Comment by 827a
4 days ago
Yeah its important to decompose those two sources (among others) of "money printing". The obvious one people think most about is when our federal government does it. But a more concerning one is: Enforced banking reserve ratios. If a bank holds a trillion dollars in assets and is allowed to hold a reserve ratio of 10%, they can print $10T out of thin air, because they're allowed to issue debt up to that amount.
As far as I'm aware, in 2020 the reserve requirement in the US was set to 0%, and it has not been changed since then.
Yes, but with the “revolving door” between private financial institutions and government financial policy/regulation, there’s little real distinction anymore between the two.
Those private banks can print that money out of thin air because government allows them to. And the government officials (many formerly financial executives) allow them to because they “have to” to prevent “disastrous” private banking/financial collapse.
But if you or I wanted to play the same games to print our own money they way they do? No, that would be wrong and dangerous and illegal!
So it’s pretty clear that both government and private financial institutions are tightly coupled partners in a mostly corrupt, intentionally obfuscated shell game that primarily serves to keep money and power steadily flowing into the hands of the already wealthy and powerful.
Just look at who is actually held accountable for financial crimes. Some individual trader that finds and exploits some glitch that allows them to profit from the wealthy? Straight to jail. High ranking institutional powers (government and private) that implement often illegal schemes that continuously siphon wealth from common people into their hands? Slap on the wrist at most.
Reserve ratios have not been the major capital constraint for a very long time. Loan to deposit ratios have been. And those have stayed in normal bounds since the great financial crisis. Both bank regulators and importantly bank investors keep on top of this because they are the ones to lose the most if it gets out of wack.
The reserve requirement had to be loosened because banks became too conservative, largely because their investors were skittish about ldr.
You think that there might be a "quality to the quantity" wrt deposit levels after years in an ultra-low interest rate environment? IIRC, deposits in SVB, FRB, and Signature combined outsized WaMu, with the difference being that WaMu was one of the largest banks in the country, while the average person had not heard of Silicon Valley Bank et al. until the day "Silicon Valley Bank Fails," lit up headlines.
At least in the svb and frb case high ldr contributed to the bank runs that ended them. But note in this context frb at .96 was seen as bad and svb at 1.6 was disastrous(.7 is good).
Thats the real brake on money creation by banks, not the reserve requirement.
This is a misconception afaik, yes there is no longer a literal percent reserve requirement but banks are still required to be “adequately capitalized”, the metric is just more complicated now.
Doesn't our federal government set reserve ratios? They may not be creating money, but by setting the ratio (and other limits), they at least have a strong influence on creation.
I wish I could print 400,000€ to buy a house with 40k in my account.
Isn't that a mortgage?
All you need is some deposits
Another source in the last half a decade or so is digital coin "mints."
Quick look on coin market puts the total market value at ~$3 trillion. Yet that money effectively was created from nothing. It's basically money printing.
With credit cards that accept digital coins as financial sources it's also started to affect the actual markets significantly.
From the charts shown, markets have also gotten quite a bit frothier, with larger swings and spike / drops in margin, since 2020 when coin valuations really took off.
Personal view, it probably also contributes since it's less "real" from a certain perspective. Just digital numbers to wager, that don't really mean the same as mortgaging your house. "Eh, just wager like 10 or 20 digi-coins on margin." Except that's like $1-2 million these days.