Lumi
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Implications of abolishing Fractional Reserve Banking on mortgages and interest rates
14 votes

There is a long standing problem in most discussions of Fractional Reserve Banking (FRB), around the precise definition of money. Cash money (that is M0) is an asset on the banking system balance ...

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Why is the rouble collapsing?
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7 votes

The answer is very clear when you look at Russia's monetary statistics. The Central Bank of the Russian Federation has a very good site, and you can see them here: Russian Money Supply (M2) or ...

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How do reserves move between the 12 federal reserve banks?
7 votes

Clearing for the US Banks is done through the Automated Clearinghouse System which is operated by the Fed. For transfers of central bank money, which would include transfers between reserve banks, the ...

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How is monetary policy fair in the current economy?
6 votes

The description you're providing of how interest works is based on a couple of fairly common misunderstandings about how the system actually works, so lets clear that up first. Fractional reserve ...

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Could debt cause inflation instead of deflation?
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6 votes

Yes it can. If debt originates from the banking system, then it potentially has a side effect of money creation. Whether or not money is actually created when a bank loan is made depends on the ...

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What prevents a bank from simply going into their computer system and adding some zeros to their bank account?
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6 votes

Double entry book keeping. If we take the example given here, of the Greek Central Bank (bank nerd trivia - interestingly the GCB is a commercial bank, listed on the Greek Stock Exchange), ...

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Why does any treasury / central bank hold gold?
6 votes

It's a holdover from the old Gold Standards. Gold standard regulation required all banks, including the central bank to hold gold as a regulatory asset. In the last gold standard, the Bretton Woods ...

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How does a cash deposit change the M1 measure of the money supply?
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6 votes

It's best to always check the exact definitions for M questions, because they can vary a little between countries. I'll use the US Federal Reserve's here, viz. "M1 is defined as the sum of currency ...

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Unintended consequences from "fixing" the US financial system
6 votes

1) Would lead to the return of general panic led bank runs, and introduce additional instability to the system. It´s not generally appreciated, that 19th century bank runs were not just a symptom of ...

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Can econometrics test for correlation or causality between prices and corruption?
6 votes

While it´s true that there is no direct relationship between corruption and inflation, there are mechanisms which can lead to corruption acting to influence inflation through the monetary system. ...

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How does the money supply behave when bank loans are repaid?
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5 votes

The money is removed when the loan principal is repaid. The actual point in the loan this occurs depends on the loan terms. For a typical compound interest rate loan, this means a small portion of the ...

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How is money created on net?
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4 votes

No, it's not correct to say that extra cash money comes into the world as interest paid on the reserve accounts of commercial banks. In today's banking world, physical cash money is printed on demand....

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Why plug deficits with bonds rather than printing money?
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4 votes

There are several issues with this approach. One is that any changes in the quantity of money - including those considered 'acceptable amounts of inflation' - act to distort the price signal being ...

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Is it possible to eliminate the U.S. national debt?
4 votes

There is a lot of controversy in economics about the advisability or otherwise of government taxation and deficits, but let's skip that and just look at the figures. The U.S. National debt held by ...

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How can nominal interest rates be negative?
4 votes

In banking, Rule 0 always applies: The central bank can do whatever it wants. There is no reason per se, why the nominal interest rate can't be < 0 for short periods, and there have been several ...

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What metrics would indicate a house bubble rather than genuine market values?
4 votes

It's actually quite easy. The key things to know are 1) that the majority of house purchases are made via mortgage lending, and that 2) an excess of bank lending over bank loan repayment causes money ...

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What would happen if the world switched to a single currency?
3 votes

After a period of time they would switch back. Why? The monetary systems of each country are based on fractional reserve banking, which creates a leveraged relationship between currency and deposits ...

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Why do indebted governments fear deflation?
3 votes

They don't or shouldn't, fear deflation absolutely. But it's a complicated issue because there are two causes of deflation/inflation. One is changes in the money supply, the other is changes in ...

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Is it possible to have a modern economy without a central bank?
3 votes

Mechanically speaking, there are two functions that have to be centralised, although the second one need not be performed by the central bank historically it usually is. There is an absolute ...

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How does a reduction in consumer spending in favour of consumer saving, affect economic activity?
3 votes

As stated the Government successfully runs a campaign and people stop spending and start saving. Part of the answer depends on how they save, and the other part depends on how manufacturers react. ...

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Is technical analysis somehow a valid method for investment?
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3 votes

The Lo, Mamaysky and Wang paper Foundations of Technical Analysis: Computational Algorithms, Statistical Inference, and Empirical Implementation is probably the best investigation of this question. He ...

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Are bank reserves part of M1 or only part of M2, and why?
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2 votes

Using the Federal Reserve's definition for M1 (warning, M definitions can vary between countries, so always check the local definition): "M1 is defined as the sum of currency held by the public and ...

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Basic question: why do markets grow?
2 votes

The general answer is no, a closed market with only money circulating within the market, and that money never leaving it or entering it, cannot increase its aggregate price level - provided that the ...

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Why is the Euro a bad idea compared to other currencies?
2 votes

The systemic problem with currency unions, and this is true of all historical currency unions, not just the current Eurozone, is that the banking systems that comprise them expand their money supplies ...

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Can banks maintain Euro accounts if the country they're in leaves the eurozone?
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2 votes

Arguably the problem all along with the Eurozone (and any other currency union) is the operational mechanics of the underlying banking system. From a systems perspective, banking systems ...

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P-value hacking
2 votes

There is one thing perhaps worth adding to the excellent answers above, which is there is essentially a meta-numbers game going on as well. Lets say that 20 scientists all do the same set of ...

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Who regulates the balancing of the books for commercial banks? How? Is it public information?
2 votes

It's public information, and you can take courses, and even university degrees in it. The double entry book keeping technology used by banks is essentially designed to tackle exactly this problem, ...

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Why did large denomiations exist in the early 20th century?
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2 votes

Even back in the 19th century, the American economist Dunbar reported then that 90% of all financial transactions were being performed as transfers using cheques or bills of payment. However, in the ...

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How Much Gold Did Weimar Have Pre-Hyperinflation?
2 votes

It´s an historical side note at this point, but it´s not entirely clear that the Weimar authorities fully understood what they were kicking off. The first public acknowledgement of the multiplier ...

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What benefits do OPEC countries obtain by cutting oil supply?
2 votes

To appreciate why OPEC can´t do this now, we have to understand a little better why they were able to do it in the 1970´s - temporarily at least. The received wisdom on the 70´s crisis is a little ...

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