Wednesday, May 17, 2017

Bundesbank is in for a great fall

Bundesbank has a theory on S&L technology. A key statement is this:
Sight deposits are created when a bank grants a credit or purchases an asset and credits the corresponding amount to the customer’s bank account in return. This means that banks can create book money just by making an accounting entry. This refutes a popular misconception that banks act simply as intermediaries at the time of lending – ie that banks can only grant credit using funds placed with them previously as deposits by other customers.
The sandbox model destroys the concept. In the sand box, a member bank takes a loan, literally just grabbing digits from the pit boss. The pit boss then makes sure all other member banks get a good peak at the trade book so they can hedge the new loan. When that is finished, the pit boss re-establishes the balanced set of deposits to loans, then executes interest swaps relative to the virtual set of deposits to loans. Banks have no priviledge because the trade book uncertainty is equally shared, no bank gets two bites at the trade book in one action. We can see, then, the Bundesbank model is a rig, a the fix is in; and if Bundesbank thinks it can hold the rigged game, think twice, we gonna wipe that out.

The post provides an alternative:

However, it would be absurd to continue with an arrangement, which is designed to make money creation as easy as possible, after introducing 100%-money, which aims precisely at preventing banks from creating money. All it takes to stop money creation under 100% money is to make sure that banks can access central bank funds only at the beginning, but not toward the end of the reserve period, except maybe at penalty rates. If this change is made, banks can only intermediate existing money, but not create new money. New money would only be inserted into the system by the central bank.

The proposal is straight out of the the sandbox NGDP targeting system, using periodic money injections.  In the sandbox, we can control the ledger fees and keep congestion optimum through out the period, thus removing all hedges for the quarterly NGDP injections.  Again,  Bundesbank special government fix is gone.
This is what we eliminate, government rigging the game for their pals and their debt while the rest of us get the less than the even money bet.  Sasndbox removes booms and busts, mostly.

There is a perception that double entry accounting ultimately charges us for the bank fix. Yes, true once per generation.  Look at the significant motions of our rate cycle. You can see us mark Bundesbank's special price rig every generation.

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