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27 votes

Why do banks take deposits if they do not need them to make loans?

I think there are a few separate issues here. First, semantics: if an institute doesn't let you deposit money into your account, I think we'd be hard-pressed to call it a "bank". This really ...
MichaelS's user avatar
  • 395
13 votes
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What Level of Government Debt to GDP Ratio is Sustainable?

As you have pointed out: where it comes from is very important. As to the Japanese situation it is quiet different from the US position from example. In fact most of the Japanese debt is owned by ...
Alexis L.'s user avatar
  • 593
13 votes
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What would happen if China called in its debt?

You have to understand how international debt works. These are not loans, but bonds. China buys a US bond for, e.g., 98 USD. This bond is a promise by the US Treasury to pay 100 USD one year from now. ...
Tobias's user avatar
  • 970
10 votes
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Is investment in real estate a real investment?

Purchasing new homes would count as an investment. According to Blanchard et al. Macroeconomics: a European Perspective pp 568 in glossary investment is defined: Investment (I): Purchases of new ...
1muflon1's user avatar
  • 55.6k
9 votes

What Level of Government Debt to GDP Ratio is Sustainable?

I don't think you can sensibly discuss this without including two additional factors: what is the prevailing interest rate? is the debt in local or foreign currency? The first affects the cost of ...
pjc50's user avatar
  • 558
8 votes

Why do banks take deposits if they do not need them to make loans?

This isn't the first time I've seen people claim that this Bank of England article says banks don't need to take deposits, but in fact the article actually says the opposite. In order to make loans ...
Ross Ridge's user avatar
7 votes

Will major economies be able to repay their debt?

Whether a country's debt is sustainable is a difficult question to answer. Bohn developped a framework for answering this question and the cited paper is a summary of much of its findings. Henning ...
Stinky's user avatar
  • 419
6 votes
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Consequences to lending and value of national currency from a negative interest rate and 140-year mortgages in Sweden

There is some concern about the interest rates (currently at -0.5%) fueling a housing bubble in Sweden. This article at Fidelity states: In a bid to track the ECB, Sweden has cut its interest rate ...
user100487's user avatar
6 votes
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Is the loan principal ever delivered in pieces over time?

Handing out the principal amount of debt gradually, in increments, is standard practice in investment loans extended by a bank to a corporation. The rationale is clear : the corporation wants to ...
Alecos Papadopoulos's user avatar
6 votes

Why do banks take deposits if they do not need them to make loans?

I think this perhaps seems/reads like a theoretical chicken-and-the-egg scenario, but IMO it's not really. The reality is just that fiat currency is like magic, and created out of nothing. Rather ...
unknownprotocol's user avatar
6 votes

Can this transactions log become "money"?

There are some huge problems with your idea. There is no surplus value in your scheme. If you trade Alice a couple of cups of coffee for fixing a broken window, then you and Alice are square. But now ...
Charles E. Grant's user avatar
5 votes

Will major economies be able to repay their debt?

For any country that issues its own currency, having a sovereign debt in its own currency is a choice. It can always be monetised. This will cause a one-off inflation episode, but it does lessen, or ...
410 gone's user avatar
  • 8,143
5 votes

What is the need for a special purpose entity/vehicle in mortgage backed securities

Here are a few reasons that build on @Dismalscience's answer. Capital requirements: Banks don't typically need to hold capital against loans they originated but subsequently moved into an SPV. This ...
BKay's user avatar
  • 16.3k
5 votes

Why do banks take deposits if they do not need them to make loans?

Banking is confusing, and a lot of explanations apparently make things worse. In this case, ignore whatever you read, and go back to first principles. By definition: balance sheets must balance. ...
Brian Romanchuk's user avatar
5 votes

Can this transactions log become "money"?

This is not money because there is no unit of account Referring to the definition of money that people gave you in the comments, the biggest element lacking in this scheme is that there is no unit of ...
Nobody's user avatar
  • 151
4 votes

Who owns German debt?

This Deutsche Bank figure from 2013 has some broad categories for German debt and compares it with other rich countries: A newer chart, using slightly with more granular categories. Note that Germany ...
BKay's user avatar
  • 16.3k
4 votes

What is the need for a special purpose entity/vehicle in mortgage backed securities

SPVs are typically used in MBS issuance to get the loans off the issuing bank's balance sheet, freeing up that balance sheet space to make more loans and providing bankruptcy-remoteness (i.e., the SPV ...
dismalscience's user avatar
4 votes
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How much leverage has the Federal Reserve taken on today (Jan 2016)?

Page 4 of this document has the balance sheet as of November 2015: http://www.federalreserve.gov/monetarypolicy/files/quarterly_balance_sheet_developments_report_201511.pdf Their assets are 4489 ...
Dole's user avatar
  • 456
4 votes
Accepted

If banks create money by lending it out, how are they taking any risk?

Try the magic of double entry bookkeeping to see that creating money does not immediately make a bank more valuable. Initially the loan is matched by a deposit, and this is creation of what is ...
Henry's user avatar
  • 4,755
4 votes
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What's the difference between public debt, government debt and national debt?

With all these types of debt, there are various descriptions rather than standard definitions, and sometimes the same thing can be labelled with different names or the same name used for different ...
Henry's user avatar
  • 4,755
4 votes

What would happen if China called in its debt?

Also remember that China's holdings of US Treasury's are a manifestation of the fact that they run a current account surplus with the US e.g. they sell more stuff to us than what they buy from us, ...
HookahBoy's user avatar
4 votes

Printing Money vs. Issuing International Bonds

Bonds are backed by real resources. Money is backed by nothing. Lets say I'm a British investor. The price of 1 kilo of cotton is 100 British pounds. If I buy a bond for 1 kilo of cotton redeemable ...
TheSaint321's user avatar
4 votes
Accepted

When Does a Country's External Debt Become a Problem?

The position is both worse and better than you describe If you look at Section 7 and Figure 6 of https://www.ons.gov.uk/economy/nationalaccounts/balanceofpayments/bulletins/balanceofpayments/...
Henry's user avatar
  • 4,755
4 votes
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Why do bonds pay back the entire principal at maturity instead of paying it off gradually?

They just issue new debt to roll over the principal anyway. Unlike individuals, they do not have a fixed life span. Trading amortising bonds in the secondary market is a pain, since you then need to ...
Brian Romanchuk's user avatar
4 votes

Is it possible to repay the world debt? If not, why do we care?

So there are a couple of things you want to consider: 1st: It is not true that if some country gains 1% some other country must have lost that 1% of economic growth. The economy is not a zero-sum ...
Regio's user avatar
  • 4,188
4 votes
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What is the logic behind that one can "grow out of debt" via increase in GDP?

If they invest in productivity-enhancing stuff, GDP could grow at a faster pace than the [increase in] debt. Then the debt to GDP would decrease.
Art's user avatar
  • 2,784
4 votes

What would happen if the U.S. "refinanced" its national debt?

The Treasury continuously issues new debt, and retires matured issues. (This is called “rolling over debt.”) The Treasury has no right to pay debt off early (“refinance”). The closest thing that can ...
Brian Romanchuk's user avatar
4 votes

Statistics of links between public debt and recessions

Yes actually many people bothered to study this link. To be more specific the studies are between debt-to-GDP and economic growth (but recession is defined as negative economic growth - more narrowly ...
1muflon1's user avatar
  • 55.6k
3 votes
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The appeal of low-dividend stocks when trading with government debt

In the paper cited at the end of this answer, the incentives for all three parties involved are discussed. Not only did the creditors suffer from a lower return after the conversion, they also faced ...
Wecon's user avatar
  • 913
3 votes

What Level of Government Debt to GDP Ratio is Sustainable?

The key point is not the Debt/GDP ratio by itself but the sustainability of the debt over time. The government borrows money from the market and uses taxes to repay it, as households borrow money ...
Bux's user avatar
  • 31

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