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"Why total loans by banks are contracting so fast?"
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Joined: Jan 01, 1970
|Post subject: "Why total loans by banks are contracting so fast?"
Posted: Mon Mar 02, 2009 10:03 am
The absolutely most contractionary action a Central Bank can take is to increase reserve requirements. For example, with a 10% reserve requiremnt, our banking system has to have 10% cash on deposit either in house or on deposit with the fed. Ergo $100 cash reserves = $1000 dollars in loans.
So having 33 to one reserve ratio = 33 dollars in loans for 1 dollar in reserves is a huge difference. 33 to one was where our banking system was before our regulators and politicians got religion and started enforcing the laws on our books. They said, the banks went way to far, lets go immediately back to the time tested prudent level of 10% reserves.
Ergo, increasing the reserve requirement to 10% overnight from 33 to one means literally that loans outstanding must decrease by 23/33, i.e around 70% assuming reserves stay constant, and they were actually contracting as loans went bad. Thus tripling the cash in reserves is impossible, as no cash flow is what exposed the debacle in the first place.
So where did the trillion plus the fed and treasury have given to these many times over bankrupt banks go?
As we will see, it can not go into buying a single new good and service.
Here is how that works. The fed/treasury makes a cash deposit with our taxpayer dollars, immediately without passing go, the banks buy treasuries to hold as cash reserves. Not a single dollar reaches the real economy = us.
The banks must do so to meet their newly imposed imposed 10% reserve requirement.
The only solution to stop this madness is bankrupt the banks. We own them because they lost their depositors monies and we guarantee the deposits.
The people who made these insane, illegal, fraudulent loans must be held accountable and the people who own the bad paper must be made to take the loss and or go bankrupt. No economic recovery is possible with the payments to keep this massive overhead of illegally made and dishonest loans and investments alive.
Recovery from this massive depression demands we enforce Strict Liability on people who make bad bets on the future.
Above all, in the future, no bank must be let to control over 1% of deposits and no government guarantees for private bad bets which is exactly what a loan is. We already guarantee the depositors.
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