tag:blogger.com,1999:blog-8897997766931633186.post2299613870275933383..comments2024-02-14T03:21:37.506-05:00Comments on Monetary Freedom: How Important Is Shadow Banking?Bill Woolseyhttp://www.blogger.com/profile/06330232724290161369noreply@blogger.comBlogger8125tag:blogger.com,1999:blog-8897997766931633186.post-68823354065123197892023-08-31T08:16:36.259-04:002023-08-31T08:16:36.259-04:00Thanks for a great rreadThanks for a great rreadHunde Hotel Haasehttps://hundehotelhaase.blogspot.com/noreply@blogger.comtag:blogger.com,1999:blog-8897997766931633186.post-22365669945958509242013-12-29T15:36:55.411-05:002013-12-29T15:36:55.411-05:00No, I was just thinking of money as being bank dep...No, I was just thinking of money as being bank deposits generally. I wouldn’t have expected demand for transactions balances to have fallen, but I don’t think it would have risen either, would it? But it does raise an interesting point. Does your analysis of a loss in confidence in the bill market require money to be understood specifically as transaction balances, rather than more generally as bank deposits? Nick Edmondshttps://www.blogger.com/profile/15342983814699700396noreply@blogger.comtag:blogger.com,1999:blog-8897997766931633186.post-72757401586888100172013-12-28T12:58:28.030-05:002013-12-28T12:58:28.030-05:00I agree that I could of told my story about sacks ...I agree that I could of told my story about sacks of gold and fractional reserve banking. One of Buchanan's last papers was an argument for 100% reserve banking on that basis. We aren't economizing on gold, but rather on fiat money. What is the social benefit? <br /><br />But I don't look at it that way. I favor private money.Bill Woolseyhttps://www.blogger.com/profile/06330232724290161369noreply@blogger.comtag:blogger.com,1999:blog-8897997766931633186.post-47117424176489617802013-12-28T12:55:16.644-05:002013-12-28T12:55:16.644-05:00"At worst, a net loss to the economy."
..."At worst, a net loss to the economy."<br /><br />I don't agree that the result of shifting from conventional to shadow banking is an "explosion" of credit. The larger effect is that ultimate lenders earn higher returns and bear more risk. <br /><br />For every borrower there is a lender.<br /><br />I realize that TED spreads rose, but the Federal Funds rate remained stable and the volume was little effected, or so I recollect. <br /><br />Do you really believe that the demand for transactions balances was falling during the crisis? <br /><br />Regardless, I agree that there was a large increase in the demand for Treasury bills in late 2008. Bill Woolseyhttps://www.blogger.com/profile/06330232724290161369noreply@blogger.comtag:blogger.com,1999:blog-8897997766931633186.post-63773481688407918032013-12-27T15:24:33.254-05:002013-12-27T15:24:33.254-05:00"Nick Rowe mentioned in passing that he didn&..."Nick Rowe mentioned in passing that he didn't understand Izabella Kaminska." One of the "safe asset" (created by shadow banks) arguments is similar to Nick's "the economy demands bubbles" meme. Specifically, although the economy wants a bubble, the public doesn't want to invest in one. The solution is to create safe assets or a "safe bubble". If true, this would increase social welfare. One example of why this could be true is given in this example (http://monetaryrealism.com/the-economy-almost-certainly-needs-bubbles/#comment-73590); note from the Z1 that most assets are financial assets, and it would be impossible to have bubble assets amounting to 4.5x GDP without them. (BTW this is not the same as the other "safe asset" meme, related to collateral that Nick Edmonds mentioned. There are so many safe asset memes that it's hard to keep track!) The poster child for the GFC is AAA paper defaulting at 10X junk bond rates and/or falling to 10c/$.jt26noreply@blogger.comtag:blogger.com,1999:blog-8897997766931633186.post-26517739867613759672013-12-26T22:23:26.232-05:002013-12-26T22:23:26.232-05:00Good stuff, Bill. This is a very clear post. Hard ...Good stuff, Bill. This is a very clear post. Hard to find anything I disagree with.JP Koninghttps://www.blogger.com/profile/02559687323828006535noreply@blogger.comtag:blogger.com,1999:blog-8897997766931633186.post-78687656002788346032013-12-26T08:59:35.871-05:002013-12-26T08:59:35.871-05:00Some interesting ideas there. A couple of points....Some interesting ideas there. A couple of points. <br /><br />Shadow banking as "a work around various undesirable banking regulations." I'd say shadow banking is largely about avoiding bank regulations, although whether they're undesirable or not is another matter. Shadow banking prior to the crisis largely involved converting traditional banking assets into marketable securities, with the result that the risk could be held on investment bank trading books with substantially lower capital requirements. This had the joint effect of leading to an explosion in credit combined with worsening (effective) capital ratios.<br /><br />You note that a loss of confidence in the trading of T-bills was not a major factor in 2008, but of course what we did have was a loss in confidence in money (in the form of unsecured bank deposits). So we had almost the opposite position to the one you're describing, with the preference for bills over money driving the TED spread to record levels.<br /><br />Incidentally, I don't understand what Kaminska is saying either, but most of the safe asset shortage arguments I have seen don't stack up. High grade collateral certainly plays a role in shadow banking and there is definitely a current shortage, but what it does not do is facilitate the supply of credit to the non-financial sector. (My own post on this: http://monetaryreflections.blogspot.co.uk/2013/09/collateral-shortages-and-availability.html)<br />Nick Edmondshttps://www.blogger.com/profile/15342983814699700396noreply@blogger.comtag:blogger.com,1999:blog-8897997766931633186.post-10912861017733250642013-12-24T15:16:12.399-05:002013-12-24T15:16:12.399-05:00Good post Bill.
In a way, the non-payment of inte...Good post Bill.<br /><br />In a way, the non-payment of interest on currency is like an implicit subsidy to all forms of banking, whether shadow or not. I need to think about this one some more.Nick Rowehttps://www.blogger.com/profile/04982579343160429422noreply@blogger.com