Tuesday, April 25, 2017

Change the name and avoid confusing yourself

Everyday economists simply adopts the excess reserve semantics of Bernanke without any backing theory

To say that banks are holding excess reserves because they have no other choice is therefore incorrect. While it is true that banks must hold the quantity of reserves determined by the Federal Reserve, their decision-making will determine whether they hold these reserves as excess reserves or required reserves. If banks are holding excess reserves, this implies that there is no operative mechanism of deposit creation. We might want to ask ourselves why this is the case.
The simple theory is that banks hold deposits and loans.

 If a bunch of human run around trying to call some of that excess, or capital, or Kanosian or whatever shit, all that means it that they are confused.

The system does two color trading of deposits against loans. The longer the economist attempts to make sense of a three color model they will waste their time and resolve back into a two color model. We do not do triple entry accounting.

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