i was trying to say that only the big banks get bailed out.. regional banks, credit unions.. good luck
Incorrect. If $100 is depositied in a bank that bank can then lend out $90 of that. (Assuming 10% FRB which isn't actually true anymore, the system has evolved further than that). That $90 can then be redeposited in same bank or another bank and $81 of that then lent out and so on. The system as I understand it now, creates the credit first and then shores up the reserves later. ie, an asset and liability are created at the same time a loan is made so it is not true to say that the bank creates money for it's own benefit only. There is a simultaneous asset and liability created. Try looking at what happens to the balance sheet and you will see the fallacy of the above view. Wikipedia has a good article on FRB.
Australian banks have no reserve requirements (see http://en.wikipedia.org/wiki/Reserve_requirement). Does that mean instead of lending out $90 of the $100, they can actually lend out $100 based on a $100 deposit, and repeat that indefinitely? Why don't deposit accounts get debited when loans are created? Over 50% of bank funding is supposedly from deposits. Bank Funding When Fred spends $1000 on his credit card, whose deposit account gets debited $1000? What assets are put on the books? Same with personal loans? There's approximately $4,523,406,100,000 of debt in Australia (australiandebtclock.com.au), yet total bank deposits are only $1,558,790,000,000 (2012 Australian Banking Statistics) ($4,523,406,100,000 - $1,558,790,000,000 = $2,964,616,100,000). Wouldn't that mean all accounts should have their balances loaned out, and therefore unavailable?
There is a huge lime farm on the way to nyngan. Misses and i decided to drop into the cafe once, thinking, it will be cheaper here to buy the limes and the lime codial (which is sold in woolies) but it was DEARER t buy from the farm than to buy it in woolies, 600ks away. Rip off. Problem is that there are so many growers who shaft consumers too. Tired of hearing how they are shafted when every single time i have dropped by to buy directly from a farmer it is more expensive than the supermarket. If they sell the apples at $0.75 a kilo, and the supermarket sells at $4.00 why do they sell at $4.25 to the peoe who make the effort to come to them?? Great way to reward us right?? This is a recent example when i drove for an hour with my family to join in a market trail. Never again. If they sold at double what they would sell to the supermarket, and so the consumer got a real bargain, they would have people coming in droves. But the place was deserted and the trees were so full of fruit, they were rotting on the trees as they couldn't sell them fast enought. I dont get some people. Shiny
^^^^^ I have often wondered the same. It occurs to me that any supplier contracted to a big distributor or chain may have a clause saying they cannot undercut the retail price. Or it's misplaced greed.
The supermarket buys the fruit from the farmer by the truck load and has 10's of thousands of customers turn up at their stores to buy it from them across the country. A farmer is not ripping you off because a cafe in a country town buys fruit from the farmer and then charges you you more for it than you pay at a major supermarket chain. The cafe, like any other tiny retail store has to set up a building and stand there all day, or pay staff so that the odd person that comes by can buy half a kilo of fruit. Of corse a small retail store cannot compete with major supermarkets on grocery prices.
First rule of business (or "a" rule of thumb at least), every surviving business (ie at least a few years old) does things certain ways and charges certain prices for a reason. They are after the low hanging fruit (pun intended) as well. Corollary: If you take over managing an existing business, it is usually better to do nothing until you understand why things are the way they are before changing arbitrarily.
Petrol this morning 159.99! oh and looks like energy prices are set to soar.........again! WTF! http://au.finance.yahoo.com/news/consumers-face-soaring-bills-agl-054103773.html Not sure who is lucky....definitely inst the common man....those days ended a long long time ago.
Or it's opportunity. By selling directly to the cafe owner the farmer makes more, it is usually money on the side though and cannot be relied upon to pay the rent and business expenses. Likewise, the cafe owner is able to buy it from the farmer cheaper than through a supplier - which is often more expensive than buying in Woolies or Coles for some products - however the cafe owner will only buy it directly from the farmer if it can be onsold for a cheaper price than he would normally be able to retail it for, or if it's a better product, or both. Case in point: fish. We bought 2 large saddletail snapper (Red Jew, large mouth type) amongst about 50kg of whole reef fish from off the boat the other week. We paid $10/kg for the whole fish, guts and all. This is cheaper than what we would pay for whole red jew if we bougth it from the wholesaler. But in Woolies the other day, whole cleaned red jew were selling for $12.95/kg!!! That's cleaned, that's about the same as what we paid straight off the boat for "cash" reef fish. And it wasn't on special and it looked very good. That's the challenge we face as a small player against the big boys, and that the farmers and fishermen face too. We'll sell that red jew to customers cleaned and cooked as part of a meal for a 300% mark up. That's $30/kg, it'll cost you about $27 to $33 for fish with chips and veges or salad if you ate with us. Of course if you wanted to, you could buy the whole fish from Woolies and cook it yourself, supplying all the time, ingredients, expertise and do your own dishes and you'd end up paying about $9 - $11 per meal.
Why do we usually buy from a supplier rather than buying directly off the boats even though it is cheaper? Because the supplier can usually "supply", whereas the fisherman for various reasons (weather, seasonal closures, mechanical failure, brain failure, in the pub and pissed etc) cannot.
In season I can buy organic berries for $10-15/kg, and as low as $5/kg for "jamming" berries. If I buy at the market/supermarket then they are $8-12 per punnet (125g?). They can sell it for such a low price as they have reduced their labour costs and eliminated transport costs. There seems to be a bit of competition in that area too which means they have to compete on price with other farmers. I like to make a day out of it as it's a nice area to visit so don't care if I spend a bit on petrol... and with a large freezer I can buy multiple kilos of berries in the one trip.
So the bank has to keep, for arguments sake, 10% as the fraction that is reserved. In this case they have to keep $10 and lend out the $90. Wouldn't keeping the whole $100 as the 10% reserved fraction allow them to loan out $1000 or does it not work that way? I think I must have watched the same video as C.H. as that is how it came across.
Well, yeah, the whole thing about person borrowing 90 then next person borrowing 81 etc, obviously isn't real world. When was the last time you went to the bank for a loan and were told you had to borrow exactly 90% of what the last person borrowed? So in real world, let's say a (simplified) bank balance sheet looks like Assets Cash - 10,000 Loans - 50, 000 Liabilities - 60, 000 The bank is now levered 1:5. It has 20% reserve. If someone then came in and say wanted a 30,000 loan, that 30,000 would be added to both sides of the balance sheet like so Assets Cash - 10,000 Loans - 80, 000 Liabilities - 90, 000 30,000 loan added to the asset side. And then 30,000 would added to the person's account as a liability to the bank. So the bank creates new credit (after all, credit is just a book-keeping entry), but it has to pay interest on the liability side whereas it is receiving interest from the loan. The difference between the 2 interest rates goes to the banks operating expenses, profits etc. This was in the FRB world. In the current world the reserves required consist of Tiered Assets rather than just cash which comprise things like Bonds, Gold, etc. You can look it up on wikipedia. As far as I know, and Steve Keen did an analysis of this, banks create credit and it can go beyond the reserves as they shore up the reserves later on. Which kind of makes sense with all the transactions the bank does every day, they don't want to give up business just because they temporarily don't have the reserves. Which is why it is not true to say that banks loan out reserves. They don't. And that's why expanding bank reserves doesn't automatically create lending and inflation, as we've seen in the past few years. Banks lend if they have creditworthy borrowers. The entire problem is not with FRB itself, which I believe would exist in a free market, but the abuse that occurs when the government gets involved and starts manipulating interest rates down, implicitly and explicitly backing the banks and of course ultimately bailing them out with taxpayer money. Basically when this happens banks can increase volume massively as perceived risks are lessened. That's why they have massive amounts of money now, because of increased volume, not some ridiculous interest rate spread. Of course, the risks still exist but remain percolating and building under the surface. There's no such thing as a free lunch. Someone always has to pay.
Going slightly off tangent to what you're discussing Hawkeye, but one can readily argue - among other things - that the trading while insolvent aspect should be a crime.
I've heard this before and I believe it's Rothbard's view, but I'm not so sure. I don't want to drag the thread any further off topic, we should discuss this in a FRB thread, because I think it would be interesting to examine it.
You said you were going to start a thread ages ago on FRB , I think the best thing to do is someone email the reserve bank & get the exact details . If they will give you that information is another story . It might be easier to give them your maths & ask them if its correct .
