tag:blogger.com,1999:blog-8897997766931633186.post1067394496307648751..comments2024-02-14T03:21:37.506-05:00Comments on Monetary Freedom: Deposit Money and the Liquidity EffectBill Woolseyhttp://www.blogger.com/profile/06330232724290161369noreply@blogger.comBlogger4125tag:blogger.com,1999:blog-8897997766931633186.post-61815071236907971282016-06-23T07:54:51.396-04:002016-06-23T07:54:51.396-04:00We got to be seriously careful when it comes to de...We got to be seriously careful when it comes to deposit money, as one mistake could lead us into huge losses, so that’s why we got to be very wise with dealing with everything, I am currently trading with OctaFX broker where I am always careful when it comes to investment and that’s easier to do through their 50% bonus on deposit which is also use able, so that’s why I am able to trade so nicely with complete comfort.Raheelnoreply@blogger.comtag:blogger.com,1999:blog-8897997766931633186.post-58696287375549170052013-01-11T10:24:56.441-05:002013-01-11T10:24:56.441-05:00Hi Bill,
Would love to get your thoughts on a pos...Hi Bill,<br /><br />Would love to get your thoughts on a post on a related topic. Post is here:<br /><a href="http://catalystofgrowth.com/2013/01/11/quantity-doesnt-matter/" rel="nofollow">http://catalystofgrowth.com/2013/01/11/quantity-doesnt-matter/</a><br /><br />Cheers,<br />DOB-DOBhttp://catalystofgrowth.com/noreply@blogger.comtag:blogger.com,1999:blog-8897997766931633186.post-88191504642540977092013-01-07T03:40:39.256-05:002013-01-07T03:40:39.256-05:00"Rather than a surplus of checkable deposits ..."Rather than a surplus of checkable deposits forcing banks to raise the interest rates they on checkable deposits enough so that firms and households are willing to hold the existing quantity, to the degree that excess money balances are spent on assets and drive down their yields, the indirect effect is to "compel" banks to instead decrease the yields they pay on checkable deposits."<br /><br />Let me directly address this point. In order for non-banks to be net buyers of bonds, banks have to be net sellers. As a simple matter of accounting, spending deposits on bonds implies that deposits are destroyed.<br /><br />More importantly, banks have no power to cause interest rates to fall by creating deposits. That's completely under control of the central bank.<br /><br />If the central bank creates an excess of deposits (held by banks, not the public), then bond yields will fall to the central bank deposit rate and the CB will be unable to profit on its deposits. If the CB wants to maintain a profit spread, then it will be obligated to sell assets. But since CBs aren't profit motivated, they won't necessarily do this. Thus, the result of creating an excess of CB deposits is to eliminate the cost of holding CB deposits.<br /><br />Currently, the cost of Fed deposits is actually negative - the Fed is paying an above-market interest rate. So paradoxically, creating an excess of deposits has in a way caused a shortage of deposits. But only a (stupidly run) central bank can do this.<br />Maxnoreply@blogger.comtag:blogger.com,1999:blog-8897997766931633186.post-36599128631040597282013-01-06T03:04:10.435-05:002013-01-06T03:04:10.435-05:00Assume an equilibrium with deposits yielding 1% an...Assume an equilibrium with deposits yielding 1% and bonds yielding 2%, which is also the Fed Funds rate. Now the Fed raises bond yields to 3%, but banks leave the deposit rate at 1%. What happens?<br /><br />Deposits are now in excess supply. One of two things must happen to restore equilibrium - either banks sell their bonds (at a yield slightly below the Fed Funds rate) or they raise the deposit rate. Since they are making excess profits on deposits, they will choose to raise the deposit rate.<br /><br />You're making it hard by trying to analyze the demand for savings and goods at the same time, which isn't necessary.<br />Maxnoreply@blogger.com