Trickle Down Economics Explained

[wellyfish]

I think he follows some of the rant concerning QE

Nice video on this page stating that is is thought to have an effect but. It's a no choice when rates are low. Of late I think it is now regarded as a bad idea but if needs must.

What Is Quantitative Easing (QE), and How Does It Work?

Quantitative easing (QE) is a monetary policy where central banks spur economic activity by buying a range of financial assets in the market.

www.investopedia.com

Now lets say the is X billion of QE. The only way it's effects on currency value is in relationship to the total ammount of the currency that is available. That is not the amount of actual paper money that is around. It will be rather a lot more. Why was it done - simple, banks had lost rather a lot of money. One way was oh lets back people who can't afford it and insure against losses and a number of bizarre deal. When rates went high in MrsT's time banks had also lost money. Maybe that could be an alternative. I knew some one who worked in a banks head office at the time and they said rates were bound to rise due to losses. There will probably have been other reasons.

Just print money. Another link. The FED is just like many other central banks

How Central Banks Can Increase or Decrease Money Supply

Central banks use various methods to change their nations’ money supplies, such as adjusting reserve balance requirements and certain interest rates they control.

www.investopedia.com

People may remember reserve levels being mentioned in relationship to QE. It was to restore them. Money that had just gone, vaporised into thin air from losses. What they need to hold depends on risks with the area they are involved in.

What sets the value of a currency is what the money market is prepared to pay for it. QE infers there is a problem. What do you think that does to value? As many did the same thing not as much as some might expect.

The money market is more powerful than any goverment hence the end of govs trying to maintain a value as they used to do. They wiould buy themselves when it was falling or even declare lower value or even sell the dam things. That sort of control isn't on any more. This is what took us out of the ERM. Pass on why we were picked on but maybe others were more capable of maintaining a value. Ireland did.

The United Kingdom entered the ERM in October 1990, but was forced to exit the programme within two years after sterling came under major pressure from currency speculators.

Actually the UK had suffered from that problem in the past. Hence FIAT currencies. There is no real alternative these days and hasn't been for a long time now. They are worth what the market will pay.

Nah, QE is a truly dreadful policy but it has nothing to do with money creation, it's a simple asset swap. Don't believe me? No problem, check the WGA 2011-2012 ... no-one on here will.

Thes rest of it looks like you've spilled your scrabble game on the table.

 

[denso13]

explain how you think fiat economies, like the UK, work?

Leverage?

 

[wellyfish]

Leverage?

Ah, dunso, wrong again mate.

 

[Justin Passing]

A fiat system is based on a government’s mandate that the paper currency it prints is legal tender for making financial transactions. Legal tender means that the money is backed by the full faith and credit of the government that issues it. In other words, the government promises to be good for it.
Fiat money is the opposite of commodity money, which is money that’s based on a valuable commodity, a method of valuation that was used in the past.

 

[carmanmemoranda]

Well, you've had a couple of chances to back up your position and you haven't taken either.

If you could, you would have. I'll let people make their own decisions.

Want to have a discussion about finance, banking deposit insurance etc.?

I think most people have made their own decisions.

 

[carmanmemoranda]

he didn't even answer the question. He wrote...


So, it's entirely up to each commercial bank what quantity of reserves they decide to hold. No dramas.


That is not an answer, to another specific question.

Still not answered.

The question, to remind you, was...

How much reserves a bank should hold, in your opinion?


Not, what reserves are or are not, not how much they can or do, but what SHOULD they hold in YOUR opinion ? You may (or may not) be very well informed about money and finance, but you are not showing any knowledge of it on here.



Just back up your comments with some actual info, rather than just saying everybody is wrong.

 

[wellyfish]

A fiat system is based on a government’s mandate that the paper currency it prints is legal tender for making financial transactions. Legal tender means that the money is backed by the full faith and credit of the government that issues it. In other words, the government promises to be good for it.
Fiat money is the opposite of commodity money, which is money that’s based on a valuable commodity, a method of valuation that was used in the past.

Yep, both printed and digital.

Sort of, the government promises to redeem it at par. So, if you take your tenner to any bank they will happily swap it ... for another tenner or two fivers etc.

 

[wellyfish]

Still not answered.

The question, to remind you, was...

How much reserves a bank should hold, in your opinion?


Not, what reserves are or are not, not how much they can or do, but what SHOULD they hold in YOUR opinion ? You may (or may not) be very well informed about money and finance, but you are not showing any knowledge of it on here.



Just back up your comments with some actual info, rather than just saying everybody is wrong.

You really seem to have a problem with comprehension. Here's my reply, again, in its simplest form. You don't seem to be able to understand it so I suggest you get a grown-up to help you.

What's my understanding of fractional reserve banking? It's not a thing in the UK. Commercial banks are not constrained in any way by the amount of reserves they have on deposit with the BoE.

 

[carmanmemoranda]

You really seem to have a problem with comprehension. Here's my reply, again, in its simplest form. You don't seem to be able to understand it so I suggest you get a grown-up to help you.

Comprehension is difficult I agree.

And, YOUR opinion of reserves or lack of, is ?

 

[Pat ex]

Silly boy
I said in some ways and gave examples
Learn to read and also think.

What you actually said was:

Mrs T in some ways laid the grounds for globalisation.

If you lay the grounds for something, then that something does not already exist.
E.g. 'I'm going to "lay the grounds" for my existing summer house' is an absolute nonsense sentence.

LAY THE GORUNDS
to do what is necessary before an event or process can begin

Now you either don't understand the meaning of "lay the grounds" or you think Mrs T did predate globalisation.
It doesn't matter how much you stamp your feet and rant, the meaning of "Lay the grounds" is fixed and your little rant does not change it.

 

[wellyfish]

Comprehension is difficult I agree.

And, YOUR opinion of reserves or lack of, is ?

Opinion? who asked about opinion?

See posts 61 67 & 84 in this thread.
As I said, get a grown up to help you read and understand them

 

[ajohn]

WGA 2011-2012

I have what on earh has that got to do with the grand total of GBP that is around? Nothing what so ever. What effect it did have

2.11The Bank of England’s Monetary Policy Committee continued with the policy of quantitative easing during 2011-12, with the purchase of £75 billion worth of assets in October 2011 and an additional purchase of £50 billion in February 2012. The assets purchased mostly comprise UK Government debt previously held by financial institutions, which are exchanged for deposits held in the Bank itself. These purchases provide liquidity insurance to the banking system, allowing those organisations to operate instead with high quality liquid assets, with the objective of reviving consumer spending and economic growth.

Not that it seems to have worked well. That these days is the question. As the little video says it's hard to tell.

One thing that has been muttered in various economic circles is low base rates. The early comments where all economies should be be able to afford 2%. My personal view is that when they are under inflation levels for a long time there is another problem. Ideally it needs to be higher.The problem with increasing it is that things need to adjust to suite. It also sets the usual bank's lending rates and mortgages etc

Interbank lending. You don't seem to have that correct either. Couple of links. Central banks figure as well

Interbank lending market - Wikipedia

en.wikipedia.org

Overnight rate - Wikipedia

en.wikipedia.org

Why on earth you ever bother to mention FIAT defeats me. Maybe we should back the pound with gold or cabbages. No option is on.

 

[carmanmemoranda]

Opinion? who asked about opinion?

See posts 61 67 & 84 in this thread.
As I said, get a grown up to help you read and understand them

Like many on here, I am in awe of your knowledge.










Not really. You havent yet actually said or explained anything

 

[Justin Passing]

Seems to have turned into,
"I know something I bet you don't ,
go on then what's this then".
"No it's not that so you haven't answered my question
nya nya nya".

 

[wellyfish]

I have what on earh has that got to do with the grand total of GBP that is around? Nothing what so ever. What effect it did have

2.11The Bank of England’s Monetary Policy Committee continued with the policy of quantitative easing during 2011-12, with the purchase of £75 billion worth of assets in October 2011 and an additional purchase of £50 billion in February 2012. The assets purchased mostly comprise UK Government debt previously held by financial institutions, which are exchanged for deposits held in the Bank itself. These purchases provide liquidity insurance to the banking system, allowing those organisations to operate instead with high quality liquid assets, with the objective of reviving consumer spending and economic growth.

Not that it seems to have worked well. That these days is the question. As the little video says it's hard to tell.

One thing that has been muttered in various economic circles is low base rates. The early comments where all economies should be be able to afford 2%. My personal view is that when they are under inflation levels for a long time there is another problem. Ideally it needs to be higher.The problem with increasing it is that things need to adjust to suite. It also sets the usual bank's lending rates and mortgages etc

Interbank lending. You don't seem to have that correct either. Couple of links. Central banks figure as well

Interbank lending market - Wikipedia

en.wikipedia.org

Overnight rate - Wikipedia

en.wikipedia.org

Why on earth you ever bother to mention FIAT defeats me. Maybe we should back the pound with gold or cabbages. No option is on.

There's a clue in the first sentence - Monetary Policy Committee.

The WGA explains that QE is not the creation of new money:

Once intra-government transactions are eliminated, the scheme represents an exchange of gilts (liabilities of the National Loans Fund) for
central bank reserves (liabilities of the Bank of England).
In other words, it's a reverse of the operation that issued the gilt in the first place.

It certainly worked well on one half of what it was meant to do. This from the Bank of England

QE also affects the prices of other assets like shares and property.

Here’s an example. Say we buy £1 million of government bonds from a pension fund. In place of those bonds, the pension fund now has £1 million in cash.

Rather than hold on to that cash, it will normally invest it in other financial assets, such as shares, that give it a higher return.

In turn, that tends to push up on the value of shares, making households and businesses holding those shares wealthier. That makes them likely to spend more, boosting economic activity.

I'm not sure I'd be using Wikipedia as the ultimate source but, anyway, you either haven't read those articles or haven't read what I posted.
Nothing in either of those articles contradict anything I posted.