slug.com slug.com

2 2

On Banking, Finance, and Economics

Thus starts a series of posts on three subjects that are interrelated but not often well understood. Now I just finished reading a post where the essential question had to do with hyper inflation, the printing of cash, and quantitative easing. One might confuse quantitative easing with the printing of more cash but one would be wrong. The last data I came across put forth the proposition that the amount of currency and coin in circulation (paper and coin) was perhaps one or two percent of all account money sitting in the banks vaults. While it makes a good cartoon image for the progressive liberal of the wealthy running barefoot through pallet loads of cash, it never happens. Think about that for a moment. If I have a million dollars in cash sitting in my living room for a year, then I am losing ten thousand dollars a year, assuming I could get one percent interest per year. So when the US federal government, through the appropriations and authorizations bills (Congress must appropriate the money to be spent but the government cannot spend it until it is authorized to do so) spends those authorizations but has not the income through tax receipts, tolls, tariffs, and the like, then we have a slight problem. The Treasury issues bonds and other debt instruments for sale on the open market. The Federal Reserve Bank can buy such debt, as much as it wishes. It can also sell such debt instruments. If few private or corporate or foreign governments do not buy all the bonds offered at a particular auction then the Fed will step in to buy what is left. Of course this is not quantitative easing, this is simply helping to fund government debt. The Federal Reserve Bank is also the banker of last resort. It also allows overnight loans of money from member banks to other member banks. It is also the clearing house of all financial instruments such as checks, wire transfers, and such. On the world scale, the IMF (International Monetary Fund) does the same thing as each country's central bank.

The banking industry has changed over several centuries and not always for the better. Banks in the early history of our country were state, or in some cases, city chartered institutions, usually of a financial trust nature. Because they were chartered in a state, they did not come under the interstate commerce clause of the US Constitution and thus could not operate across state borders. The Federal Reserve Act brought about a change in the banking business. A state chartered bank could now become nationally chartered bank and as such must be a member of the Federal Reserve Bank System. Small state banks could always keep their state charters it they though it beneficial. There were additional banking laws that encouraged the formation of savings and loan societies as well as credit unions. There were the backbone for many years for home ownership. One joined a savings and loan bank, conducted the normal financial transactions of deposit and withdrawal (most blue collar and white collar and farmers did not have checking accounts and most consumer business was done on a cash basis (note this well). The deposited funds in savings accounts paid interest on the account and the income to pay that interest came from the mortgage interest paid on the loans issued by the savings and loan bank. There were limits as to the percentage of the deposits that could be lent, the load size, the term limits, and so forth. There were not going to be housing booms as we know them today.

Credit unions operated on the same basis but were formed for the business of personal loans. They were forbidden to make real estate loans or mortgages. My how the country has changed. Let us leave it here and come back tomorrow.

Marta-Amance 7 Apr 6
Share

Be part of the movement!

Welcome to the community for those who value free speech, evidence and civil discourse.

Create your free account

2 comments

Feel free to reply to any comment by clicking the "Reply" button.

0

The bottom line is that the Federal Reserve has gotten better at covering up their Ponzi scheme . The beauty of their scam is that they can just pull the plug on it and leave U.S. citizens holding the bag .

0

Can't wait. I understand money itself and have read quite a bit on economic theory. I am weak on banking and even weaker on finance and investing.

You can include a link to this post in your posts and comments by including the text q:28163
Slug does not evaluate or guarantee the accuracy of any content. Read full disclaimer.