What is the fiscal cliff of US?

Discussion in 'Business & Economics' started by Saint, Nov 7, 2012.

  1. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

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    23,198
    Yes, but they can not exists if the percentage is say above 50% of deposits as then the less than 50% they have to loan will need more than double interest rates for any profit or covering the default rates. Only a tiny fraction of the 8 trillion would even come to the banks. - What of it they do get will not stay in the bank with ~10% of their current deposits going to the FED as they hope to lend it out again.

    Also you are forgetting about the multiplier effect - i.e. every dollar deposited (with current 10% reserve requirement) makes up to 10 dollars circulating. Thus if even 1 trillion of the thin air dollars did come to the banks it would add about 8 trillion more (multiplier effect dollars) to the 7 trillion circulating that never came to any bank.

    You seem to think that banks don´t lend, just take in deposits so the amount they must send to the FED would grow with time until most of the 8 Trillion of paid out would come back to the FED. It won´t as banks lend out most of what they get as deposit, - They don´t just keep sending it to the FED.
     
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  3. Carcano Valued Senior Member

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    6,865
    Again Billy, that "most" is a percentage governed by the Federal Reserve...who can change that percentage at will.
     
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  5. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

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    23,198
    Perhaps not called a central banks but they sure had some agency that could print money. Yes rate of expansion of money is important but you need to compare it to the rate of growth to know what is OK. When the debt to GDP ratio is increasing you are headed for disaster if you don´t turn that around.

    Yes governments can live longer than human´s average life span BUT if their debt to GDP ratio is increasing like the US´s is now (say >8% annually) then the life of that government (with no turn around) is less than about 10 years as with 8% increase rate (of debt to GDP ratio) the debt to GDP will double in only nine years! Is up 4 times in 18 years, up 8 times in 27 years, but of course long before US´s already >100% debt to GDP ratio becomes 2,700% the US would be "dead." Note 27 years is less than half of the American´s average life span.
     
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  7. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

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    Yes, the FED does set the reserve requirement but you still don´t get the main point. The bank´s deposits don´t keep growing so even with a totally impractical 50% reserve requirement you would get ONE TIME only half of their NOT significantly GROWING deposits sent to the FED. I.e of the 8 trillion, perhaps 3% could be taken out of circulation by banks and sent to the FED and it makes no difference if done in one year or 10 years as banking system´s deposits don´t continually grow even at 1% per year.

    Bank´s deposits don´t grow much with time because: (1) Savers put their money into bank but plan to take slightly MORE out later, not leave it there forever to accumulate with saving of others. (2) Banks MUST lend the money out to earn what the pay out as interest,* cover losses and make a profit. I.e the reserve requirement is a ONE TIME transfer to the FED but it can be increased or reduced by the FED to modulate economic activity.

    The banks are not an infinite sponge that constantly soaks out ever more dollars from the economy but can make small variation in the currency in circulation or how much they take out (or put in via multiplier effect). The fed can control growth of the economy to some extent by reserve requirement changes.

    *FED does not pay any interest on the required reserves but does pay 0.25% on "excess reserves" a bank can deposit with the FED. Banks may do that for a couple of days if they briefly have more cash than they need.
     
  8. eyeswideshut Registered Senior Member

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    255
    Exactly, there is not going to be fiscal cliff as long as US can service the debt IOW as long as revenues covers the interest.

    And that is the problem, the economy must infinitely grow in finite world.
     
  9. Carcano Valued Senior Member

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    6,865
    No, it doesnt cost the banks anything to hold extra deposits, in addition to their current accounts. If I deposit a thousand dollars in my bank it doesnt cost them even ONE dollar extra to hold it on their books unless you want to include the tiny fee for deposit insurance.

    Just to add some global and historical perspective, we should note that both Brazil and China have reserve requirements double that of the US...very similar to Germany and the UK in the 1970s.

    Lots of room for upward mobility!

    http://en.wikipedia.org/wiki/Reserve_requirement#Other_countries
     
  10. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

    Messages:
    23,198
    Banks must love people like you who will deposit money in them and not expect to have them pay you any interest. Nor would they be able to, if they "just hold your $1000 on their books."
     
  11. Carcano Valued Senior Member

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    6,865
    Interest? There is no REAL interest on bank deposits currently. Its been something like 0.25% for several years now, and is actually in negative territory when adjusted for inflation.

    The Fed will continue to hold it there for many years to come.
     
  12. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

    Messages:
    23,198
    Essentially true, but you falsely said it cost the banks NOTHING to accept your $1000 deposit. (Even it bank did not pay you that small interest they need to pay their guards and the electric company, etc.)

    That is why I said if the FED required >50% of deposit as zero interest earning reserves, they can not exist. - Note none do according to the long list in your link about many different national reserve requirements. Brazil & China do have relative high reserve requirements (less than 15%) to control inflation - excessive growth rates.
     
  13. nietzschefan Thread Killer Valued Senior Member

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    7,721
    Billy, is the market gonna crash jan when the FED ponzi sceme is revealed? (did you people know the FED is privately owned..hmmm)

    I Wanna dump out of etfs and Bear the DOW for a couple weeks and then pile back in precious metals like last time.
     
  14. andy1033 Truth Seeker Valued Senior Member

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    1,048
    They need america to take over the world, and thats why the american economy is still going. They need to keep it going. They started spending america into oblivion some time in early 70's to try and totally outspend ussr and that is the reason they got of the gold standard. They are still spending like no tomorrow trying to take over the world, and its costing a fortune, will nato countries keep backing them and china has no real other choice to keep it going too.

    They need american military and thats why its all still here barely.

    You people miss that point, when assessing this.

    What was interesting is that germany was asking for its gold. What really is going on. Why where they asking this, and why does german gold even have to be in america in first place.

    Is there some sort of fund we do not know about keeping this whole thing afloat and nato countries agreed maybe with this fund. Is that what the plunge protection team is, who supposedly protect the nyse?
     
  15. Aqueous Id flat Earth skeptic Valued Senior Member

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    6,152
    The last crash was caused by predatory finance tactics. Has it ever crashed on account of deadlines like this?

    Seems to me you should be nailing the crooked mortgage lenders as a Ponzi scheme, and praising the Fed for battling recession and inflation.

    Suppose you did that, and then there was a crash. Would you blame yourself?
     
  16. Aqueous Id flat Earth skeptic Valued Senior Member

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    6,152
    They?

    It costs money to make money. Is that what you're saying?

    NATO? That's kind of outdated, isn't it?

    If you bought gold in Germany when the deutsche-mark was low, and leave the gold on deposit until the d.m. would come back, only to be messed over by the Euro, wouldn't that put you in the same situation?

    Probably nearly all of them, unless you're in the industry.

    So far the only evidence I've seen of actions keeping us afloat are the policies implemented by the Fed since '08.

    Isn't NATO mostly a military security alliance against Commies? Isn't that pretty much behind us?

    Who protected the bank account holders? Consider bank failures--2003-2008: 11; 2008: 25; 2009: 140; 2010: 157; 2011: 92; 2012: 39. Answer: the FDIC. A lot of help came from Congress, in the form of TARP. A lot more help came from the Fed, in terms of policies like quantitative easing.

    But to protect the stock market there simply needs to be a lack of panic. I doubt that many investors think of the fiscal cliff as a doomsday. Some may welcome the resolution of the issues and stocks may even soar. Usually the markets react to large indicators, like the crash of a whole country on its obligations, or war, or some global threat to price stability, or a calamity of some kind.
     
  17. andy1033 Truth Seeker Valued Senior Member

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    1,048
    I disagree, i reckon to make the dollar the reserve currency nato countries came together and put up there gold. Why are the germans recently asking about theres, and why is it in america anyway.

    There is a fund speculated to be called the ppt, the plunge protection team. Supposedly its there to protect the nyse and probably totally fixes the share prices to what they want. The fund is supposed to be vast, and we see it time and again how that market is saved. You cannot tell me that countries did not try and crash the nyse before, but people specualte this fund is to keep it going.

    Thats why people in nyse are playing in a fixed game.
     
  18. joepistole Deacon Blues Valued Senior Member

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    22,908
    Contrary the Republican hype, the rate of growth of US debt and deficits has been slowing since Obama took office; the deficit has been reduced by some 600 billion dollars over the course of the last 3 years. You are ignoring the fact that the economy is also growing and that needs to be factored in as well. The US needs to do two things, reduce the rate at which its debt is growing and increase the rate at which the economy is growing. The US never needs to pay off its debt as many in this forum and devotees of the Republican entertainment industry think. A moderately accommodative monetary policy will automatically reduce the size of the nation's debt without excessive inflation. As I said before, what is important is not the debt to GDP ratio, but the ability of the government to manage its debt, the ability to make interest payments and the political ability to act responsibly. It is not clear that Republicans in the US can act responsibly regardless of the nation’s actual debt levels. And that was why the US debt rating was lowered last year.

    The reasons for the extraordinary growth in the US debt and deficit under the previous Republican administration have been successfully addressed. The Iraq war is over. The Afghanistan War will be over next year. The Bush II tax cuts are coming to an end in about a month, at least the Bush II tax cuts for the uber wealthy. Eliminating the Bush II tax breaks for the wealthy will reduce the deficit by about a trillion dollars, which is 25% of the needed 4 trillion in reductions. The pork ridden entitlement expansions passed into law by Republicans have been moderated with The Patient Protection and Affordable Care Act which should substantially reduce government healthcare expenditures over the course of the next decade. With the efficiencies built in to the law but not estimated by the CBO, I think we could easily see a 2 trillion dollar reduction in the deficit. Using the CBO estimate, which is exceptionally conservative, The Patient Protection and Affordable Care Act should reduce the deficit by nearly a trillion dollars over the course of the next 10 years.

    If we continue down our current path, and the economy continues to recover and grow bringing the nation into full employment, the middle class Bush II and Obama tax cuts could be allowed to expire and that would bring us back to where we were before the Republican profligate “deficits don’t matter” spending spree.
     
  19. andy1033 Truth Seeker Valued Senior Member

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    1,048
    All you technical ecomonic experts that study all this, but its fine economics and all. But seeing as america is the reserve currency, what is to stop them just making up the numbers every year.

    No one truly audits the fed do they, except them probably?
     
  20. joepistole Deacon Blues Valued Senior Member

    Messages:
    22,908
    Given your lack of knowledge about the markets and key market institutions, I don't think you should be anywhere near a market. My bet is you have lost what little money you have in the markets. You would be better served by putting what little money you have in a bank or burying it in the back yard with your gold.

    The Federal Reserve is not a Ponzi scheme and the Federal Reserve is not privately owned.
     
  21. andy1033 Truth Seeker Valued Senior Member

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    1,048
    Can you explain who owns it then, as plenty of people that have studied this came to the conclsuion is was privately owned.

    If not, who do you think owns it?

    But i agree that people that do not know the system should stay out of the stock market.
     
  22. joepistole Deacon Blues Valued Senior Member

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    22,908
    Who is "them" exactly?

    The Fed does get audited three times a year, an internal audit, an independent external audit, and by Congress.
     
  23. joepistole Deacon Blues Valued Senior Member

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    22,908
    I have no idea as to what you are trying to say or what you are asking. The US dollar was established as the world reserve currency before the end of WWII per the Brenton Woods Agreement (1944). And the US dollar has remained a reserve currency because it is has been the largest and most stable world economy.

    I hear the Martians are responsible for the PPT. This is absolute nonsense.
     

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