have agreed that this topic does not belong on this page. Have you read this thread? Its a tightly bound ball of wikilawyering and unfounded assertions. My only goal here is to establish that we should be having a logical conversation in this thread, rather than argue about semantics, policy, and whether the ideas we present on this talk page have sources.

Why can't we all just focus on improving the *article* rather than bickering about policy? Fresheneesz (talk) 02:02, 20 November 2010 (UTC)

"*I* am not asserting anything at all."

Well..... "I agree with Reissgo that the source he found does indeed talk about time deposits as they are defined"

Also, I'm pretty sure my statements have covered quite a lot more than just Wikipedia policy.

As a final comment, I have not engaged much in any forum-style debating of the topic, since I've already been quite clear that I feel that the sources presented wouldn't be useful no matter the veracity of the claims regarding time deposits. (Heck ... even the guy on the Mises website shot down Reissgo's claim about time deposits.) So ... if this discussion really must be continued, please find mainstream academic sourcing that says "If banks exclusively lent from time deposits, then this would result in a fixed money supply" and then I will happily engage in more detailed discussion. Of course, I believe there's a zero percent chance of being able to find reliable sourcing that says any such thing, mostly because I see no way for such a statement to be accurate. With the current state of sourcing, I maintain my belief that encouraging less article talk page discussion and more individual research in the matter is the most productive way forward. BigK HeX (talk) 05:08, 20 November 2010 (UTC)

Partial Resolution

It looks like we all agree on one thing: this discussion does not belong on the Fractional Reserve Banking page. Lets move this discussion to Time deposit, and for god's sake please continue it in a reasonable and efficient manner. Its frustrating to see this conversation go on so long - half of the discussion is arguing about whether or not we should be discussing it. Stop wasting your time and get down to the point.

All in favor of moving this discussion to Time deposit, please say so. Fresheneesz (talk) 19:39, 19 November 2010 (UTC)

The discussion shouldn't be continued elsewhere. Without decent sources, it should not be continued anywhere. IMO, that is the most efficient manner in which to handle this discussion. Editors have expressed a pretty clear objection to the sources presented (and, at least one -- if not all -- of the weak sources presented do not even support the assertion on time deposits anyways). BigK HeX (talk) 04:44, 20 November 2010 (UTC)

I can see an argument for moving this discussion to time deposits, but am not keen because it looks to me as though not many people visit that page. Also the outcome of this thread has major implications for the wording of this FRB page so it is highly relevant. Reissgo (talk) 15:18, 20 November 2010 (UTC)

I think I have found a RS. How about "100% Money" by Irving Fisher 1935? Reissgo (talk) 23:21, 20 November 2010 (UTC)

I doubt it would support the assertions which brought us here, but, as a source, Fisher's book seems far better than the Rothbard stuff (although the book wasn't written for peer-review, IIRC). What part of the book are you referring to? BigK HeX (talk) 00:13, 21 November 2010 (UTC)

I don't have a copy of the book (yet). I am going by a description of the book here: http://www.cobdencentre.org/2010/01/100-money-irving-fisher/ Reissgo (talk) 09:51, 21 November 2010 (UTC)

By the way, the governor of the bank of England used the fisher book as a reference in a recent talk, so it must be well respected. Reissgo (talk) 09:55, 21 November 2010 (UTC)

At last - I found it! In "100% Money and The Public Debt" - http://www.downtr.net/285898-irving-fisher-100-money-and-the-public-debt.html

"Where then would a bank get any real revenue and how could it do any money lending? Almost everyone asks this question.

Yet there is not difficulty in answering it. In the first place, everyone who lends money (except the commercial banker) does so with pre-existing money and with money of his own creation. Even the investment banker lends only in that way-with pre-existing money. Clients who have given him money to invest cannot go on using it as their own money by drawing checks against it as though it were really 'on deposit' in a safe."

You *can* make loans in a 100% reserve system. Reissgo (talk) 01:14, 31 December 2010 (UTC)

If you make an investment in a bank with a time deposit you no longer have any spendable money unless you pledge your savings to get credit and so forth. If your investment is not spendable then by definition it is not money because it cannot be the means of exchange. For example if you invest in shares and are paid a dividend you might not have any other money and the shares are not generally considered as money. However in the real world your certificate of deposit could get you a black market loan no doubt.

So if all loans were from fully locked time deposits there might be many investors receiving interest and many borrowers paying interest but there would only be the original spendable money in circulation and there would be no money multiplication. It would probably be very deflationary as the original money became spread in various piggy banks and wallets or lost and each expiration of term resulted in a search for money that hardly publicly existed to be found so that interest rates were driven much higher. Given the reality of a black market how could it work as intended? Andrewedwardjudd (talk) 19:45, 3 April 2011 (UTC)Andrewedwardjudd

Deposit is a very confusing word

In all instances of deposits into a bank, central bank reserves flow into the bank.

But in all instances of the banks book keeping to create a deposit in your name, that deposit only contains commercial bank money which the bank creates for you as a book keeping entry only.

This is what the central bankers say:

Paul Tucker, one of the Deputy Governors of the Bank of England

http://www.bankofengland.co.uk/publications/speeches/2007/speech331.pdf

Subject only but crucially to confidence in their soundness, banks extend credit by simply increasing the borrowing customer’s current account, which can be paid away to wherever the borrower wants by the bank ‘writing a cheque on itself’. That is, banks extend credit by creating money. This ‘money creation’ process is 10 constrained: by their need to manage the liquidity risk – from the withdrawal of deposits and the drawdown of backup lines – to which it exposes them. 15 Adequate capital and liquidity, including for stressed circumstances, are the essential ingredients for maintaining confidence. 16

http://www.rba.gov.au/speeches/2008/sp-gov-150508.html

Glen Stevens Governor Reserve Bank of Australia

the ‘money multiplier’, as an introduction to the theory of fractional reserve banking. I suppose students have to learn that, and it is easy to teach, but most practitioners find it to be a pretty unsatisfactory description of how the monetary and credit system actually works. In large part, this is because it ignores the role of financial prices in the process

Andrewedwardjudd (talk) 18:18, 3 April 2011 (UTC)andrewedwardjudd

I wonder who might own this SPA... BigK HeX (talk) 18:04, 4 April 2011 (UTC)

(not me!) Reissgo (talk) 10:22, 5 April 2011 (UTC)

Articles on economic subjects often seem to attract rather focussed editors, but I don't remember seeing anybody else bringing up these points this way before. I'd rather assume good faith for now. bobrayner (talk) 10:46, 5 April 2011 (UTC)

I had posted my $250 challenge on a variety of forums including the Steve Keen forum (perhaps the home of endogenous money theory), so its hardly surprising that someone else might give me some support. By the way, I estimate that over 2000 economic forum goers have seen my challenge posting and still no sign of a paper defending the money multiplier. I can only conclude that no such paper exists. Reissgo (talk) 12:29, 5 April 2011 (UTC)

BigK. Earlier you said that Reisgo was flat out wrong. He was not wrong. If you only lend from time deposits then each deposit IOU created by the bank is not money. Money is the means of exchange but if it is time locked it cannot be spent and cannot be money. Even if time deposits become part of M3 it does not mean that a thing you cannot spend is money. Therefore you get a situation of many deposits and many loans but only the same amount of originally deposited money is spendable. A time deposit is an interest earning investment in a private company similar to a share paying a fixed dividend. Are you saying that is money also? Most people would say it is not money. The reason a deposit iou is called commercial bank money is because the bank gives you the ability to have that iou transfered in favour of another customer whereby you purchase the assets or services of the other customer and therefore the deposit being the means of exchange was used as money. If term deposit was locked to term by law to ensure a fixed money supply then it could also not be transfered to another persons spendable deposit money by the same law. Andrewedwardjudd (talk) 18:41, 4 April 2011 (UTC)andrewedwardjudd

This article indicates that much of the FRB article is wrong

Yes, I know its only a blog, but it does reference a highly qualified author. http://www.worldnews.blog-city.com/the_myth_of_fractional_reserve_banking_and_the_monetary_mult.htm Reissgo (talk) 13:27, 20 November 2010 (UTC)

It would be helpful if editors aren't asked to bother with obvious non-RS's. Also, please don't take this the wrong way as I'm sure that you mean well, but the article talk pages are not a forum for advocating The Truth™ (or links to such). BigK HeX (talk) 16:27, 20 November 2010 (UTC)

I know that the article is not a RS, but I put it there just in case any passer by may know of a RS that supports the statements made. The arguments made tie in nicely with the work of Prof. Steve Keen. So I think they are probably true.

I think that the way FRB is taught in the textbooks is analogous to the way "electron shells" are talked about in chemistry. The experts know its just a crude approximation that is used in teaching, the experts know that the real story of chemical bonds work in a different way. The article gives a RS for the quote "Almost all who have worked in a Central Bank believe this view is totally mistaken", this tells me that there may be some suitable RS, central bank documents that tell the truth. My posting is an appeal to anyone to find such documents. Reissgo (talk) 17:42, 20 November 2010 (UTC)

Sadly I do not have access to "JSTOR" to get hold of the paper, but just looking at the first page here shows that we have some errors on the main page. I suggest this *is* a reliable source. Reissgo (talk) 19:45, 20 November 2010 (UTC)

The blog merely quotes Charles Goodhart - and does not pretend to represent his analysis. TFD (talk) 20:30, 20 November 2010 (UTC)

Goodhart's paper is about the amount of control a central bank has over monetary aggregates, and argues it's less than monetarists believe, but I don't see what it supposedly undermines in this article. His paper follows fairly logically and uncontroversially from this sentence in the article: "In practice, the actual money multiplier varies over time, and may be substantially lower than the theoretical maximum." Now, if the article suggested that the multiplier was invariable, and that central banks focus only on controlling M0 (which none do) and therefore control broader money, we'd have problematic claims that Goodhart's paper would undermine. But this article doesn't make the claims Goodhart is refuting, so what are we concerned with? --JayHenry (talk) 21:51, 20 November 2010 (UTC)

Yes, Reissgo, this article and the textbook explanation is essentially wrong. The "money multiplier" doesn't really exist. The correct description, sometimes called "post Keynesian" is that held by "endogenous money" theorists, horizontalism, modern monetary theory, circuitism etc referred to at the bottom of Money creation. One can find several recent publications of the Fed (& other central banks, I think) that deny the relevance of the textbook theory & support the endogenous theory. I'll dig them up when I have time. Banks' lending is constrained by their capital, not their reserves. What is odd is that as far as I can see, and although the people who get it right usually don't point it out enough for my taste, the better theories were at times dominant and are much older - going back to Henry Dunning Macleod. See Schumpeter's History of Economic Analysis for some history to 1950. As an anon at the top of the page notes, deposits don't create loans (banks don't lend out the money they get from depositors), loans create deposits (in return for their IOU to the bank, borrowers are granted loans in the form of a bank deposit, which then goes through the economy as the borrower spends the deposit, resulting in other deposits). A good ref is Wray's Understanding Modern Money p 107 et seq. The Myth of the Money Multiplier. As he says, "The money multiplier concept reverses the direction of causation: changes in the money supply cause changes in bank reserves and the monetary base, not vice versa."John Z (talk) 07:07, 21 November 2010 (UTC)

"One can find several recent publications of the Fed (& other central banks, I think) that deny the relevance of the textbook theory & support the endogenous theory. I'll dig them up when I have time."... if you can find something from the fed that would be fantastic. I don't see how the wardens of this page could dismiss that. Reissgo (talk) 09:46, 21 November 2010 (UTC)

I see no problem with adding some discussion of the post-keynesian theories of endogenous money, as long as it's properly sourced and, it's made clear that these are heterodox views held by a minority of economists. LK (talk) 10:46, 22 November 2010 (UTC)

It is my contention that the "textbook" explanation of money creation is simply a "convenient teaching tool". I suspect that central bankers themselves know full well it is such. Now I may be right or wrong in this assertion... but there is a way of determining this. If I am wrong, and the "textbook explanation" is genuinely taken seriously, then there will exist recent, refereed papers in serious journals defending it against some of the many criticisms. Would anyone like to suggest an example or two of such papers? Reissgo (talk) 15:08, 22 November 2010 (UTC)

It certainly can be fun to debate personal speculation, but, unfortunately, the article talk page is not a forum to explore your curiosity on monetary matters (and, if I may be so bold, I'd also suggest that the Mises forums may not be the most appropriate place to seek a thorough view, either). The explanation of deposit multiplication in the article is quite well-sourced. If you wish for the text to be rewritten in some wholly different manner, then please specify exactly which of the article's source(s) you are challenging, and post for us here page numbers of exactly which reliable source (of equal or greater quality) you believe supercedes the article material. IMO, it is far more productive to come to the article talk page with the assertions pulled from high-quality sources, than to request that editors do your legwork for you based on what you "suspect". I'm definitely not trying to be mean, though I feel the need to be straightforward that there's been quite a bit speculation and persistence in poor-sourcing going on for this article recently. BigK HeX (talk) 16:05, 22 November 2010 (UTC)

What would even be the purpose of the conspiracy that's being alleged (as I gather, to foist a fake textbook explanation and hide the real way that fractional reserve banking works)? Moreover, as I just started following this discussion, to an outsider it's completely inscrutable what changes to the article are being sought. I gave the Goodhart paper a read, thinking I could help out, as I at least have no incentive for this article to foist a fake explanation on people (and again, I don't exactly see who does) but it didn't seem to contradict anything here. Could someone explain the purported flaws to me? --JayHenry (talk) 04:32, 24 November 2010 (UTC)

I had intended not to return to this thread until I had collected some better evidence (which I don't have yet), but since you've asked the question I guess I should answer it. The main article gives the impression that a loan can not be made if the loan would take the bank over the limits imposed by the reserve requirements. But the reserve limits apply on average over an extended period. The result is that the loan can be made, breaking the limits temporarily, then the reserves can be sought later. Of course the loan creates more money than is required to fulfil the reserve requirements, so for the banking sector as a whole reserve requirements do not place a limit on credit expansion. Reissgo (talk) 09:02, 24 November 2010 (UTC)

Re: "What would even be the purpose of the conspiracy that's being alleged". I'm not alleging any conspiracy. Just like it is not a conspiracy that chemistry textbooks use electron shells as a teaching aid. It could also be a plain old error. When I was studying neural networks years ago, there was a very basic error that kept being repeated in books on the subject. Nobody could figure out a way to stop the error being propagated! The authors were just copying from each other. Reissgo (talk) 17:39, 24 November 2010 (UTC)

If I may, I think two things make this a complicated topic. One, is that fractional reserve banking has different implications for individual banks and what it means for the banking system as a whole. If you and I went out and started a bank of our own, we would find the so-called "textbook explanation" to be a very relevant constraint on operating the Bank of Reissgo and Jay (BRJ, N.A., Sioux Falls, S.D.) We would indeed need deposits or some form of funding to make loans, and we would only be able to make a finite amount, from the dollars we receive. I think it's appropriate to first tackle the issue from this perspective. The first challenge then is what the implications are for the system as a whole. We should almost think of this as a separate topic. (Perhaps we could have the "textbook explanation," which remains the most relevant thing for explaining how FRB works from the perspective of a bank, and then have a section in the article on "systemic implications" or somesuch, that discusses where some of these more complex issues arise.) The second challenge is that an institution like Bank of America with a ~$2.5 trillion balance sheet that's not primarily deposit taking (nevermind the securities dealers which are not really deposit taking at all), has a radically more complex balance sheet with so many more things going on. the constraints of fractional reserve banking on an average bank have little resemblance to the complexity of capital regulations on the megabanks. So I might summarize the second issue as being that the "textbook explanation" is not wrong, but more that it's just not useful for describing the implications for more complex banks. --JayHenry (talk) 18:50, 24 November 2010 (UTC)

The description in the blog entry at the start of this thread would imply that the process by which the reserve limits can be worked around applies equally to a single bank as it does to the entire banking sector so I'm not convinced about the benefits of splitting the FRB page as suggested. Reissgo (talk) 21:07, 24 November 2010 (UTC)

Trying to meet you halfway here. If you're not interested in that because of what a blog told you about "bank mangers" I suppose I won't expend too much energy trying to help you. However, if you believe this is an even remotely reasonable description of how banking works, what are you doing on Wikipedia? Just go "credit create" yourself into the world's richest man and use your infinite money to elect politicians who will end the system, or at least enjoy yourself. --JayHenry (talk) 21:19, 24 November 2010 (UTC)

I suspect you are arguing against something that I am not claiming. I am not claiming that banks can just make loans out of nothing. I know that banks need to somehow get/have the money for the loan. All I am claiming is that the reserve requirement does not act as a limiting factor in the way implied by the textbooks. Reissgo (talk) 21:50, 24 November 2010 (UTC)

Reissgo, have you ever worked in a bank? I have. And I can assure you that banks have elaborate mechanisms in place to make sure that they do not lend out more money than they have available in reserves. The practical reason is that people withdraw their loans as soon as they are made (they borrow money to pay someone), causing the bank to lose reserves. If the bank lends more than it holds in reserves, it will lead to a situation where the bank is short of cash, and cannot honour demands for withdrawals, and the penalties are severe if this ever happens. At the very least, the bank will be forced to go hat-in-hand to the central bank to borrow money, inviting scrutiny of its finances – there can also be bank runs, the bank may be forced to declare bankruptcy, and/or be taken over by the central bank.

It is true that banks who do not have enough deposits to accommodate loan demand from clients can borrow money on the interbank market to make loans, but banks are quite conservative when they do so, and in general they secure funding before making loans. I seem to vaguely remember having explained this to you before. Instead of having a presumption of how things work, it may be better if you seek out people with real world experience who can discuss this with you. LK (talk) 02:50, 25 November 2010 (UTC)

LK, You appear to be confusing the banks excellent ability to attract or source reserves as required because it has excellent liquid reserves such as lines of credit and highly liquid assets with some idea that the banks must already have these central bank reserves. During RTGS using the programs controlled by some of the central banks the programs will wait for a period to enable netting if there are insufficient reserves before it fails and has to be retried. In Australia if you have preregistered securities you can get reserves via inter day zero interest repo during RTGS, and thereafter there is a cash market just waiting for you as your require. In the US the fed will give loans up to so many million without the need for collateral. As for cash loans i have many times been required to come back next day to withdraw more than 2000 from my current account with 10,000 available on demand - you must realise this is standard practice?

Most of the things you are saying about lack of reserves being a problem only applies when the bank cannot pay as expected, as for example a solicitor cannot get cleared funds because the bank cannot access the cash market because the other players refuse to deal with it.

When you say the banks are conservative and secure funding before loans, that can mean you have previously agreed lines of credit with the banks you deal with. All of the main banks have large deposits with each other. In the event you have no reserves you can quickly get them back from at least one of your wholesale borrowers - apart from when there is a credit crisis of course. Andrewedwardjudd (talk) 20:30, 3 April 2011 (UTC)Andrewedwardjudd

Also, I have just read the blog entry you refer to and Prof Goodhart's paper. There are some things you should know.

1. The blog post does not correctly reflect Goodhart's paper. The blog makes two crucial mistakes here: "Stage Two : The Commercial Bank buys a government bond for £1,000 and sells it to the Bank of England for £1,000 to get the 'Required Reserve' ratio back in line again - that's it ! That's all there is to it !" First, the writer just forgets that the bank needs £1,000 in cash with which to buy the bond, which the writer then has the bank sell to obtain £1,000 in cash. This is like saying that I need $100 for food, so I'll buy a $100 in gold, then sell it to the goldsmith to get $100, so I can buy food. Where did the $100 come from in the first place? Second, the writer is mistaken in assuming that the Bank of England is under obligation to buy government bonds on demand. Central banks do not buy government bonds from commercial banks at the request of commercial banks. They buy bonds from the market at their own discretion, when they want to conduct expansionary monetary policy.

2. Goodhart's paper points out that if a central bank does in fact keep tight control of M0, this will cause the interest rate to fluctuate wildly between 0% and the punitive discount rate – which central banks are not willing to happen, so they cannot in fact keep tight control of M0. However, central banks can, and do, keep tight control of the money market interest rate. Goodhart points out that doing so means that M0 will expand and contract in response to changes in the demand for money. This point is uncontroversial and is widely accepted by monetary economists. This is all tangential to Goodhart's main thesis, which is that central banks should target inflation when deciding on monetary policy. LK (talk) 03:45, 25 November 2010 (UTC)

Right, the idea that you could open a bank in the United States and ignore the legal reserve requirements and other financial ratio requirements is silly. --JayHenry (talk) 03:20, 25 November 2010 (UTC)

In Moore (1979, p.539) he quotes a Fed economist who said^[2] "in the real world banks extend credit, creating deposits in the process, and look for reserves later". Why did the Fed economist say^[3] that?

Also in (Kydland & Prescott 1990, p. 14), they say: "There is no evidence that ... the monetary base ... leads the cycle, although some economists still believe this monetary myth..., if anything, the monetary base lags the cycle slightly..." they go on to say "The difference of M2-M1 leads the cycle by even more than M2 with the lead being about three quarters." Reissgo (talk) 10:10, 25 November 2010 (UTC)

Who is this 'Moore' person, and why should I believe him about what a Fed economist did or didn't say? Not that I'm interested. I'm not going to spend another hour reading another paper so that I can point out why a quote is taken out of context, and why standard monetary economics is not wrong. This page reflects what a consensus of reliable sources say about the money creation process, and it shouldn't change until the consensus in reliable sources change. That's policy. LK (talk) 10:27, 25 November 2010 (UTC)

http://www.ekon.sun.ac.za/staff/moore-basil Reissgo (talk) 10:42, 25 November 2010 (UTC)

Or Basil Moore (economist)John Z (talk) 15:55, 25 November 2010 (UTC)

"so long as the Central Bank sets interest rates, as is the generality, the money stock is a dependent, endogenous variable. This is exactly what the heterodox, Post- Keynesians, from Kaldor, through Vicky Chick, and on through Basil Moore and Randy Wray, have been correctly claiming for decades, and I have been in their party on this." (Charles Goodhart 2007 page 5 http://www.bankofengland.co.uk/publications/events/ccbs_cornell2007/paper_6goodhart.pdf )

(Replying to Reissgo's 09:02, 24 November 2010 )Yes, that is basically right. But if borrowers or anyone else move the deposit to other banks, take out the money in cash to put in their mattress or pay taxes, the bank and even the banking sector can be short reserves. So the bank may need to borrow money at the federal funds rate from other banks in the first case, or through the discount window in the second. Reserves & reserve requirements don't limit credit expansion, capital requirements and the discount rate does. Since the banking system as a whole can be short reserves in the short term, without any hanky-panky (say Bill Gates realized he made a boo-boo on an old tax return, and he writes a $25 billion check on his local bank). The point is that the Fed lending through the discount window to supply banks with reserves to satisfy requirements is not discretionary on the part of the Fed. (see Wray p.103)

The history and the present state of academic views are extremely confusing, and make writing articles according to policy quite difficult. Wikipedia in general gives much too short shrift to this "loans create deposits" view, which at times has clearly been the consensus view. The Post-Keynesian endogenous / Modern monetary theory view is one extreme of it & is imho the correct view. The "textbook view" "banks lend deposits" is at the other. It seems to me the general economics textbook view is not as dominant in focused academic publications as it is in textbooks.

In particular, overviews in introductions should be written so they do not contradict any major theory, per NPOV. Schumpeter's History Part IV Ch 8 §7 Bank Credit and the 'Creation' of Deposits is very interesting & useful. Compare our intro's "The bank lends out some or most of the deposited funds" and ".. banks lend out funds received from deposit accounts," to Schumpeter p.1114 "It is much more realistic to say that the banks 'create credit,' that is, that they create deposits in their act of lending, than to say that they lend the deposits which have been entrusted to them."

Following this discussion, I did a little work trying to comprehend the history. Schumpeter as usual is awesome on how in 1900 the "banks lend deposits" view was orthodoxy, but by 1920-1930 "the large majority had been converted and accepted that doctrine [loans create deposits] as a matter of course." - which seems to apply when JS was writing, in 1950. He notes that although Keynes in his A Treatise on Money and other publications "defend[ed] .. the doctrine at length" it "practically disappeared" from The General Theory of Employment, Interest and Money, & this influenced orthodox Keynesianism. Doing a google books search on "loans create deposits" I get the impression that older textbooks used to call "loans create deposits" the "economist's view" & supported it and opposed it to the "banker's view". But it seems that the 2 positions have reversed, with the mainstream econ textbooks going more to the 1900 orthodoxy, while bankers, as per Goodhart's article, tend more toward the LCD, old 1930 - 1950 - 19?? "economists view". From what I can tell the name "money multiplier" is due to Vera Smith Lutz, a student of Hayek. Wray (pp.99, 119) notes the concept was rediscovered in the 1920s by the Fed & had been known to Marx & the classical economists. I haven't seen James Tobin's book Money, Credit, and Capital, but judging from quotes & bibliographies it may be a good, balanced source. cf his Commercial Banks as Creators of 'Money' Just downloaded Understanding the Remarkable Survival of Multiplier Models of Money Stock Determination, which may explain some history, its survival, consensus or not status, and "the conspiracy". I think Reissgo is on to something in considering it only as a textbook heuristic that should later be unlearned, but I think it is less valuable and distorts more than the "electron shell" (or Bohr atom) model. Schumpeter's last paragraph p.1116-1117 is also interesting on why there is/was/will be a CONSPIRACY to HIDE the TRUTH :).John Z (talk) 15:55, 25 November 2010 (UTC)

OK, but how can you say the banking sector can be short of reserves when you say they can borrow newly created money from the feds at the discount window? Since 2002 banks can borrow on demand at the fed if they post quality collateral only providing they pay the slightly higher interest rate the fed wants. This is now the policy of all? the english speaking central banks. Obviously a banks current reserve position is irrelevant when it creates a loan. Everything is price determined only. Even if the banks run out of quality assets the feds will simply allow lessor quality assets to be taken as collateral to ensure the cash rate falls to the target.

My problem with the various descriptions of an endogenous money process is that they still require the complicity of the central bank. If the US banking system is severely short of reserves, and the Fed decides to engage in policy which is not sufficiently expansionary, then banks caught speculating that reserves would be found later could then find themselves heavily penalized or even seized. It would take an unbelievable amount of shortsightedness for a banker to ignore the threat of this scenario, so -- even in a world where lending leads reserves -- to say that reserves play no role in constraining lending seems pretty extraordinary. Assertions about a conspiracy to suppress endogenous theories, might add to the trouble of what is at best a minority view.

In any case, my basic point is that the success of a bank's strategy where lending leads reserves can only succeed where the central bank is accomodative, which still leads to the central bank ultimately responsible for constraints through the reserves they are willing to inject. conspiracy BigK HeX (talk) 16:44, 25 November 2010 (UTC)

In "Understanding the Remarkable Survival of Multiplier Models of Money Stock Determination" it sates "The consensus view of the staff and policymakers within the Federal Reserve, as revealed in numerous publications [Bryant 1983; Lombra and Kaufman 1984, and references cited therein], embraces much, if not all, of the critique advanced by Moore and others". Reissgo (talk) 18:00, 26 November 2010 (UTC)

Little known analyses about a minority viewpoint don't really do much to add weight for the minority viewpoint. Also, be wary of Wikipedia:RS#QUESTIONABLEJOURNAL. BigK HeX (talk) 07:44, 27 November 2010 (UTC)

"Little known?" - little known by you maybe, but apparently not so little known by the Fed i.e. the people that run the system. They are the ones that count. If there are 100 books, written by academics, about how they make widgets at factory X, which contradicts the (one) document written by the factory owner which instructs workers what to do, then what info should appear in wikipedia? Reissgo (talk) 15:02, 27 November 2010 (UTC)

I don't have much to add in response to someone who is arguing from the position that an opinion (sprinkled liberally with quite a few qualifiers) about the Federal Reserve (found in some little known writing) is The Truth. If your intention is to Right Great Wrongs without comparable sourcing, then Wikipedia might not be to your liking; to quote, "So, if you want to Spread the word about a theory...that has been unfairly neglected and suppressed by the scholarly community, On Wikipedia, you’ll have to wait until it’s been picked up in mainstream journals..." So, if you really would like to be effective in updating the article material (which we can see writes about a viewpoint available from scores of mainstream academic sources), then you can be of huge assistance by also presenting mainstream academic sources. BigK HeX (talk) 16:56, 27 November 2010 (UTC)

How about answering the question I posed in my last post. Reissgo (talk) 18:04, 27 November 2010 (UTC)

BigK, you keep mentioning Right Great Wrongs. Please be aware that that essay is NOT Wikipedia policy, and the advice therein should be taken "with discretion". I don't know why you continue wikilawyering while ignoring most of the relevant discussion. Fresheneesz (talk) 06:49, 29 November 2010 (UTC)

The policy is this: the article must reflect what is said in reliable sources, giving weight to different views according to the their weight in reliable sources. A preponderance of reliable sources supports the multiplier story. A very small minority (Steve Keen and some other post Keynesians) have a different view. Some mention may be given to these views as long as it remains conservative and makes clear that this view is held by a minority of economists. No amount of argument is going to change this. LK (talk) 07:19, 29 November 2010 (UTC)

Steve Keen isn't a Post-Keyenesians (though I do believe he claims them as an influence). I'm pretty sure he doesn't publish in any of the Post-Keynesian journals. Or co-authors papers with them. Including him in that group does a bit of a disservice to the PKs. Volunteer Marek (talk) 18:19, 2 December 2010 (UTC)

I know what the policy is LK, as I have told you before. But this constant wikilawyering has to stop. Its simply childish. When people refuse to discuss a topic on a talk page because someone doesn't yet have reliable sources, and instead excessively repeats what everyone already knows, its disruptive, unproductive, and simply unkind. Fresheneesz (talk) 18:06, 2 December 2010 (UTC)

I'm not sure why you decided to focus in on part of my comment which pretty widely misses the point, but -- if it really needs to be said -- I've actually mentioned a number of fundamental WP policies in response to the stream of inferior sources that has been presented recently on this page. It seems odd to complain about the repetitiveness of my response about this inferior sourcing, while not noticing that more inferior sourcing continues to prompt it. The bottom line remains just as LK has pointed out: it's highly unlikely that the thoroughly sourced article material is going to be struck as "wrong" based on the type of sourcing we've been seeing here. BigK HeX (talk) 08:38, 29 November 2010 (UTC)

I chose to respond to one of your comments, which is wholly and entirely about "Righting Great Wrongs". I continue to agree with you that things need to be properly sourced and follow wikipedia policy in general. I don't think *anyone* is disagreeing with that. Yet you keep repeatedly wikilawyering, which simply convolutes the discussion. Fresheneesz (talk) 18:06, 2 December 2010 (UTC)

I have repeatedly suggested (and I have some support) that the multiplier model is just a teaching aid. Given this fact, and given the claim that "A preponderance of reliable sources supports the multiplier story." How about giving a single example of a modern reliable peer reviewed paper that unambiguously supports the model - that is NOT simply "teaching material". Reissgo (talk) 12:03, 30 November 2010 (UTC)

Find text in the article that does not match the source. Challenge it. Alternatively, present a source and challenge its reliability on the appropriate noticeboard. Do your own legwork. BigK HeX (talk) 18:55, 30 November 2010 (UTC)

Money multiplier ref(s)

"Find text in the article that does not match the source." - ok this: "The money multiplier, m, is the inverse of the reserve requirement, R:" The reference to support this is here: http://www.mhhe.com/economics/mcconnell15e/graphics/mcconnell15eco/common/dothemath/moneymultiplier.html this reference is teaching material - not a peer reviewed paper. I here by challenge the reference. Reissgo (talk) 20:14, 30 November 2010 (UTC)

Not a peer reviewed paper, but a pretty uncontroversial statement, nonetheless, as a statement of the maximum limits. As being generally incontrovertible in the right context, it barely needs any source to be explicitly listed, IMO. Tag it, if you really like, but I wouldn't be surprised if any tags were removed. (Minor note: That text does match the source. Your challenge is a bit different.) BigK HeX (talk) 20:22, 30 November 2010 (UTC)

Sorry, the quote I should have given was the section before: "The most common mechanism used to measure this increase in the money supply is typically called the money multiplier. It calculates the maximum amount of money that an initial deposit can be expanded to with a given reserve ratio." I agree that it is "common" in teaching materials, but I don't agree that it is taken so seriously within central banks. Reissgo (talk) 20:30, 30 November 2010 (UTC)

Do you even yet have a mainstream source about central banks or even just 1 central bank? BigK HeX (talk) 20:33, 30 November 2010 (UTC)

I have submitted a post to the reliable sources noticeboard -> http://en.wikipedia.org/wiki/Wikipedia:Reliable_sources/Noticeboard#Money_multiplier Reissgo (talk) 20:44, 30 November 2010 (UTC)

Doesn't really seem that your argument is developed enough to be appropriate for the RSN, but ... you're welcome to see what comes of that. BigK HeX (talk) 21:03, 30 November 2010 (UTC)

So the independent editor on the forum has deemed that the Eastern Economic Journal is a reliable source and that the existing McGraw Hill reference is not suitable. Please can someone find a replacement. Reissgo (talk) 17:09, 1 December 2010 (UTC)

**** For the record, I made an edit to the main article at this point which BigK HeX reverted. —Preceding unsigned comment added by Reissgo (talk • contribs) 20:06, 1 December 2010 (UTC)

"The" independent editor is entitled to his evaluations. Doesn't change much here where you've been told here by numerous editors that your material has POV problems.

Moreover, even if you were using his opinion as guidance, you still failed to follow his advice on using this source. BigK HeX (talk) 17:21, 1 December 2010 (UTC)

It appears obvious to me that we are never going to resolve this issue on our own, so I have made a request for mediation here: http://en.wikipedia.org/wiki/Wikipedia:Requests_for_mediation/Fractional-reserve_banking Reissgo (talk) 20:04, 1 December 2010 (UTC)

Forgot to add: If you agree to mediation then please sign the mediation page. Reissgo (talk) 21:21, 1 December 2010 (UTC)

The fundamental problem is still the sources you've presented and that, so far the weight is a contentious issue for editors here. I don't see this issue as meriting mediation, so I don't have plans on participating. BigK HeX (talk) 21:22, 1 December 2010 (UTC)

I have made a request for arbitration. Please look at your talk page. Reissgo (talk) 22:58, 1 December 2010 (UTC)

@BigK: So far there have been two suggestions that I should seek a "third opinion". Would you be receptive to that process? Reissgo (talk) 01:42, 2 December 2010 (UTC)

Technically, you don't really need my permission to request a 3rd opinion. However, the 3O volunteers are likely to reject the request since the discussion has already received input from roughly 5 other editors already [LK, JayHenry, JohnZ, TFD, Fresheneez, maybe more]. As you seem to be interested in seeking more opinions, I'd suggest starting a thread at the Economics wikiproject talk page. BigK HeX (talk) 02:19, 2 December 2010 (UTC)

I saw this at Request for Arb Case. Not exactly sure what all the hullaboo is about. But "The money multiplier, m, is the inverse of the reserve requirement, R:" is the standard definition of the (deposit only) money multiplier. Sometimes the general definition, which accounts for the currency-deposit ratio is used, with the note that the special case 1/RR applies to a deposit-only economy. The more general definition is in fact an identity. [4]. The claim that "it is the maximum..." can also be sourced [5].

Reissgo, if you want to put in the article that "central bankers don't really believe this" you need a reliable source to that effect. If someone wants to put in stuff about endogenous money that's fine but we must observe WP:WEIGHT. Volunteer Marek (talk) 05:46, 2 December 2010 (UTC)

I already made a small edit which I thought was both NPOV and not undue weight, I simply added the words "The idea that the reserve requirement places an upper limit on the money supply is disputed" and gave a reference. - BigK undid my edit. Please could someone suggest what form of words and where in the article would be deemed allowable. Reissgo (talk) 09:25, 2 December 2010 (UTC)

Sorry, there's a lot of stuff up there. What was the reference you provided? Volunteer Marek (talk) 09:38, 2 December 2010 (UTC)

Reply to Volunteer Marek & BigK HeX -

User:Volunteer Marek: The "Monetary Base" article in Money: the New Palgrave, written by Charles Goodhart btw, you just gave provides examples of "central bankers don't really believe this":

The associated behavioral story rests upon a supposed 'multiplier' process, the monetary base multiplier.... In practice, however, the banking system has virtually never worked in that manner..."

Indeed, Central Banks have historically been at some pains to assure the banking system that the institutional structure is such that the system as a whole can always obtain access to whatever cash the system may require in order to meet its needs, though at a price of the Central Bank's choosing...

In short, the behavioural process runs from an initial change in interest rates, whether administered by a Central Bank or determined by market forces, to a subsequent readjustment in monetary aggregate quantities: the process does not run from a change in the monetary base, working via the monetary base multiplier, to a change in monetary aggregates, and thence only at the end of the road to a readjustment of interest rates. In reality, the more exogenous, or policy-determined, variable is the change in (short-term) interest rates, while both the monetary base and the monetary aggregates are endogenous variables. This reality is, unfortunately, sharply in contrast with the theoretical basis of many economists' models, and also of their teaching. The fact that it is commonplace to find economists treating the monetary base and/or the money stock as exogenously determined in their models does not mitigate the error; the fact is that this approach is simply incorrect. Moreover, when it comes to a practical, historical account of how Central Banks have actually behaved, most economists, even including those who treat the money stock as exogenously determined in their own theoretical models, accept the reality that Central Banks have generally sought to set interest rates, acccording to various objectives, and that the monetary base and money stock has, therefore, been endogenously determined.

(replying to BigK HeX 16:44, 25 November 2010): The point of the endogenous view is that the Central Bank does not have discretion. They cannot and do not "decide [not] to engage in sufficiently expansionary policy" (Cf Chapter 5 of Wray's book, Monetary Policy: Interest Rate Targets and the Non-Discretionary Nature of Reserves). Banks can be caught short of reserves with no fault, no wild lending, if people start stuffing cash into mattresses or tax receipts drawn on accounts are too high. So the Fed, to carry out its mandate to maintain stability, must provide reserves. As Wray says, p. 105 ".. once a state accepts bank money as payment of taxes, par clearing and provision of reserves on demand are necessary consequences." If a bank is short reserves because it has engaged in wild lending, has violated capital requirements, has a ton of nonperforming loans, etc, the Fed may look into it and even close it. But in the midst of a panic, even the best run bank could be caught short. What is being called "unbelievable shortsightedness" and "pretty extraordinary" is afaik, standard procedure. Banks normally try to keep excess reserves as low as possible. The minority-ness of these views is questionable. See the quotes from Goodhart's article above.

I think the long-range objective of this and related articles should be to present the views neutrally, criticizing each as little as possible, and only from reliable sources. Something like money-multiplier view, from many textbooks and sources says such and such, followed by contrasting view saying causation runs the other way. The main objective should be to make each one comprehensible. Since I have the flu, was trying to keep away, but I was sucked in against my will .. :) John Z (talk) 09:49, 2 December 2010 (UTC)

Well, I generally agree with your stated purpose and I do think that text based on the above source belongs somewhere in the article. However, this seems to be a different issue than Ressigo's objections. Volunteer Marek (talk) 10:05, 2 December 2010 (UTC)

My views and those of John Z are pretty much aligned in as much as neither of us think that the reserve requirements puts a hard cap on the money supply. When it comes to the fine details- I have been impressed by his knowledge and would indeed bow to his choice of modifications if it came to a choice between our edits. Though I suspect that John Z would concur with the edit I made (that was then undone by BigK Hex). For the record, the reference I put in the edit was http://college.holycross.edu/RePEc/eej/Archive/Volume18/V18N3P305_314.pdf Understanding the Remarkable Survival of Multiplier Models of Money Stock Determination. Eastern Economic Journal, 1992, vol. 18, issue 3, pages 305-314. Reissgo (talk) 10:40, 2 December 2010 (UTC)

The way I understand the issue is that John Z, the EER article, and things like the endogenous money theory question the direction of causality between various variables (roughly, the argument is that it is interest rate -> money -> monetary base, rather than vice versa). That doesn't mean that there is a question of a connection between MB and M, which is the multiplier. To the extent that these are serious criticisms, they belong in the article. However, I'm not sure if they belong in the lede or in the definition of the multiplier - at most a note should be made that the issue is viewed differently by some. Volunteer Marek (talk) 23:06, 2 December 2010 (UTC)

Given a decent source (something not too fringe or non-academic or isolated), I'd agree with Marek on treatment. BigK HeX (talk) 23:18, 2 December 2010 (UTC)

I have a reference that might be relevant:

This one talks about how banks are not required by law to loan out money from reserves (rather they create deposits as long as those deposits do not exceed reserves)[6]. This implies heavily that the logic of the money multiplier depends on a concept that is not enforced legally (but may be enforced by natural economic means that i'm not aware of).

Fresheneesz (talk) 18:21, 2 December 2010 (UTC)

Some articles that talks more directly about the money multiplier:

http://wfhummel.cnchost.com/multipliermyth.html
http://bilbo.economicoutlook.net/blog/?p=1623 - interestingly, this also criticizes endogenous money theory
http://pragcap.com/the-myth-of-the-money-multiplier-a-follow-up - This mentions a FED paper that discusses inconsistencies in the reality of the money multiplier theory
http://www.thecenterlane.com/?tag=money-multiplier-myth - more of the same
http://www.businessinsider.com/your-textbooks-lied-to-you-the-money-multiplier-is-a-myth-2010-8 - even more of the same
http://multiplier.blogspot.com/2007/08/myth-of-money-multiplier.html - Yet again

Many of these describe that bank loans are derived, not from deposits, but on the basis of loans themselves. Reserve requirements are then met despite the loans given out, not because of restraint in loan origination. From what I've inferred from these sources, the money multiplier is indeed an educational approximation that people are now criticizing as inaccurate. Fresheneesz (talk) 22:21, 2 December 2010 (UTC)

None of those are RS's, so it's difficult to tell what you may want for us to glean from them. BigK HeX (talk) 23:14, 2 December 2010 (UTC)

@BigKHex: could you perhaps give a little more constructive feedback in your postings about how to proceed. At the moment it feels like myself, Fresheneesz and JohnZ are having to play a kind of guessing game as to what will meet your approval. I have already found one paper that the RS noticeboard has deemed reliable, please give us a hint as to how and where it could be included. Reissgo (talk) 00:41, 3 December 2010 (UTC)

Pretty senseless to ask me for my recommendations on how to proceed when you ignore what I've repeatedly suggested. Find better sourcing. BigK HeX (talk) 00:49, 3 December 2010 (UTC)

I don't agree, BigK. I've presented an array of reliable sources, while they may not hold as much weight as a paper in an economics journal, they do hold quite a bit of weight all together.

Also, I don't see how any of what I'm saying is difficult for you follow. I'm being very clear: the concept of a money multiplier (and the related concept of a hard maximum on the money supply) is not an accurate way to describe how fractional reserve banking works in the real world. I'm not suggesting we tear out every last bit of money-multiplier related content on this page, as you seem to think. I'm simply saying that it should be qualified that it is inaccurate, and its inaccuracy explained.

Now, to get to the point, lets discuss what ought to be changed in the article. Reissgo? Your thoughts?

Fresheneesz (talk) 01:07, 3 December 2010 (UTC)

Fresheneesz, as I have already pointed out above, you are misinterpreting Goodhart's position. It's clear to any monetary economist reading Goodhart that he's not actually arguing that the multiplier process doesn't exist. Rather, Goodhart's claim is that Central Bankers will almost always increase money supply in response to an increase in demand, so the theoretical limit on the amount of money in the economy is not actually a 'hard' limit. This is very close to the idea of 'endogenous money' that post-Keynesians adhere to. As I've said before, some discussion of endogenous money (properly sourced) would be appropriate for this article.

The trouble with what you are doing, is that you have a certain set idea about how the system works, that is not based on reliable sources. You are now scrambling to find and interpret sources to support your own point of view. The correct way to go about writing an article is to first read what reliable sources say, without a set idea of how things work, and then summarize the viewpoint of reliable sources for the encyclopedia article. Just to be clear, von Mises Institute and lewrockwell.com are not reliable sources. Even the Austrian school academic economists have repudiated them. If you are editing based on that viewpoint, you waste everyone's time by pushing what is obviously not a viewpoint widely accepted by reliable sources. LK (talk) 08:53, 3 December 2010 (UTC)

You're misrepresenting my words and/or misunderstanding me. I'm pretty sure we agree more or less about what is being said about the money multiplier. Clearly it exists - I am not saying it doesn't. I'll ignore the strawman you're (hopefully unintentionally) setting up.

What I'm saying is that the money multiplier concept as described in this article is simply an inaccurate way to describe the effects of FRB in the real world. Can we agree to that point? More to the point, this is also what the myriad of sources I found also say this. Including the fed paper that says "the relationships implied by the money multiplier do not exist in the stem from the demand side". We both know that this isn't saying the multiplier doesn't exist, but it is saying that the implied relationships don't hold true in reality.

To that effect, I'm proposing that we mention a short description of the significance of the money multiplier with respect to FRB, and note why the money multiplier is an inaccurate way to describe how FRB works. Fresheneesz (talk) 18:26, 6 December 2010 (UTC)

I still don't understand what was wrong with the edit I made on the main page. It was only one rather neutral sentence combined with a reference that has already been declared a reliable source. If I put it in the wrong place then can someone tell me where I should have put it. If I used the wrong words then can someone tell me what words I should have used (its only one short sentence after all). Please can I have a constructive reply. Reissgo (talk) 11:04, 3 December 2010 (UTC)

This discussion seems to have stalled. Ok, lets see where we are: LK has said "I see no problem with adding some discussion of the post-keynesian theories of endogenous money, as long as it's properly sourced and, it's made clear that these are heterodox views held by a minority of economists.". It has also been determined on the RS noticeboard that the paper: "Understanding the Remarkable Survival of Multiplier Models of Money Stock Determination" is a RS. So putting these two together we should be able to come up with something allowable at least as a starting point. I am going to make an edit to the main article now. If anyone disagrees with it, then please make a change rather than simply an undo. Reissgo (talk) 18:29, 7 December 2010 (UTC)

I will note for you again that RS is NOT the be-all and end-all of adding material. See: WP:NPOV. If your material is clearly not NPOV, an undo will be the likely result. BigK HeX (talk) 18:55, 7 December 2010 (UTC)

I don't know how I could have possibly been more neutral in the 28 words I added. If its somehow biased, then feel free to change (not remove) the wording. Reissgo (talk) 19:00, 7 December 2010 (UTC)

For the record BigK Hex made several modifications to my original wording at this point. Reissgo (talk) 16:46, 8 December 2010 (UTC)

Hallelujah. At last we have something up and running. Reissgo (talk) 19:19, 7 December 2010 (UTC)

Money multiplier second break

It seems like the money multiplier defenders on this page like to characterise endogenous money theory as if it was only given credence by a tiny lunatic fringe. I don't know how much more evidence we have to produce to show how at the highest levels this is entirely untrue... here's some more, a talk given by the Paul Tucker, number three man at the Bank of England: http://www.bankofengland.co.uk/publications/speeches/2004/speech225.pdf Reissgo (talk) 15:15, 13 January 2011 (UTC)

Just found this quote from Prof. Steve Keen: "Basil [Moore] is the venerable father of the proposition that the money supply is endogenously determined, rather than set exogenously by the Central Bank, as is still taught (in wild conflict with both the empirical data and actual Central Bank knowledge and practice) in almost all macroeconomics courses;" here: http://www.debtdeflation.com/blogs/2009/12/16/circuit-theory-and-the-state-of-post-keynesian-economics/ - I think its about time that references in support of the money multiplier model be upgraded to peer reviewed papers in journals.Reissgo (talk) 11:38, 28 February 2011 (UTC)

Do you not realize that your quote would pretty much explain why the sourcing is NOT an issue? "in almost all macroeconomics courses" .... there are no serious challenges that the material is not sourceable, nor are there any serious challenges that it is not the viewpoint of the vast majority. BigK HeX (talk) 13:14, 28 February 2011 (UTC)

With regard the "viewpoint of the vast majority" - the vast majority of which group of people? If that group was "the population at large" then all sorts of hogwash would end up here. Presumably wikipedia want their site filled with the "viewpoint of the vast majority OF EXPERTS" - so the next question is what determines who is an expert? I'd suggest that "the experts" are either "the central bankers that actually operate the system" - or - researchers that publish in peer reviewed journals. Throughout this entire (enormous) debate, neither you LK or anyone else has supplied a SINGLE peer reviewed journal article supporting the money multiplier. I think it is long overdue that you need to put-up-or-shut-up. Reissgo (talk) 15:02, 28 February 2011 (UTC)

I don't think complaints regarding verifiability amount to a serious challenge, so I'd suggest you not wait on me to "put-up-or-shut-up". There are far more important issues for me to devote my Wiki time to than adding more sourcing to the uncontroversial. BigK HeX (talk) 17:35, 28 February 2011 (UTC)

Claiming that this issue is "uncontroversial" when there are multiple peer reviewed papers arguing against you, simply defies logic. Reissgo (talk) 23:01, 1 March 2011 (UTC)

AFAIK, the treatment given here is what is found in the standard reference texts (such as the new palgrave, handbook of monetary economics, etc) and in all macro textbooks used in university courses (many of these sources are cited in detail in the article itself). It's easy to claim that there are "multiple peer reviewed papers arguing against you", but it's your turn to put up or shut up. Find either some reference texts that contradict this page, or detail your "multiple peer reviewed papers" and describe how scientific consensus has changed. Steve Keen is WP:Fringe, so continually quoting him does your cause no good. BTW, are you Steve Keen or a student of Keen's? LK (talk) 05:05, 2 March 2011 (UTC)

"it's your turn to put up or shut up" - I have already - but for there record here are a couple again: “Understanding the Remarkable Survival of Multiplier Models of Money Stock Determination” by Seth B. Carpenter and Selva Demiralp and “Money, Reserves, and the Transmission of Monetary Policy: Does the Money Multiplier Exist?” by Raymond E. Lombra. For the record I have no association with Steve Keen - I just like his work. I don't know a specific paper off hand for Steve Keen's claims (but I'm sure there is one), also there is the description in the Geoffrey Gardiner book I have mentioned before in this debate. Below is a table of how the money multiplier story is understood by different groups of people:

The public: "What the hell is the money multiplier?"

Expert (teachers): "The money multiplier model determines our maximum money supply"

Super-expert (Central bankers + recent papers): "The money multiplier story is a load of baloney"

IMHO Wikipedia should contain the opinion of the super-experts. Reissgo (talk) 08:32, 2 March 2011 (UTC)

See: WP:SUPER-EXPERTS. BigK HeX (talk) 13:20, 2 March 2011 (UTC)

I will pay you $250 from my own pocket if you can find a peer reviewed paper in a journal, more recent than say 1990, which defends, the idea that the reserve requirement places an upper bound on the money supply, against criticism. Reissgo (talk) 14:25, 2 March 2011 (UTC)

I will gladly take you up on this if I have the slightest faith in your actually paying such a bet. LK (talk) 05:24, 3 March 2011 (UTC)

I am wealthy enough that losing $250 will not hurt. Also I think I already have a proven track record of being man enough to concede on issues where I have got things wrong - just a couple of days ago I used the word touché in an argument with BKH when he pointed out that I was attacking him on a point with no good reason. Also take a look at this page on my blog - I wrote the article when I just started investigating FRB and had made a horrible mistake which was corrected by someone that left a comment. I could show many other examples too from other forums - I would actually go as far as to say that I am unusually good at publicly conceding when I have made mistakes.

Having said that - I did word my challenge rather carefully - the paper must not simply state that the money-multiplier-limit idea is true - it must *defend* the idea from attack, i.e. must acknowledge that some people have said that it doesn't apply in practice - but then go on to explain why the critics are wrong any why it does work in practice after all. Reissgo (talk) 10:02, 3 March 2011 (UTC)

It's easy to find peer-reviewed papers which conclusively demonstrate that the moon is made of something other than green cheese. However, it's quite hard to find papers that explicitly mention the green cheese theory and explain why it's wrong, because that theory is simply not taken seriously by the mainstream. I would have loved to donate your $250 to the wikimedia foundation but this additional condition means that the money will probably remain safely in your pocket. bobrayner (talk) 10:56, 3 March 2011 (UTC)

When Fleishman and Pons published a paper on cold fusion the world of physics didn't just sit around ignoring it - they repeated the experiments - found it was wrong and published new papers sayings so. When Benveniste published a paper suggesting that water had a memory - the world of biology did not just sit around ignoring it - they repeated the experiments - found it was wrong and published new papers sayings so. Is economics so different? I doubt it. I don't think the anti-money-multiplier papers have been ignored at all. I suspect that the reason nobody can not find any refutation papers is because nobody can find a refutation and so nobody has written such a paper! Reissgo (talk) 12:25, 3 March 2011 (UTC)

I'll gladly find such a paper for you if you would deposit USD250 into an escrow account, payable upon a third party agreeing that such a paper has been found. LK (talk) 06:37, 4 March 2011 (UTC)

If he does that, hell, I might be game to race you for it. lulz .... BigK HeX (talk) 06:53, 4 March 2011 (UTC)

Its amazing the lengths you two will go to, to avoid coming up with such a paper! I have never used an escrow account before. Does that involve opening up a new bank account?? How do we find a neutral third party? I'd accept an employee of your choice from the London school of economics. It all sounds like a big palaver to me - but if you arrange it all, I will go along with it. Reissgo (talk) 08:40, 4 March 2011 (UTC)

It's easy, go to your bank, and purchase a cashier's check made out to "Wikimedia Foundation, Inc.". Mail that cashier's check (not a personal check!) to the Wikimedia Foundation (see Ways to Give for the address). Enclose a letter describing this situation, with a link back to this talk page, and leave an instruction not to deposit the cashier's check until there's consensus on this page that you've lost your bet. Ask the person at Wikimedia Foundation to confirm on this talk page that the cashier's check for USD250 has been received. If the cashier's check has not be deposited within 90 days, you can approach your bank to inform them that the check has been lost, and that you wish a refund. We eagerly await news of your money. --LK (talk) 12:09, 4 March 2011 (UTC)

This arrangement assumes that some intern that opens my letter is going to agree to this task, put the cheque aside and then monitor this page on a regular basis and be the arbiter of when the bet is settled. I think there is a significant chance that they will not be happy with this arrangement at all. I think it is essential that the "moderator" needs to agree in advance that he is willing to carry out this task. I also don't feel too good about having to go and pretend that I lost something when I haven't. I also suspect that there will be a fat fee for purchasing this kind of cheque. I'm not too happy about this deal costing me money even if I win!... do you have a plan B?

BTW my offer still stands regardless of whether we can agree on some escrow mechanism or not.

By the way (just to hurry you up) - I may make this same $250 offer on some other forums (I am a regular on tickerforum/mises/talkfinance.net) - so if you continue your endless foot dragging you may lose out. Reissgo (talk) 14:02, 4 March 2011 (UTC)

UPDATE: I have just posted the challenge details on talkfinance.net forum. So you'd better get moving or the $250 will go to someone else. Reissgo (talk) 11:26, 5 March 2011 (UTC)

UPDATE II: I have just posted the challenge on the market ticker forum and the incredibly popular mises forum. Over the next few days I'm sure that, between all these forums, many hundreds of people with a strong interest in economics will read about this challenge. If no paper turns up than it will be very strong evidence that no such paper exists. Reissgo (talk) 11:38, 5 March 2011 (UTC)

Better get moving on the escrow, or the $250 will remain effectively imaginary. BigK HeX (talk) 13:45, 5 March 2011 (UTC)

I am perfectly happy to use an escrow mechanism so long as you can find a mediator that agrees to do the job. I will widen your choice to any lecturer at any UK university. - That gives you a few thousands of people to choose from, most of whom you could look up on the web. Hang on - I'll go further - I'll also accept any senior, longstanding wikipedian living in the UK that has not previously been involved in this debate. If they're in the UK I can send them the money for free by internet banking - and they can send it back to me for free if you lose. By the way - I'd be happy to find a mediator myself - but judging by your clear desperation to avoid producing a paper, you will no doubt accuse me of picking someone that's biased. Reissgo (talk) 20:38, 5 March 2011 (UTC)

There's this one guy who cranks out a few fringe theories and is now even offering $250. Then he tosses around an insult of "clear desperation"... BigK HeX (talk) 01:24, 7 March 2011 (UTC)

I have gone back to the reliable sources noticeboard: http://en.wikipedia.org/wiki/Wikipedia:Reliable_sources/Noticeboard#Money_multiplier_.28again.29 Reissgo (talk) 04:59, 7 March 2011 (UTC)

I'm sure the good people at RS/N have better things to do than to answer the same question again. Continually bringing up the same issue after an answer has been given is considered disruptive. (See WP:IDIDNTHEARTHAT.) Disruptive activity can lead to a user being blocked or banned. LK (talk) 06:45, 7 March 2011 (UTC)

Reissgo

As you know i contacted you about the broken blog link because i was wondering what was in it. I have now left a comment with the blog owner in the hope he will correct the blog as per LK's correct observation about the purchase of a bond requiring money that a sale of the bond would replace. The issue for the bank is timing. For example it is standard practice in canada that the settlement banks deposit collateral with BOC first thing each morning so that later on demand they can get intra day liquidity as agreed with BOC already. Each CB has their own methods of doing this.

Having now become aware of Prof Goodhards record as Bank of England advisor for many years and his position at the LSE and only yesterday reading the text quoted from the new palgrave which i am attempting to get hold of i, am really very confused as to why you did not persue Goodhards observations about the apparent inapplicability of money multiplier presumably as it is described by textbooks to banking?

Goodhart says.

"Virtually every monetary economist believes that the CB can control the monetary base… and, subject to errors in predicting the monetary multiplier, the broader monetary aggregates as well… Almost all those who have worked in a CB believe that this view is totally mistaken. Goodhart 1994, p. 1424"

"The associated behavioral story rests upon a supposed 'multiplier' process, the monetary base multiplier.... In practice, however, the banking system has virtually never worked in that manner..."

Indeed, Central Banks have historically been at some pains to assure the banking system that the institutional structure is such that the system as a whole can always obtain access to whatever cash the system may require in order to meet its needs, though at a price of the Central Bank's choosing..."

Here is the reference that BigK disputed and i have adding it to your text to return you the favour of you correcting one of my citation web links.

Holmes^[4]

Just for the record it appears that nobody on this board seems to be disputing the simple reality that loans increases the money supply via a multipler effect. The dispute is the mechanics of how that happens where much of the problem appears to be because nobody is mentioning that the banks can have large amounts of AAA Government and corporate bonds whereby they can get money as required electronically.

Fresheneez was wanting a comment to the effect that central bankers did not think the money multiplier as described in Wiki was applicable to money creation - and we already now have at least 5 cast iron references supporting that. The only one that is now in the page is the one where the reference was already there but missed the next and relevant paragraph that said money multiplier did not work as described by the first paragraph.

Many previous editors on this board have thought that the money multiplier presentation needed major changes. Dave hillary and fresheneez come to mind. Then there were the guys who came along last december when help was sought and provided the text from goodhard i just quoted (there was more than that provided). After years of attempting changes nothing has been changed that would satisfy these people.

We need something like:

"Although we have described deposit creation using this presentation of the money multiplier there are central bankers and economists who say that in practice this method of describing money creation does not reflect current practices because it does not for example acknowledge the action of pricing in the publics demand for loans. (Citations]

Since the time of Knut Wicksell who wrote interest and prices in 1898, it has been theorised that if interest rates are to low, demand for loans will increase, money will be supplied, and prices will rise. However today it is well known [citations] that Central bankers do not specifically target the amount of money in the banking system but instead target inflation as a 0 to posative amount and then supply all the money the banks require providing they are willing to pay the published central bank loan rates, where most banks are creating a lending corridor between their reserve balance deposits rates paid to banks and the rate banks will pay for their on demand (when so published by the central bank) Standing lending facilities for overnight money by reserve repurchase of eligible Bonds and other high quality securities [Citations]

Central banks will therefore supply all the money the banking system wants if the banks are willing to pay the rate required by the central bank and there is sufficient demand for loans [Citations]"

Also in our presentation we need to distinguish between what one bank can do and what the system can do.

Part of the problem with the wiki, and the problem for the money multiplier text is that the wiki talks about cash and bankers balances only as being the reserve but it does not talk about defacto cash which is for example a bond or allocated gold, where in modern economies hundreds of billions go thru payments systems electronically and the central banks are providing liquidy support to prevent counterparty risk for the banks by offering on demand repo.

Our Wiki also describes reserves moving and says central bankers generally require reserves of cash or deposits of cash where that is clearly untrue or at best very misleading and is certainly not a neutral point of view and yet is an unchangeable part of the wiki. I have tried changing it. How can that be???? Andrewedwardjudd (talk) 21:10, 9 April 2011 (UTC)andrewedwardjudd

Post Reliable Sources Noticeboard break

It was suggested on the reliable sources noticeboard that the best source of action was to select the most reliable sources for the reserve-ratio-is-not-a-limit idea and then take up the issue on the NPOV noticeboard later. For the record the new papers that Prof. Lombra sent me are...

Lombra, Raymond E. and Herbert Kaufman. "The Effect of Changes in the Federal Reserve's Policy Rule on the Stochastic Structure Linking Reserves, Interest Rates, and Money." Southern Economic Journal, 52, No. 4, (April 1986), pp. 1031-1037.

Lombra, Raymond E. and Herbert Kaufman. "The Money Supply Process: Identification, Stability, and Estimation." Southern Economic Review, 50, No. 4, (April 1984), pp. 1147-1159

Lombra, Raymond E. and Herbert Kaufman. "The Money Supply Process: A Reply." Southern Economic Journal, 52, No. 2, (October 1985), pp. 527-531.

Lombra, Raymond E. and H. Kaufman. "The Demand for Excess Reserves, Liability Management, and the Money Supply Process." Economic Inquiry (Oct. 1980), pp. 555-566.

Reissgo (talk) 13:36, 8 March 2011 (UTC)

My experience with Southern Economic Journal is that they seem to publish a lot of the heterodox stuff, such as Austrian economics. Not necessarily a disqualifying factor, but a point possibly worthy of consideration as pertains to WP:RS. BigK HeX (talk) 14:59, 8 March 2011 (UTC)

I also note that none of these papers were written within the last 20 years. Any significant innovations would have been incorporated into (at least the advanced level) university texts by now. LK (talk) 11:59, 14 March 2011 (UTC)

You seem to be ignoring Andrew Lancaster's comments at the end if this. Reissgo (talk) 16:34, 14 March 2011 (UTC)

One other guy's opinion about general policy does not concensus on this page make. LK (talk) 04:18, 15 March 2011 (UTC)

Moved from article

— Preceding unsigned comment added by Lawrencekhoo (talk • contribs) 07:23, 6 April 2011 (UTC)

^[5]^[6]^[7]^[8]^[9]

^ Caplan, Bryan (2009-10-28). "Additive Shocks". EconLog. Library of Economics and Liberty. Retrieved 2009-10-29.
^ "(Holmes, 1969 page 73 at the time Senior Vice President of the Federal Reserve Bank of New York responsible for open market operations) I have not seen, cited in Bank and Credit the Scientific Journal of the National Bank of Poland" (PDF). In the real world, banks extend credit, creating deposits in the process, and look for reserves later. The question then becomes one of whether and how the Federal Reserve will accommodate the demand for reserves. In the very short run, the Federal Reserve has little or no choice about accommodating that demand… ...'
^ "(Holmes, 1969 page 73 at the time Senior Vice President of the Federal Reserve Bank of New York responsible for open market operations) I have not seen, cited in Bank and Credit the Scientific Journal of the National Bank of Poland" (PDF). In the real world, banks extend credit, creating deposits in the process, and look for reserves later. The question then becomes one of whether and how the Federal Reserve will accommodate the demand for reserves. In the very short run, the Federal Reserve has little or no choice about accommodating that demand… ...'
^ "(Holmes, 1969 page 73 at the time Senior Vice President of the Federal Reserve Bank of New York responsible for open market operations) I have not seen, cited in Bank and Credit the Scientific Journal of the National Bank of Poland" (PDF). In the real world, banks extend credit, creating deposits in the process, and look for reserves later. The question then becomes one of whether and how the Federal Reserve will accommodate the demand for reserves. In the very short run, the Federal Reserve has little or no choice about accommodating that demand… ...'
^ "Modern Money Mechanics. Page 37. Money Creation and Reserve Management" (PDF). Federal Reserve Bank of Chicago. In the real world, a bank's lending is not normally constrained by the amount of excess reserves it has at any given moment. Rather, loans are made, or not made, depending on the bank's credit policies and its expectations about its ability to obtain the funds necessary to pay its customers' checks and maintain required reserves in a timely fashion ...'
^ "The fedwire funds service. Overdrafts and risk control" (PDF). Federal Reserve. the Federal Reserve Banks can extend credit to most Fedwire Funds Service participants lacking sufficient balances to cover their payment instructions. This exposes the Federal Reserve Banks to risk of loss. To limit exposure, the Federal Reserve Banks have adopted a comprehensive daylight overdraft control policy ...'
^ "What is a daylight overdraft at the Fed?". Federal Reserve. {{cite web}}: Cite has empty unknown parameter: |1= (help)
^ "Reserve Requirements, Deficiency Charges". Federal Reserve Bank of Cleveland. an institution can be deficient either in its clearing balance requirement or in both its clearing balance and reserve balance requirements. In any given maintenance period, if an institution fails to maintain an average end-of-day balance over the reserve maintenance period adequate to meet its total balance requirement (after the application of as of adjustments, carry-over, and the clearing balance allowance), the institution may be subject to a monetary charge or, in rare instances, may be required to compensate for the deficiency in a future period. ...'
^ "Reserve Maintenance Manual" (PDF). Federal Reserve. Weekly reporters maintain reserves on their reservable liabilities with a thirty-day lag ...'

Central banking liquidity arrangements

Most of the worlds central banks enable their settlement banks to get reserves during real time gross settlement. Fedwire for example will automatically create daylight overdrafts up to a few hundred million or as arranged. Bank of Canada members usually deposit a few hundred million of securities with the BOC or allow previously deposited ones to rollover where they can draw reserves using that deposited collateral. Australia enables inter day Repos with pre registered securities. The BOE manages a private system called CREST to enable banks to get reserves via securities.

Therefore a bank knows it can in the first instance create a loan and be able to wire funds to another bank to make a customers payment, and then it knows it can interact with that other bank to get an interbank loan or can make other arrangements or expect to get funds from other customers later, where importantly in all cases the central bank will act to enable new central bank funds to be available to prevent the bid on the cash rate going past the target rate.

Additionally many central banks have no mandatory reserve requirements and even when they are in place they usually have reserve maintenance periods that allow averaging over time or some system that means on a particular day there is no requirement to have a reserve.

Banks are pretty conservative but what the credit crisis demonstrated is that their prearranged lines of credit are not very helpful when there is a systematic banking crisis, liquidity dries up and loans cannot be rolled up.

All of the central banks provide pretty extensive documentation on how they operate but it appears on this thread this kind of citation is regarded as inferior to university text book citations because it is not peer reviewed??

The following text from the federal reserve bank of chicago - modern money mechanics page 37 seems to say everything that is not present in the current Wiki in a few words.

In the real world, a bank's lending is not normally constrained by the amount of excess reserves it has at any given moment. Rather, loans are made, or not made, depending on the bank's credit policies and its expectations about its ability to obtain the funds necessary to pay its customers Andrewedwardjudd (talk) 13:27, 4 April 2011 (UTC)andrewedwardjudd

I have just noticed that you have put a (very nice) collection of references on your "talk page". This is not the usual place to put them. You can just put the links directly into your text here. Reissgo (talk) 18:40, 5 April 2011 (UTC)

Andrewedwardjudd, I think that I, and the other people here who have reverted your additions on the page, have no problems with your adding the ideas that you wish to add to the page. You're not very clear about what you wish to add or amend, but it seems to me to be a version of the endogenous money arguments made by post-Keynesians. I actually believe that an endogenous money view (very elastic money supply at central bank target interest rate) is a more accurate way of modelling the short run economy that the 'text-book view' of a fixed money supply.

However, what we are objecting to rather is the way you are adding it. We're trying to create a high quality encyclopedia here (think Encyclopædia Britannica). Anything added has to be in the appropriate place, written in an encyclopedic style (without commentary), consistent with the rest of the article (or if the rest of the article is wrong, it has to be made consistent with the addition), and it should be referenced to appropriate citations that are being used properly (i.e. the source directly addresses and directly supports the argument made). If you could be clear exactly what you think should be changed in the article, with some references, I think we can work it out.

However, this edit, where you've stuck a bunch of commentary into the lead is not really appropriate. I'm going to move it here to the talk page so that we can incorporate it appropriately in the page.

LK (talk) 07:14, 6 April 2011 (UTC)

Lawrence, I have no big view on 'endogenous money' but if central bankers say that in the real world your money multiplier viewpoint is not correct or is only suitable for teaching purposes you have no right to delete my citations that describe the viewpoints of those central bankers.

And this is supposed to be the talk page and not a place for you to trash or patronise any person who does not support your opinion or vested interest. Wiki pages are supposedly created by the members not by the people with the most time and money to delete other peoples commments.

Reissgos comments on loaning term deposits were essentially more correct than many of the posters comments in reply to him. Essentially you supported what he said more than others did by agreeing term deposits reduce the money supply so act against loans that may partly increase the money supply. Reissgos proposal as written would be deflationary and you could have helped divert the attacks being made on him by helping him to understand this while supporting other things he was saying in a more clear manner.

Later you said that the blog quoting the professor was wrong that the BOE will buy securities on demand. You dont seem to realise the Bank of england allows same day repos during real time gross settlement so that the Reissgos point was supported in view that the FRB article is essentially wrong to labour the money multiplier "fiction". A few seconds earlier you were lecturing Reissgo that he should consult others who know about banking implying that would be yourself. What you actually believe or know about this topic is at this point a bit unclear to me. Clearly you are protecting the money multiplier 'fact' and have dismissed my attempts to bring in citations as sticking in a bunch of commentary. In wiki we are not required to produce citations that paris is in france. Please attempt to be less biased in your editting and avoid a war where you appear reluctant to support your opinions with me but instead want to educate me at every turn as to what is correct procedure. Others have called this silly wiki lawyering. And evidently senior editors commenting elsewhere totally do not agree with the way you are dominating the article with your opinions that text books are important reference material for an economics discussion or article. http://en.wikipedia.org/wiki/Wikipedia:Reliable_sources/Noticeboard/Archive_91#Money_multiplier_.28again.29

Economics textbooks are a subject in themselves. Economics took off as a very popular undergraduate course in recent decades and the textbook business did also. Concerns that these textbooks often differ from what can be found in peer reviewed journals are frequently discussed as anyone with an economics background would know. So this is a discipline where textbooks are not highly respected for reliability on fine points. I believe the point being discussed here about monetary policy is itself one that is frequently discussed.
In my experience, teachers of undergraduate economics tend to claim that the traditional presentations of subjects are just the best way to lead students to the more realistic models. In Wikipedia we have no such excuse, because we are not leading people through a curriculum.
I think a few people have exaggerated a little above by seeming to imply that the most popularly published things are the most notable and most important for Wikipedia, while peer reviewed sources, if not often discussed, can be called fringe positions. That is not really how Wikipedia works. Popularity of an idea does not make it the leading idea, because Wikipedia's policy are not that simplistic. "Not well known" is not the same as "fringe". written by Andrew Lancaster at Andrew Lancaster|talk]]) 12:09, 8 March 2011 (UTC)

Your view that economics textbooks are not reliable sources raises a huge red flag for me. Textbooks take some time to catch up with new innovations in economics, but the money creation process is not exactly new. Additionally, I don't think any academic economist would argue that popular advanced level (PhD) textbooks, or reference handbooks, are wrong about the mainstream view, even about details.

Also, the blog is quite obviously wrong for the simple reasons that I pointed out in the discussion above. It makes a basic logical mistake about the sourcing of reserves, saying that to get more money for reserves, a bank just buys 1000 in bonds and then sells it to the central bank to get 1000 in reserves. But where is the 1000 to buy the bonds coming from in the first place? It also misunderstands or misrepresents Goodhart's position, which is essentially a post-Keynesian endogenous money view. You're claiming that the blog is not in fact wrong does little to convince me otherwise. LK (talk) 12:06, 6 April 2011 (UTC)

Please dont continue to educate me on how wiki works (which is ok) while you ignore the spirit of wiki to make certain your opinion dominates here. Andrewedwardjudd (talk) 09:20, 6 April 2011 (UTC)andrewedwardjudd

I doubt anyone's stance on Reissgo's claims on time deposits has changed; speaking for myself, the illogical extension of those claims seem no more convincing with your approving comments than they did before.

In any case, the issue here has not been whether theoretical claims on endogenous money exist. The issue here has been weighting them in an encyclopedic manner, according to Wikipedia policies. I think we've had a decently proportional balance going. BigK HeX (talk) 08:31, 6 April 2011 (UTC)

BigK, Reissgos logic was unassailable given his point of view that this should be a legal requirement for lending. In that conversation you said "It doesn't matter that the money gets lent out multiple times", which is clearly incorrect.

If a 100 time deposit is not spendable money because it cannot be accessed, then that deposit removes 100 from the spendable money supply that acts on prices. A loan of 100 then returns the removed 100 of spendable money, and a new term deposit removes it again. Spendable money cannot expand so it cannot act on prices. I dont think it would be a good idea however because i think there would be a shortage of money.

You either dont understand what Reissgo is getting at or you are muddled up.

I think he deserves an apology Andrewedwardjudd (talk) 09:20, 6 April 2011 (UTC)andrewedwardjudd

We've had this discussion about time deposits before, including referals to the reliable sources noticeboard and third party opinions. Please check the archives and the discussion above. I doubt that consensus will change on this issue. Also, if you've come here because of something Reissgo posted on another forum, please note our policies about meatpuppeting. LK (talk) 11:16, 6 April 2011 (UTC)

Arbitary break

The policy of wiki is that editors should assume good faith. I have been interested in FRB long before i ever realised i could edit wiki, make it more readable and enable it to reflect how banking practices work in the real world.

Instead of dishing out this kind of abuse how about for once you actually engage with some of the points i have raised that demonstrate your lack of knowledge about real world banking?

For the record i have almost no specific interest in term deposits. I just see a wiki editor doing his best and being unfairly treated by a people who show they lack sufficient knowledge to be so unkind to his efforts to alter the main page. If you believe in the word of Buddha and want to be kind then please reflect on your demonstrated behaviour on this web siteAndrewedwardjudd (talk) 12:07, 6 April 2011 (UTC)andrewedwardjudd

It's hard for me to 'engage the arguments' since you've raised a lot of institutional detail, but haven't really proposed exactly what you want changed. I will first detail my understanding of what the mainstream economics view is (which is also my view), and you can critique it and describe how you think I am wrong and what needs to be changed:

The money multiplier process occurs essentially as outlined in the textbooks. New high powered money is introduced, and the broad money supply is expanded through the lending and re-lending activities of commercial banks.
Commercial banks lend out some fraction of the excess reserves which they hold, and do not lend out more than the excess reserves they have on hand, unless they have made arrangements to borrow funds from another institution. It takes many rounds of lending and re-lending for the full multiplier effect to play out.
Holding high-powered money constant, the amount of broad money in the system is limited by either the statutory reserve requirements or other financial ratios (e.g. Basel II capital requirements) imposed by the central bank (or other regulatory agencies).
The actual multiplier is not equal to 1/rr (as defined in some textbooks). 1/rr is a conceptual simplification, much like escape velocity is a simplification (in that it doesn't take into account direction of movement, air resistance, the rotational velocity of the Earth, launching from different altitudes, etc.). The three main issues that it ignores are:
- Cash held by the public, and excess reserves held by the banks, reduces the actual multiplier.
- In many jurisdictions, the reserve requirement is not binding, instead the Basel II related capital requirements are what determine the multiplier.
- There are several multipliers, one for each definition of broad money (M1, M2, M3).
The demand for money influences the supply of money:
- Most central banks target interbank interest rates, not the quantity of money. An increase in the demand for money will cause interest rates to rise, and so cause an expansion of money supply as the central bank attempts to reduce the interest rate.
- A spike in money demand can cause banks to run out of ready cash, in such a situation (essentially a financial crisis) the central bank will step in to lend directly to the commercial banks (as lender of last resort), thus expanding the money supply directly.
- The fact that central banks respond and largely accommodate changes in money demand is related to the endogenous money models of the post-Keynesians.

As far as the article is concerned, I think the article could make clearer exactly what simplifications are being made, and could discuss heterodox views a bit more. However, I think a more in-depth discussion about issues surrounding the money multiplier is best reserved for other pages (e.g. Basel II, money multiplier). LK (talk) 12:20, 6 April 2011 (UTC)

LK, My text here begins with >>>AEJ and your earlier comments are added with >>>LK Please let me know if i have not addressed any of your points as you want. I have enlarged the area where we appear to most strongly disagree. This area of dissagreement then seems to create other areas of disagreement.

>>>LK

The money multiplier process occurs essentially as outlined in the textbooks. New high powered money is introduced, and the broad money supply is expanded through the lending and re-lending activities of commercial banks.

>>>AEJ. Banks are not required to only lend by having excess reserves for each loan or the precise amount of required reserves. There is considerable flexibility in how they get reserves as they need them. So essentially the text book version is a fiction apart from the limited case of a cash loan at that particular branch where the bank is better off having the customers cash when the customer is allowed to have an instant cash loan. Banks dont get the cash and put it on the loan officers desk. Instead they increase the amount of attracted reserves by raising interests which also discourages customers from demanding loans from that particular bank that day. For a cash loan, the loan officer would probably have to go visit the tellers to see what the likely situation was and also tell the borrower the money would be available from the banks cash machines or by appointment later. But obviously generally speaking across the banks branches it will have vast piles of cash. But what about if an airline wants to buy a jumbo jet? Pretty well every bank in the world can get access to fairly large amounts of new central bank money when it uses the central banks payments systems for RTGS which are operated at the central bank where the central bank has an interest in an orderly payment system. Banks have deposits with the banks they commonly deal with which earn LIBOR or some agreed rate and have prearranged lines of credit as their prearranged funding. I have already produced references that show the money multiplier as a limiting factor in loan creation is a fiction. My references were all from respected central bankers or their publishing houses and all were published on their web sites i think

>>>LK

Commercial banks lend out some fraction of the excess reserves which they hold, and do not lend out more than the excess reserves they have on hand, unless they have made arrangements to borrow funds from another institution. It takes many rounds of lending and re-lending for the full multiplier effect to play out.

>>>AEJ. As i have already described the institution the banks all deal with to wire funds required to settle a loan as spent money electronically, is the banks central bank and they all? allow an amount of daylight overdrafts, the feds does not want collateral up to a certain amount nearly every other bank has arrangements either directly or indirectly to enable the bank to repo funds to get bankers balances it requires as required with no stigma attatched

>>>LK

Holding high-powered money constant, the amount of broad money in the system is limited by either the statutory reserve requirements or other financial ratios (e.g. Basel II capital requirements) imposed by the central bank (or other regulatory agencies).

>>>AEJ. If you consider the following special case you can see what i mean on the topic of how banks create loans by a process of intermediation between customers with different needs. A bank can inform one of its customers that a loan is agreed and available that is to be used to buy an asset or service from another of the banks own customers. The created and already spent loan deposit will happen without existing money being required, and can be prefunded by a line of credit with another bank. The bank just created the new savings without pre-existing savings being required. An unused but agreed Heloc requires no prearranged funding but is effectively cleared funds and is a new savings deposit as a secured loan not paying interest. Banks can unilaterally cancel a line of credit but it is poor practice

>>>LK

The actual multiplier is not equal to 1/rr (as defined in some textbooks). 1/rr is a conceptual simplification, much like escape velocity is a simplification (in that it doesn't take into account direction of movement, air resistance, the rotational velocity of the Earth, launching from different altitudes, etc.). The three main issues that it ignores are:
- Cash held by the public, and excess reserves held by the banks, reduces the actual multiplier.
- In many jurisdictions, the reserve requirement is not binding, instead the Basel II related capital requirements are what determine the multiplier.

>>>AEJ. Few countries have reserve requirements - which is in direct contradiction to the current page. At the fed no bank is required in all circumstances to have reserves already present before it wires loan money in excess of the currently available reserves to another bank. It can get the money as required once it requires those reserves where naturally the bank is continually mindful that it has to have rock solid methods of getting reserves when required and for each maintenance period it must average the required number of reserves for those reserveable deposits or pay an interest rate penalty. Then we get to Basel which does not have much to say about reserved quanties of cash or bankers balance but is rather concerned with the overarching ability of the bank to have a chance of meeting customers requirements in a safe prudent manner where there is a vast money market present to enable highly liquid assets to be converted to those assets that are required for customer redemptions.

>>>LK

- There are several multipliers, one for each definition of broad money (M1, M2, M3).
The demand for money influences the supply of money:

>>>AEJ. Exactly. If i demand a loan the bank can borrow the money from another bank or the feds and the fed pays no attention to this at all unless it decides inflation is too high and it raises the interest rate i will pay so that i am discouraged from getting a loan to spend money in the already overheated economy. Do you really think in the current situation the banks are going to be made to jump thru hoops to give me a loan when i have solid first class quality collateral and other people are hungry and desparate to receive my created money deposit which can barely create any inflation in the current deflationary environment whatsoever dispite massive government interventions????? Anyway whatever you think there is no evidence that banks are restrained in the manner you believe when they have other vast piles of highly liquid assets that are not cash or bankers balances. Come on!! Do you really think a bank with a trillion in gold is prevented from getting some reserves and is forbidden by some law that does not exist to create a loan and wire it off to my seller???? How can you possibly think that?

>>>LK

- Most central banks target interbank interest rates, not the quantity of money. An increase in the demand for money will cause interest rates to rise, and so cause an expansion of money supply as the central bank attempts to reduce the interest rate.

>>>AEJ. OK. Now i see where in my view you are going wrong here. It felt a bit personal. :-) Banks are targetting inflation also. It does not matter how much money is produced today where they know there are long limits in money creation where newly created reserves have to ripple thru the system in a similar manner as the money multiplier correctly outlines. My small loan is not going to cause the feds to change their monetary policy where they are already anxious in many cases for their to be greater lending activity as for example when they lower interest rates. Yes they have a cash rate target they will rigidly adhere to, but meanwhile they prevent the cash rate from being bid up by lending in an unlimited manner to the market to drive it back down to the target.

>>>LK

- A spike in money demand can cause banks to run out of ready cash, in such a situation (essentially a financial crisis) the central bank will step in to lend directly to the commercial banks (as lender of last resort), thus expanding the money supply directly.

>>>AEJ. To be clear here - which is what we are hoping to achieve, cash is not bankers balances. Banks with bankers balances can automatically get cash from the feds. Bankers balances in the system cannot leave the system unless the Central bank removes them via monetary operations or loans are repaid to central banks. In practice it is hard to imagine a situation where all banks have a bank run and confidance is so low that the public rush for the safety of paper banknotes. So in practice money will flow to the stronger banks who will not require the banknotes thus enabling the other banks to get them at around the cash rate.

>>>LK

- The fact that central banks respond and largely accommodate changes in money demand is related to the endogenous money models of the post-Keynesians.

>>>AEJ. If so then the central bankers are 'post-Keynesians'. The central bankers tell us this is normal practice where inflation targetting is in place and the bank will lend in an unlimited manner to keep the cash rate near to the target. Monetary ideas of a fixed quantity of money have been out of fashion for around two decades.

>>>LK

As far as the article is concerned, I think the article could make clearer exactly what simplifications are being made, and could discuss heterodox views a bit more. However, I think a more in-depth discussion about issues surrounding the money multiplier is best reserved for other pages (e.g. Basel II, money multiplier).

>>>AEJ. What we appear to need to focus on is the way central banks target inflation and are prepared to lend in an unlimited manner to prevent the cash rate from rising while they are vigilant about their inflationary concerns between meetings and so forth. I think you must already know this but it seems the main point of difference between us?Andrewedwardjudd (talk) 15:56, 6 April 2011 (UTC)andrewedwardjudd

LK, After writing that reply i noticed you had said the following earlier where you said one of my replies was creating difficulties for you. In the interests of clarity i think it is better i reply to this rather than let it go.

>>>LK. "Also, the blog is quite obviously wrong for the simple reasons that I pointed out in the discussion above. It makes a basic logical mistake about the sourcing of reserves, saying that to get more money for reserves, a bank just buys 1000 in bonds and then sells it to the central bank to get 1000 in reserves. But where is the 1000 to buy the bonds coming from in the first place? It also misunderstands or misrepresents Goodhart's position, which is essentially a post-Keynesian endogenous money view. You're claiming that the blog is not in fact wrong does little to convince me otherwise"

However, in fact what i said earlier and i did my best to be pretty clear about it: "You dont seem to realise the Bank of england allows same day repos during real time gross settlement" Where my point was that Reissgos point was supported rather than trashable as you keep wanting to get people to believe. Obviously a bank can have quality securities and use them to get central bank reserves during the day in many of its settlement operations created by lending activity. Obviously a bank that is not required to have reserves prefers to have higher interest earning gilts than it does low paying reserves where importantly it knows the BOE is going to provide liquidity as required during settlement if it is short. So if it does not think it will be short it aims for profits from interesting earning GBP securities but if it is short it can get reserves back. It is irrelevant the blog was mixed up if that is in fact the case.

But interestingly this is what you said:

"the writer is mistaken in assuming that the Bank of England is under obligation to buy government bonds on demand. Central banks do not buy government bonds from commercial banks at the request of commercial banks. They buy bonds from the market at their own discretion, when they want to conduct expansionary monetary policy." Lawrencekhoo 03:45, 25 November 2010 (UTC)

Followed later by this from BigK

"My problem with the various descriptions of an endogenous money process is that they still require the complicity of the central bank. If the US banking system is severely short of reserves, and the Fed decides to engage in policy which is not sufficiently expansionary, then banks caught speculating that reserves would be found later could then find themselves heavily penalized or even seized. It would take an unbelievable amount of shortsightedness for a banker to ignore the threat of this scenario, so -- even in a world where lending leads reserves -- to say that reserves play no role in constraining lending seems pretty extraordinary...snip.....my basic point is that the success of a bank's strategy where lending leads reserves can only succeed where the central bank is accomodative, which still leads to the central bank ultimately responsible for constraints through the reserves they are willing to inject."BigK 16:44, 25 November 2010 (UTC)

Neither of you seem to be aware that all? central banks are providing daylight/intraday liquidity to the payments systems to facilitate an orderly operation of the central bank operated real time gross settlement systems such as Fedwire and CHAPS in the UK. The references you have deleted have highlighted fedwires daylights overdrafts and have been copied in below.

On BigKs other comments, if the US banks are short of reserves and the feds dont accomodate them then the impact would be massively contractionary of the money supply where all banks scrambled for whatever cash they could get from whatever source anywhere in the world which would drive the nominal actually paid federal funds rate massively higher so that only the strongest banks survived while the economy imploded, but the fed has explicitly made it crystal clear that it will engage in an accomodative monetary policy to ensure inflation is maintained at the desired rate and there is no chance the fed is going to kill off the banks and create massive deflation. What actual scenario is Bigk thinking the banks should be concerned about? In the event that central bankers decided to go back to targetting monetary aggregates it would be very well signalled before it happened where for example all of the central banks would reinstate their progressively dismantled required reserve frameworks where obligations to maintain required reserves either dont exist now or are fairly modest in restricting lending due to absense of reserve limitations at many points in time where averages over a period are employed rather than absolute values moment to moment and where in any case a bank can get intraday reserves on demand up to considerable amount of money and can go to the discount window for a modest penalty.

Additionally it is not correct to say that reserves play no rule in restraining all lending. If a bank cannot get reserves then it cannot operate a bank. But it is correct to say that a particular bank with adequate liquid assets to satisfy other market participants and a fed willing to assist if necessary with already published and agreed automatic overdrafts of hundreds of millions of dollars does not need to be concerned about its good ability to get whatever reserves it requires when necessary when it can for example just draw on prearranged lines of credit or calleable wholesale deposits or ultimately the discount window for what is actually a very small penalty relatively speaking.

In our world today the banks focus on loan creation and satisfying their own monetary policies of caution or market share creation and the central banks interest rate policies focus on discouraging people from taking out loans that lead to more credit creation when inflation is a concern or focus on policies that are neutral or expansionary. 21:34, 6 April 2011 (UTC)andrewedwardjudd

This all sounds like an endogenous money viewpoint, which as I've said before, I largely agree with, and think the article could do a better job explaining (properly written and cited of course). I think you are mistaken that the Fed intraday liquidity facility plays an important role in credit creation, as it's supposed to be a very short-term clearing-house facility. Also, if you read "Modern Money Mechanics" from the Federal Reserve Bank of Chicago in its entirety, it is quite clear that they are in the 'reserves and the multiplier limit money creation' school of thought. But let's not get into arguments about exactly who is right or who is wrong on specific institutional details and the implications of those institutional details as these are irrelevant to the larger issue. More importantly, you highlight as where we differ most that:

Now i see where in my view you are going wrong here. It felt a bit personal. :-) Banks are targetting inflation also. It does not matter how much money is produced today where they know there are long limits in money creation where newly created reserves have to ripple thru the system in a similar manner as the money multiplier correctly outlines. My small loan is not going to cause the feds to change their monetary policy where they are already anxious in many cases for their to be greater lending activity as for example when they lower interest rates. Yes they have a cash rate target they will rigidly adhere to, but meanwhile they prevent the cash rate from being bid up by lending in an unlimited manner to the market to drive it back down to the target.

I don't understand your point here at all. As far as I can make out, we are largely in agreement. In the short run, under normal circumstances, since Central Banks target interbank rates, any change in money demand is accomodated by the Central Bank. Over the long run, Central Banks change interest rate targets to respond to inflation, and this of course limits the money supply in the long run. This is my view, and as far as I can tell, is your view as well.

If you wish to work improve this page, a specific description for what you would like to change (keeping to one issue first) is probably the best way to go forward. I'm happy to work on the page to better describe mechanics of money creation when Central Banks target interest rates (essentially a version of the endogenous money view).

LK (talk) 02:28, 7 April 2011 (UTC)

LK, You are muddled up.

What you are totally missing , is that the combined banks in the USA have the ability to borrow tens of billions of dollars without collateral on demand every day which creates tens of billions of new deposits in other banks which are in turn sending new deposits to banks with reserve insufficiencies who got overdrafts. Importantly because the money multiplier exists as a transmission mechanism this means all the banks that create overdrafts are going to get many new extra deposits which would not have been possible without the intraday liquidity so that the speed of the transmission is going to be much faster than and all the new deposits they get will pay down the overdrafts where those banks with excess reserves will lend them to those with reserve insufficiencies and where if the federal funds rate rises the feds will step in with unlimited liquidity to ensure the banks have the reserves they need at the target rate.

You are constantly claiming there are impossible to surmount issues before you can change your opinion when there are none at all.

Further a reference on the current page used to support your argument has as the very next paragraph:

Reserve Requirements and Money Creation <Snip passage cited in wiki illustrating your opinion>

In practice, the connection between reserve requirements and money creation is not nearly as strong as the exercise above would suggest. Reserve requirements apply only to transaction accounts, which are components of M1, a narrowly defined measure of money. Deposits that are components of M2 and M3 (but not M1), such as savings accounts and time deposits, have no reserve requirements and therefore can expand without regard to reserve levels. Furthermore, the Federal Reserve operates in a way that permits banks to acquire the reserves they need to meet their requirements from the money market, so long as they are willing to pay the prevailing price (the federal funds rate) for borrowed reserves. Consequently, reserve requirements currently play a relatively limited role in money creation in the United States.

But the reference in the FRB page is misleading written as:

An explanation of how it works from the New York Regional Reserve Bank of the US Federal Reserve system. Scroll down to the "Reserve Requirements and Money Creation" section. Here is what it says: "Reserve requirements affect the potential of the banking system to create transaction deposits. If the reserve requirement is 10%, for example, a bank that receives a $100 deposit may lend out $90 of that deposit. If the borrower then writes a check to someone who deposits the $90, the bank receiving that deposit can lend out $81. As the process continues, the banking system can expand the initial deposit of $100 into a maximum of $1,000 of money ($100+$90+81+$72.90+...=$1,000). In contrast, with a 20% reserve requirement, the banking system would be able to expand the initial $100 deposit into a maximum of $500 ($100+$80+$64+$51.20+...=$500). Thus, higher reserve requirements should result in reduced money creation and, in turn, in reduced economic activity." The link to this page is: http://www.newyorkfed.org/aboutthefed/fedpoint/fed45.html

What kind of process went thru the writers of the wiki FRB page that they could have allowed that bias and blatant ramping of a personal opinion to exclude the real world realities????????

Editors here are constantly claiming that real world realites are impossible and they are simply replacing reality with opinion. — Preceding unsigned comment added by Andrewedwardjudd (talk • contribs) 07:52, 7 April 2011 (UTC)

I remain unconvinced that the intraday liquidity facility plays any large role in credit creation, as the Fed themselves claim that it does not. Also, in the US, reserves actually play very little role in restraining lending, because the reserve requirements are often not binding. Instead, the Basel II financial ratios are what restrains lending in most banks in the US, so the quote above is not surprising. The article could be clearer about this point – it is one of the things that needs to be cleaned up on this page.

But again, let's not get into who is right or wrong about institutional details, and please don't throw insults about such as 'bias and blatant ramping of a personal opinion'. If you keep your responses shorter and more to the point it would be better for everyone. I did not write that paragraph that you cited above, but it reflects the 'textbook view', and it serves as a good introduction to the concept of money multiplication.

Back to the point. You seem to have feel that large parts of this page needs to be changed. The way to go forwards to improve the page is to actually propose a change, with a proper cite to back up the change. Let's not play the game about who is right or wrong about different issues. Wikipedia is not a forum LK (talk) 08:18, 7 April 2011 (UTC)

Arbitary break II

LK

You appear fixated on driving this agenda of yours that text books should trump what the federal reserve says. We already have text books that disagree with you sited on this very page earlier from decades ago. Earlier you said:

>>>LK: if you read "Modern Money Mechanics" from the Federal Reserve Bank of Chicago in its entirety, it is quite clear that they are in the 'reserves and the multiplier limit money creation' school of thought.

In fact the absolutely first paragraph of the booklet clearly says otherwise:

The purpose of this booklet is to describe a basic process of money creation in a "Fractional Reserve" banking system. The approach taken illustrates the changes in bank balance sheets that occur when deposits in banks change as a result of monetary action by the Federal Reserve System - the central bank of the United States. The relationships shown are based on simplifying assumptions. For the sake of simplicity, the relationships are shown as if they were mechanical, but they are not, as is described later in the booklet. Thus, they should not be interpreted to imply a close and predictable relationship between a specific central bank transaction and the quantity of money.

It seems at every opportunity you want people to believe that the text book mechanical simplification is the only allowable version of reality and nothing anybody else says can get the page altered.

Obviously if reserves play little role in credit creation then additional liquidity also plays little role in credit creation because the banks can borrow all they want at the federal funds rate.

The only reason i mentioned the automatic overdrafts was

1. You told Reissgo the BOE would not Repo on demand and therefore Reissgo was wrong and you were right

2. if you will allow that the bank can get automatic overdrafts then we dont have to wade thru the reserve maintenance manuals to show you that banks are not required to have absolutely reserves in place in the mechanical kind of way that is shown in text books where you are attempting ram the simplifications in text books into reality as if they are absolutely factual.

So all we have now is your belief that banks must have excess reserves before they create loans.

From where have you got that notion?? — Preceding unsigned comment added by Andrewedwardjudd (talk • contribs) 09:19, 7 April 2011 (UTC)

Kindly try to be polite, it is a basic pillar of Wikipedia; being impolite can get you banned from Wikipedia. I've tried my best to be polite with you. Since you want to play the 'You're Wrong, I'm Right' game, I will answer your charges this ONE time. But don't expect me to be accommodating again.

In answer to #1. I was responding to Ressigo's claim that the arguments in that blog entry "indicates that much of the FRB article is wrong", because it makes "reference a highly qualified author". I pointed out to him that the blog entry quotes Goodhart wildly out of context, misunderstanding his viewpoint completely. And that it makes 2 logical mistakes. First, it claims that a bank can get reserves if it "buys a government bond for £1,000 and sells it to the Bank of England for £1,000", forgetting that the bank needs £1,000 in cash with which to buy the bond in the first place. And second that the Bank of England has no legal obligation to buy government bonds on demand, and that in general Central Banks buy government bonds as part of monetary policy conducted at their discretion. Your point that the BOE has a gilt repo facility is beside the point. AFAIK, the gilt repo facility is a discretionary measure. The BOE can change the guidelines of the repo facility at any time. They have no legal obligation to buy a gilt on demand. Even if I am wrong and there is now a non-discretionary gilt repo facility, this does not make Ressigo right about his assertion that the blog entry somehow proves that "much of the FRB article is wrong", so don't try to paint Ressigo as some sort of wronged martyr here.

In answer to #2. The function of the intraday liquidity facility is to cover banks' clearing house accounts over the course of the day. The Fed itself doesn't make a big deal about it, and they don't state anywhere that this facility somehow negates reserve requirements. As detailed in "Modern Money Mechanics", any credit extended through this facility must be returned at the end of the day. It doesn't affect the required reserve calculation. I don't disagree that increased money demand will lead to increased supply though open market operations, but this is a completely separate issue.

Additionally, I've never argued that "banks must have excess reserves before they create loans". My view is that banks usually do not lend out more than the excess reserves they have on hand, unless they have an arrangement(s) to borrow funds. Some banks may be particularly agressive about extending loans, and regulations in some countries may encourage such behavior. The banks that I have experience of have been fairly conservertive, and use a centralized loan department to keep tight control on loans extended. I do not doubt that some US banks behave much more agressively.

I did not write most of this article. I do not appreciate your asssertion that I am "fixated on an agenda" to push the textbook viewpoint above all else. I can imagine that the original authors of this article were trying to lay out basic details as found in most university textbooks. I see no problems with this. Most Wikipedia economics articles are in such bad shape that replacing their contents with abridged textbook chapters would usually be an improvement. I have stated several times that the description of the money creation process in the article can be improved. I gather that this is what you wish to do as well. Kindly STOP insulting me, unless you have a deep-seated need to make enemies of potential allies. People contribute here for free, and will likely contribute effort to improve the page only if it stays fun.

Lastly, kindly try to keep your posts short and to the point. Please express your main argument clearly, and try to focus on one main point at a time. Several of your paragraphs above are too long and so badly written as to be nearly indecipherable. I'ld also like to remind you that this talkpage is NOT a Forum, any off-topic material not directly related to improving this page may be removed. It would also be helpful if you detail your background and your training, so that the others here may know the viewpoint that you are arguing from.

LK (talk) 11:47, 7 April 2011 (UTC)

LK, If you avoid threatening editors with being blocked or implying they are dishonest, or suggesting they cannot read the document you appear to be unable to read yourself, you might find you get an outcome that is kinder to you. From my point of view you seem overly focused on text books that agree with you and it seems reasonable to share that thought with you.

Meanwhile the second paragraph of the FRB text begins:

"When cash is deposited with a bank, only a fraction is retained as reserves and the remainder can be loaned out (or spent by the bank to buy securities). The money lent or spent in this way...."

This idea about having deposits randomly arriving at banks before the banks can then create a loan is a fiction. I provided citations to show that and you deleted them. Later it seems you informed me that modern money mechanics supports the viewpoint in that sentence and I pointed out the first paragraph showed you were mistaken.

A fractional reserve bank can retain current excess reserves as required reserves and lever any on demand created money deposits as it wishes within that framework. The wiki version amounts to a fiction that no reputable central banker would agree with. I have already provided good references on this. Banks lever up their balance sheets by creating money where importantly they have to have the ability to meet whatever liabilities this behaviour creates.

Banks have prearranged lines of credit. They have calleable deposits ie loans to other banks. They have on demand daily overdrafts from their central banks or on demand repos, and they have access to a highly liquid money market where they have large amounts of assets that are easily made liquid electronically using the central banks own payments systems and so forth ad nauseum. And when that all fails they have access to the discount window or standing lending facilities to get whatever funds they require if they miscalculate.

>>>LK, My view is that banks usually do not lend out more than the excess reserves they have on hand, unless they have an arrangement(s) to borrow funds

Banks routinely have these arrangements and for a discussion at this level it unnecessary to labour the point as if it was unusual. By writing it like that when it is a given there are extensive official and private arrangements to borrow funds, you appear to be creating a meaning that does not exist in modern banking.

I have done my best to answer all of your points as best as i can.

What you said about temporary overdrafts was incomprehensible in the light that any participant who cannot get reserves later from other banks, will then bid up the cash rate and will ultimately be able to get reserves from the feds. You know all of this.

Nothing is changing and we need to resolve this via discussion before we go to arbitration. 15:43, 7 April 2011 (UTC)andrewedwardjudd — Preceding unsigned comment added by Andrewedwardjudd (talk • contribs)

I think it's becoming safe to conclude that Andreedwardjudd is more interested in soapboxing than suggesting and compromising on any edits. BigK HeX (talk) 18:31, 7 April 2011 (UTC)

BigK, I have just quoted the second paragraph of the WikiFRB as something I would like to see changed. Your comments are unjustified. Andrewedwardjudd (talk) 20:12, 7 April 2011 (UTC)andrewedwardjudd

Make a suggestion on how you think the text should read. Then we might actually see what you're trying to get at, instead of having to wade through your walls of argumentative banter. BigK HeX (talk) 21:09, 7 April 2011 (UTC)

BigK, In fact i have now removed that request for a citation on that second sentence because the sentence is obviously talking about a cash deposit.

I have also been going thru the archives and can see earlier discussion of this page where people have emphasised the article has to be simple and accessable for people of all ages and backgrounds. I actually think that only a cash based fractional reserve banking system is something that people of all ages and backgrounds could understand.

And my main problem with the current page is that it more or less demands that FRB behaves like a cash based system rather than two forms of CB money and one form of created commercial bank money.

So where in fact to begin? I want to see more citations to reflect real world banking such as for example this from modern money mechanics:

Of course, they do not really pay out loans from the money they receive as deposits. If they did this, no additional money would be created. What they do when they make loans is to accept promissory notes in exchange for credits to the borrowers' transaction accounts. Loans (assets) and deposits (liabilities) both rise by $9,000. Reserves are unchanged by the loan transactions. But the deposit credits constitute new additions to the total deposits of the banking system.

And i already supplied a couple from present well respected central bankers about difficulties of the money multiplier taught to students and how banks lever up their balance sheet by creating money only limited by their need to manage the implications their liabilities brings for them.

If this wiki is going to have a NPOV it has to have this kind of thing in rather than the mechanically rigid simplification currently described.

Andrewedwardjudd (talk) 21:38, 7 April 2011 (UTC)andrewedwardjudd

LK, Here is the BOE same day repo information

http://www.bankofengland.co.uk/markets/paymentsystems/

Andrewedwardjudd (talk) 20:12, 7 April 2011 (UTC)andrewedwardjudd

Please don't bold someone elses words when you quote them, as you did above to mine, unless you also note that you did so (e.g. bolding added). You accuse me of impoliteness; I'll invite you to review carefully all the words that I have written to you, and compare them with the words you've directed at me. On the whole, I have been polite and informed you of Wikipedia policy, which is significantly different from other wiki's and forums.

I'll respond once more to your arguments, but I again note, this is NOT a Forum. Don't expect any further replies from me, except in response to actual edits to the article itself.

The link that you give above points to a BOE page that describes their clearing house facility. It does not say anything about any non-discretionary gilt buyback facility, which is the point I made.

I've just read through the entire Modern Monetary Mechanics document. They present a pretty much 'textbook story' account of money creation with some caveats; I stand by my initial assessment that they're in the 'reserves and multiplier limit money creation' school of thought. The quote you give above does not mean what you seem to imply that it means. I give the full context below (with the quoted text italized). LK (talk) 02:31, 8 April 2011 (UTC)

How the Multiple Expansion Process Works
If the process ended here, there would be no "multiple" expansion, i.e., deposits and bank reserves would have changed by the same amount However, banks are required to maintain reserves equal to only a fraction of their deposits. Reserves in excess of this amount may be used to increase earning assets - loans and investments.
Unused or excess reserves earn no interest Under current regulations, the reserve requirement against most transaction accounts is 10 percent. Assuming, for simplicity, a uniform 10 percent reserve requirement against all transaction deposits, and further assuming that all banks attempt to remain fully invested, we can now trace the process of expansion in deposits which can take place on the basis of the additional reserves provided by the Federal Reserve System's purchase of U.S. government securities.
The expansion process may or may not begin with Bank A, depending on what the dealer does with the money received from the sale of securities. If the dealer immediately writes checks for $10,000 and all of them are deposited in other banks, Bank A loses both deposits and reserves and shows no net change as a result of the System's open market purchase. However, other banks have received them. Most likely, a part of the initial deposit will remain with Bank A, and a part wil be shifted to other banks as the dealer's checks clear.
It does not really matter where this money is at any given time. The important fact is that these deposits do not disappear. They are in some deposit accounts at all times. All banks together have $10,000 of deposits and reserves that they did not have before. However, they are not required to keep $10,000 of reserves against the $10,000 of deposits. All they need to retain, under a 10 percent resenre requirement, is $1,000. The remaining $9,000 is "excess reserves." This amount can be loaned or invested. If business is active, the banks with excess reserves probably will have opportunities to loan the $9,000. Of course, they do not really pay out loans from the money they receive as deposits. If they did this, no additional money would be created. What they do when they make loans is to accept promissory notes in exchange for credits to the borrowers' transaction accounts. Loans (assets) and deposits (liabilities) both rise by $9,000. Reserves are unchanged by the loan transactions. But the deposit credits constitute new additions to the total deposits of the banking system.

LK, You are misquoting Wiki policy. They say: "bear in mind that talk pages exist for the purpose of discussing how to improve articles. Talk pages are not mere general discussion pages about the subject of the article,"

We have never been having a general discussion about FRB. Instead i am attempting to get changes made to the FRB pages that you are deleting. This discussion exists to improve the FRB wiki. This discussion has the purpose of finding out what you keep deleting my changes to the FRB board. And it appears the reason you are deleting my changes is you have a very strong opinion that some text books you have read are correct and everybody else is wrong.

I invite everybody to see for themselves the available data.

Modern money mechanics begins with and has my bold added:

The purpose of this booklet is to describe a basic process of money creation in a "Fractional Reserve" banking system. The approach taken illustrates the changes in bank balance sheets that occur when deposits in banks change as a result of monetary action by the Federal Reserve System - the central bank of the United States. The relationships shown are based on simplifying assumptions. For the sake of simplicity, the relationships are shown as if they were mechanical, but they are not, as is described later in the booklet. Thus, they should not be interpreted to imply a close and predictable relationship between a specific central bank transaction and the quantity of money.

And later says:

In the real world, a bank's lending is not normally constrained by the amount of excess reserves it has at any given moment. Rather, loans are made, or not made, depending on the bank's credit policies and its expectations about its ability to obtain the funds necessary to pay its customers' checks and maintain required reserves in a timely fashion. In fact, because Federal Reserve regula- tions in effect from 1968 through early 1984 specified that average required reserves for a given week should be based on average deposit levels two weeks earlier ("lagged" reserve accounting), deposit creation actually preceded the provision of supporting reserves. In early 1984, a more "contemporaneous" reserve accounting system was imple- mented in order to improve monetary control.

Your response so far to this totally clear text is:

"The quote you give above does not mean what you seem to imply that it means.

they're in the 'reserves and multiplier limit money creation' school of thought"

Wiki is supposed to have a NPOV.

Further you seem to have some need to mislead me into thinking i cannot discuss this here with you by driving your own personal opinion of the talk page policy. Wiki is not a soapboard for you to drive your personal thoughts. Wiki is supposed to be creating a neutral representation of things that exist in our world rather than in your own mind.

People deserve a neutral point of view.

They deserve to hear from other points of view such as these from respected central bankers

http://www.rba.gov.au/speeches/2008/sp-gov-150508.html

Glenn Stevens Governor of the Reserve Bank of Australia

money multiplier, as an introduction to the theory of fractional reserve banking. I suppose students have to learn that, and it is easy to teach, but most practitioners find it to be a pretty unsatisfactory description of how the monetary and credit system actually works. In large part, this is because it ignores the role of financial prices in the process

http://www.bankofengland.co.uk/publications/speeches/2007/speech331.pdf

Paul Tucker Deputy Governor of the Bank of England

Subject only but crucially to confidence in their soundness, banks extend credit by simply increasing the borrowing customer's current account, which can be paid away to wherever the borrower wants by the bank 'writing a cheque on itself'. That is, banks extend credit by creating money. This 'money creation' process is constrained by their need to manage the liquidity risk from the withdrawal of deposits and the drawdown of backup lines to which it exposes them. Adequate capital and liquidity, including for stressed circumstances, are the essential ingredients for maintaining confidence. End Quote.

For the record i am not saying the money multiplier is not part of the mix, but i am saying it cannot be applied in the slavishly mechanical way that you are saying it must be applied.

This will now go elsewhere for action so that other editors can have a go at bringing balance to the FRB pages. — Preceding unsigned comment added by Andrewedwardjudd (talk • contribs) 06:51, 8 April 2011 (UTC)

As I explained to you above, I and the other editors here likely don't object to the ideas and references you wish to add, however, your edits weren't properly wikified and cited. You were reverted not because of the ideas themselves, but because they were not added appropriately.

You seem to be trying to goad me into a fight, with your on-going insults and accusations of a hidden agenda. Please stop. To help you achieve the admirable goal of self-restraint, I will not be responding further to any of your personal comments. LK (talk) 07:24, 8 April 2011 (UTC)

LK,

LK>>>The link that you give above points to a BOE page that describes their clearing house facility. It does not say anything about any non-discretionary gilt buyback facility, which is the point I made.

A settlement bank can send one billion in loan money to a counterparty using a same day on demand Gilt repurchase agreement where the BOE agreed to do this last century and they can then transfer the security to an overnight reverse repo.

http://www.bankofengland.co.uk/markets/paymentsystems/

The Bank supports the timely settlement of CHAPs payments through its provision of additional intraday liquidity to the settlement banks; this is provided via same-day repos of eligible securities between the CHAPS banks and the Bank.

A settlement bank can also use the Standing Lending Facility to get Reserve balances via Repo at 1.0% over base rate where the standing facility is available any time they want it for those banks who have signed up to the facility. The standing deposit and lending facilities create a corridor either side of the BOE policy target rate. If the market rate rises above the standing lending facility rate then bank borrowing to get their required reserves, increases the total reserves in the system to bring the rate back down again and this happens totally automatically.

http://www.bankofengland.co.uk/markets/money/publications/redbookjan08.pdf

154 The standing lending facility is for overnight reverse repo against eligible collateral. On those terms, both standing facilities are available in unlimited size.

All those institutions signed up to standing facilities are able to pre-position collateral with the Bank49 to facilitate timely settlement in the standing lending facility. 155 The standing facilities are available all day.

Where settlement banks have already transferred collateral to the Bank in support of RTGS payments and CREST securities settlement activity, they are permitted to move it for use in the standing lending facility at any time up to 16.15, or until 16.30 if the proceeds are to be transferred to their reserves account.

Andrewedwardjudd (talk) 10:25, 8 April 2011 (UTC)andrewedwardjudd

This edit introduces cites and quotes into footnotes that do not support the sentence that the footnotes are attached to. This is inappropriate and contradicts Wikipedia policy. Please refer to WP:Cite and WP:QUOTE for our policy on how to properly use quotes and inline citations.

It also breaks the WP:3RR rule. Andrewedwardjudd, I suggest that you self-revert the edit.

LK (talk) 12:08, 8 April 2011 (UTC)

The violation of the 3RR rule has been reported here.[7] Please stop edit warring. LK (talk) 15:50, 8 April 2011 (UTC)

The citations support the changes made that reserves do not limit the amount of money created because of the numerous in practice methods of getting reserves on demand as required if the banks can justify the price of obtaining reserves.

>>>AEJ: It also breaks the WP:3RR rule. Andrewedwardjudd, I suggest that you self-revert the edit.

Incorrect and please refrain from these silly attempts to act like you are an authority here.

You evidently lack knowledge of modern banking. The only way of accessing Reserve balance accounts is via the RTGS systems. Settlement banks in the UK have agreed procedures for getting money via Repo of elligible securities. Either thru RTGS when they send the required loan money or via the Standing lending facility.

Banks in Canada deposit securities each morning for intraday credit

Australian banks can repo at zero interest during RTGS using eligible pre registered securities.

American banks can get an unsecured overdraft via Fedwire.

And in all cases these temporary loans can be converted to overnight loans at a higher interest cost.

Wiki is supposed to be neutral and I would say a place of enjoyable learning.

All anybody has to do here is open their mind and begin learning to enjoy the experience. Andrewedwardjudd (talk) 08:56, 12 April 2011 (UTC)andrewedwardjudd

The wiki FRB is just wrong as written

1. Banks do not allow all customers to withdraw all demand deposits upon demand.

Firstly they scarely have any cash in the branches because it is cheaper to store it off site in secure locations. Anybody who has used a bank over the years will know you are required to wait or come back by appointment if you want more than about 2000 units of currency.

Secondly they need to liquidate assets to enable all customers to withdraw on demand

2. Banks do not lend their customer deposits in the manner that wiki is describing.

Banks do not need retail depositors until they have loan customers where in many cases they can borrow the buyers loan monies from the sellers bank because they already have a deposit account created in favour of the sellers bank which can be credited when the loan is transacted so they do not need the cost or inconvenience of sending money in real time. Further if they do not have relationships with the other bank or if their lines of credit are exceeded they can get money in real time from the central bank and convert that automatically with collateral for longer terms. Etc etc etc.

Banks get retail depositors because the banks offer them services and therefore do not require to pay them much interest - unlike the wholesale deposits they get from other sources. But overnight wholesale sources are a minor cost to a bank over the lifetime of a loan.

The banks are just not relending their depositors money as we are showing

How about we explain frb has it really happens? Is that not what an enclopedia should be all about? Dont you think people would be really interested to know how a bank really operates?

Dont you think people would be fascinated to know the BOE has privatised all of its cash handling operations and transferred these responsibilities on to banks and cash handling companies who maintain warehouses of the BOE's off balance sheet cash? Is this forbidden knowledge when it is plastered all over the BOE website for anybody who can find it there?

The foremost expert in central banking economic processes in the english speaking world has clearly stated the text book methods of illustrating FRB are rubbish.

Meanwhile wiki promotes the usual nonesense. Why? How can it be possibly be a neutral point of view to provide such a rediculously inaccurate point of view?

How can it be possible that the foremost expert in the world has said that people like Basil Moore and the postkeysians were right all along when this page insists these people are weird fringe wackos?

http://www.bankofengland.co.uk/publications/events/ccbs_cornell2007/paper_6goodhart.pdf

Whatever became of the Monetary Aggregates?

By Charles Goodhart 2007 page 5 Note, however, that so long as the Central Bank sets interest rates, as is the generality, the money stock is a dependent, endogenous variable. This is exactly what the heterodox, Post- Keynesians, from Kaldor, through Vicky Chick, and on through Basil Moore and Randy Wray, have been correctly claiming for decades, and I have been in their party on this.

We have text above by Wray and nothing changed in the wiki.

"A good ref is Wray's Understanding Modern Money p 107 et seq. The Myth of the Money Multiplier. As he says, "The money multiplier concept reverses the direction of causation: changes in the money supply cause changes in bank reserves and the monetary base, not vice versa."John Z (talk) 07:07, 21 November 2010 (UTC)" . Andrewedwardjudd (talk) 08:56, 12 April 2011 (UTC)andrewedwardjudd

Policy does NOT allow articles to be rewritten from a minority point-of-view. BigK HeX (talk) 14:02, 12 April 2011 (UTC)

The alternative idea is being properly explained to give the article balance where the first valid explanation was vandalised rather than having a reference removed. Nothing is being rewritten. You are deleting properly cited explanations for no reason at all - more vandalism.

What is more you are demanding citations from central bankers and then pretending they were not provided.

As for the citations for on demand deposits. It is not possible for a fractional reserve bank to supply all the depositors money on demand. The bank does not have the money so it can never be supplied on demand. It would need to be a full reserve bank for it to be supplied on demand but it is not. It is a fractional reserve bank. It is against NPOV to say a fractional reserve bank can return all depositors money on demand. Some banks might be able and many could not. The bank is always going to need assistance from friendly banks to achieve return all of the depositors money.

The wiki should be written to reflect what is already known and true and obvious. — Preceding unsigned comment added by Andrewedwardjudd (talk • contribs) 15:03, 12 April 2011 (UTC)

To claim that "nothing was rewritten" in your proposed edit is just being disingenuous. We can clearly see in your edit that you are attempting to rewrite portions, and this appears done so as to promote a minority viewpoint. BigK HeX (talk) 16:10, 12 April 2011 (UTC)

It is just the same thing paraphrased. with the citations that were earlier deleted for no good reason. It cannot be honestly described as being rewritten. I am presenting the alternative view to the one promoted by the wiki and you are preventing me from explaining fully why it is an alternative view by deleting the text i add. I am not required by wiki policy to add the same text again when an editor deletes it.Andrewedwardjudd (talk) 16:59, 12 April 2011 (UTC)andrewedwardjudd

Outside of the mainstream

BigK - what gives you the right to determine that the opinions of the governor of the bank of England about how the monetary system works are "outside of the mainstream"? Reissgo (talk) 19:32, 12 April 2011 (UTC)

Because the talk page has indicated as much, and further in contestable cases, Wikipedia guidelines allow us to make such presumptions until you meet a burden of proof otherwise. See: Wikipedia:FRINGE#Notability_versus_acceptance. If you folks want to conduct such a large rewriting of the article to give weight to this material, then you have a burden of proof to show that the theory is generally accepted by the mainstream. BigK HeX (talk) 21:28, 12 April 2011 (UTC)

n: If this theory is NOT generally accepted as the viewpoint of the majority, then please read and understand: Wikipedia:Tendentious_editing#Righting_Great_Wrongs and the like. Thanks. BigK HeX (talk) 21:30, 12 April 2011 (UTC)

NPOV applies. If the governor and deputy governor of the BOE says something it deserves to be in the wiki without the wacko label you are insisting they have. Nothing has to be proven. Wiki is not a truth movement. King and tucker are saying your mainstream theory is not true in the UK.

Meanwhile apart from endless deletions you appear unable to have a discussion about anything of substance at all. LK was similar. He kept saying the BOE was wrong to say it offered on demand repos. He knew better because he was part of the mainstream and had read some text books.

Arithmetic and use of the data provided in the citations to produce an example of lending is not original research.

Nobody can believe a bank would need to tell a customer that 'we can lend you the 900 IOUS but only if we do it in 9 loans of 100 IOUs'. Surely nobody could believe that.

Andrewedwardjudd (talk) 21:53, 13 April 2011 (UTC)andrewedwardjudd

With regard BigK's "viewpoint of the majority": I'd like to ask - the majority amongst which group(s)? The public? teachers? research papers? central bankers? Please give a precise answer because this issue appears to be at the heart of many of our our disagreements. Perhaps you could make a ranked list... here's mine:

1. peer reviewed journal articles.

2. The words of central bankers themselves when giving their opinion (i.e. not in teaching material)

3. advanced level textbooks.

4. teaching material at junior level.

5. teaching material aimed at the public.

Reissgo (talk) 05:21, 13 April 2011 (UTC)

With regard "Because the talk page has indicated as much" - well a long time ago when I started arguing this point of view I was not well armed with good quality references. Perhaps you were even correct to point this out and say that this view seems to be fringe. But since then myself and others have produced more and more higher and higher quality references. You can not still rely on the old status quo of my having lost the battle due to lack of references forever. By that argument, even if all the central bankers in the world wrote a joint paper declaring endogenous money to be fact then you could *still* say - "well reissgo didn't convince us on the talk page, so we're not putting it in the main article without a 'fringe' label". The views of the governor of the Bank of England about how money works can not be labelled as fringe almost by definition! Your argument is ludicrous. Please back down. Reissgo (talk) 08:15, 13 April 2011 (UTC)

BigK - if you want to quote wikipedia policy to me then how about this: "One important bellwether for determining the notability and level of acceptance of fringe ideas related to science, history or other academic pursuits is the presence or absence of peer reviewed research on the subject.". IIRC you and LK have provided a grand total of ZERO peer reviewed papers to support the exogenous money theory. Reissgo (talk) 11:10, 13 April 2011 (UTC)

You seem to not have grasped the concept of a majority viewpoint. It does NOT matter if Einstein came up with a physics theory, if it hasn't yet been accepted by the mainstream. So, referencing Person "X", and claiming that Person X means an idea is not fringe is a useless argument. Find references that specifically discuss endogenous money theory as being well-accepted in the mainstream if you guys want to drastically rewrite the article to accommodate the viewpoint. OTHERWISE, see WP:RGW. BigK HeX (talk) 12:29, 13 April 2011 (UTC)

"Find references that specifically discuss endogenous money theory as being well-accepted in the mainstream" - WHAT??? You want me to find a paper discussing how the theory has become mainstream!!!??? Science doesn't work like that. When an idea becomes accepted, people don't write new papers about how the idea has become accepted! The absence of contradictory papers is all that is required for the published ideas to define the current state of research. - Sure, there has to be time allowed for counter-papers, and the original papers must be in proper journals, and its better if there is more than one paper - but we have presented many papers/quotes of extremely senior bankers now and there has been plenty of time for people to write counter papers. So now it is clear what the current academic consensus is. Your position in this argument is looking increasingly like the guy in this. Show me the counter-papers or step aside. Reissgo (talk) 13:08, 13 April 2011 (UTC)

"Articles which cover controversial, disputed, or discounted ideas in detail should document (with reliable sources) the current level of their acceptance among the relevant academic community. If proper attribution cannot be found among reliable sources of an idea's standing, it should be assumed that the idea has not received consideration or acceptance" -- WP:FRINGE.

Since even the sources from YOU AND Andrewedwardjudd give every indication that these ideas are a minority viewpoint, you have a lot of work to do in dispelling that notion. As it stands, you should STOP assigning undue weight to a minority viewpoint.

You have the Wikipedia guidelines, so you can begin documenting the standing of this idea for us here. Go. BigK HeX (talk) 13:47, 13 April 2011 (UTC)

The current opinion of the "academic community" is defined by the state of play within research journals. Isn't it? And who says its controversial anyway? Who disputes it? Where did they do this disputing? Do you think that the entire economic community saw these papers or heard the words of these central bankers and thought to themselves "I completely disagree, but I can't be bothered to say so anywhere"? Reissgo (talk) 13:59, 13 April 2011 (UTC)

WP:FRINGE.

"The governing policies regarding fringe theories are the three core content policies, Neutral point of view, No original research, and Verifiability. Jointly these say that articles should not contain any novel analysis or synthesis, that material likely to be challenged needs a reliable source, and that all majority and significant-minority views published in reliable sources should be represented fairly and proportionately. Should any inconsistency arise between this guideline and the content policies, the policies take precedence"

The cited articles are clearly not fringe according to our already established policy.

WP:WEIGHT.

"Neutrality requires that each article or other page in the mainspace fairly represents all significant viewpoints that have been published by reliable sources, in proportion to the prominence of each viewpoint. Giving due weight and avoiding giving undue weight means that articles should not give minority views as much of or as detailed a description as more widely held views. Generally, the views of tiny minorities should not be included at all. For example, the article on the Earth does not directly mention modern support for the Flat Earth concept."

The current alternate view page is tiny compared to the main page.

Wikipedia:Tendentious_editing#Righting_Great_Wrongs

"if you want to

Expose a popular artist as a child molester, or
Vindicate a murder convict you believe to be innocent, or
Spread the word about a theory/hypothesis/belief/cure-all herb that has been unfairly neglected and suppressed by the scholarly community,

On Wikipedia, you’ll have to wait until it’s been picked up in mainstream journals"

Please do not use our policy to intimidate our editors who are following our policy correctly. 14:18, 13 April 2011 (UTC)~andrewedwardjudd

I happen to support endogenous money, but this is irrelevant. The endogenous money view is a minority viewpoint among economists. This is widely noted, even in the sources that support the endogenous money view. Reference books (e.g. Handbook of Monetary Economics, New Palgrave) describe the mainstream academic views about issues in economics. Wikipedia's presentation should be based on the presentation found in these reference handbooks (there should be discussion of majority and minority views, with appropriate weight, as based on what is found in these reference books).

Also, any additions to the article should be properly formatted, and should be balanced with the rest of the article. Currently the Money creation section is getting overly long. I suggest moving a large part of the text there to the money creation article.
-- LK (talk) 08:36, 14 April 2011 (UTC)

Text books are the source of all knowledge about banking?? What kind of rubbish is this?????

Andrewedwardjudd (talk) 13:59, 14 April 2011 (UTC)andrewedwardjudd

Neither BigK nor LK have answered my earlier question "the majority amongst which group(s)?". Please will you do so because this is a critical issue. How on earth can we possibly agree on what is the majority viewpoint unless we first agree on the group(s) involved. Reissgo (talk) 16:54, 14 April 2011 (UTC)

I will repeat this one final time, "Find references that specifically discuss endogenous money theory as being well-accepted in the mainstream if you guys want to drastically rewrite the article to accommodate the viewpoint."

I don't plan to continually repeat this point, especially given how many of the sources that you, yourself, along with User:Andrewedwardjudd have presented which specifically describe the endogenous view as a minority one. BigK HeX (talk) 17:04, 14 April 2011 (UTC)

What is this garbage? The opinions of the most prestigous bankers in the world and most prestigious bank economists in the world are minority to the point we cannot even describe what the minority view is without having to justify to the great ones here who decide these things on our behalf????

Further LK steadfastly says he knows better than the BOE what the BOE procedures are and he uses that denial to justify abusing another member

What is this rubbish?? Why the hell are we having this conversation if wiki is supposed offer a neutral point of view?? Obviously many people disagree with this supposed majority opinion. It is in macroeconomic text books supported by the Financial Times and each mention of that gets deleted by the individuals here who have some agenda to shut up a neutral point of view.

where the hell our the administrators to stop this endless stupidly??????????

why does the first paragraph of the FRB wiki have a blatantly false description of an FRB???

What is going on here????????

why is it that every single on the page reference to credit creation is being deleted bit by bit. Blow by freeking blow??????? Who is doing this?????Andrewedwardjudd (talk) 17:38, 14 April 2011 (UTC)andrewedwardjudd

Re: "given how many of the sources that you, yourself, along with User:Andrewedwardjudd have presented which specifically describe the endogenous view as a minority one." - can you give me an example - because it may just be that it is a minority amongst a lower ranking group. Tell me, what if ordinary 'family doctors' widely held some opinion X about brain surgery - but the brain surgeons themselves generally held opinion Y, which view should be described in wikipedia? X or Y? Reissgo (talk) 06:32, 15 April 2011 (UTC)

BigK - how about an answer to my questions? The sequence of events in our discussion is effectively:

1. BigK: "You can not make those edits because of 'reason A'"

2. Reissgo: "Please clarify 'reason A'"

3. BigK: -No answer.

By that strategy, you are simply blocking me forever. I consider this disruptive behaviour. If you don't give me an answer at all then I can only assume you are conceding the argument. I can see you have visited this page since my question. You also failed to answer my "ranked list" question in this thread earlier. Reissgo (talk) 13:22, 15 April 2011 (UTC)

For the record, BigKHex has now stated on his talk page that he is refusing to answer this question. Reissgo (talk) 19:40, 18 April 2011 (UTC)

[1] Caplan, Bryan (2009-10-28). "Additive Shocks". EconLog. Library of Economics and Liberty. Retrieved 2009-10-29.

[2] "(Holmes, 1969 page 73 at the time Senior Vice President of the Federal Reserve Bank of New York responsible for open market operations) I have not seen, cited in Bank and Credit the Scientific Journal of the National Bank of Poland" (PDF). In the real world, banks extend credit, creating deposits in the process, and look for reserves later. The question then becomes one of whether and how the Federal Reserve will accommodate the demand for reserves. In the very short run, the Federal Reserve has little or no choice about accommodating that demand… ...'

[3] "(Holmes, 1969 page 73 at the time Senior Vice President of the Federal Reserve Bank of New York responsible for open market operations) I have not seen, cited in Bank and Credit the Scientific Journal of the National Bank of Poland" (PDF). In the real world, banks extend credit, creating deposits in the process, and look for reserves later. The question then becomes one of whether and how the Federal Reserve will accommodate the demand for reserves. In the very short run, the Federal Reserve has little or no choice about accommodating that demand… ...'

[4] "(Holmes, 1969 page 73 at the time Senior Vice President of the Federal Reserve Bank of New York responsible for open market operations) I have not seen, cited in Bank and Credit the Scientific Journal of the National Bank of Poland" (PDF). In the real world, banks extend credit, creating deposits in the process, and look for reserves later. The question then becomes one of whether and how the Federal Reserve will accommodate the demand for reserves. In the very short run, the Federal Reserve has little or no choice about accommodating that demand… ...'

[5] "Modern Money Mechanics. Page 37. Money Creation and Reserve Management" (PDF). Federal Reserve Bank of Chicago. In the real world, a bank's lending is not normally constrained by the amount of excess reserves it has at any given moment. Rather, loans are made, or not made, depending on the bank's credit policies and its expectations about its ability to obtain the funds necessary to pay its customers' checks and maintain required reserves in a timely fashion ...'

[6] "The fedwire funds service. Overdrafts and risk control" (PDF). Federal Reserve. the Federal Reserve Banks can extend credit to most Fedwire Funds Service participants lacking sufficient balances to cover their payment instructions. This exposes the Federal Reserve Banks to risk of loss. To limit exposure, the Federal Reserve Banks have adopted a comprehensive daylight overdraft control policy ...'

[7] "What is a daylight overdraft at the Fed?". Federal Reserve. {{cite web}}: Cite has empty unknown parameter: |1= (help)

[8] "Reserve Requirements, Deficiency Charges". Federal Reserve Bank of Cleveland. an institution can be deficient either in its clearing balance requirement or in both its clearing balance and reserve balance requirements. In any given maintenance period, if an institution fails to maintain an average end-of-day balance over the reserve maintenance period adequate to meet its total balance requirement (after the application of as of adjustments, carry-over, and the clearing balance allowance), the institution may be subject to a monetary charge or, in rare instances, may be required to compensate for the deficiency in a future period. ...'

[9] "Reserve Maintenance Manual" (PDF). Federal Reserve. Weekly reporters maintain reserves on their reservable liabilities with a thirty-day lag ...'

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