TITLE I - Troubled Assets Relief Program

Sec. 128. Acceleration of Effective Date. (4 Comments)

4 comments on Sec. 128. Acceleration of Effective Date.

• THIS IS A VERY BAD PROVISION.
  
  This provision allows the Federal Reserve to eliminate the reserve requirements for all banks. Shifting to a zero-reserve system overnight is completely insane and will lead to runs on banks. Heck, I'll be running if that happens!

  posted by Nathanael Nerode at October 1, 2008

• A Tax???? A brief “run down” will indicate just how costless, indeed how profitable – to the participants, is the creation of new money. If the Fed puts through buy orders in the open market, the Federal Reserve Banks acquire earning assets, by initially creating new inter-bank demand deposits (IBDDs).
  
  
  
  The U.S. Treasury recaptures c. 97% of the net income from these assets (via SOMA). The commercial banks (collectively, or as a SYSTEM) acquire “free/gratis” legal reserves, yet the bankers complain (always have their hand in the cookie jar) that they are not earning any interest on their balances in the Federal Reserve Banks (IBDDs), i.e., that it is a regulatory burden [sic].
  
  
  
  So, if as the bankers & their collaborators say (this is a tax), then why is it, that when excess reserves are added by the FED, that the member commercial banks collectively expand loans & invest?
  
  
  
  On the basis of these newly acquired reserves, the commercial banks can, and do, create a multiple volume of credit and money. And through this money, they acquire a concomitant volume of additional earnings assets.
  
  
  
  How much is this multiple expansion of money, credit, and bank earning assets? Thanks to fractional reserve banking (an essential characteristic of commercial banking) for every billion dollars of legal reserves pumped into the member banks by the Fed, the banking system can, and does, acquire c. 208+ billion dollars in earning assets through credit creation (based on the money multiplier or expansion coefficient).
  
  
  
  The return of $208 billion dwarfs the interest foregone on idle reserves [sic]. I.e., the banks rate of return (payment of interest on bank balances) on required reserves = 1.4% & for excess reserves = .75%.
  
  
  
  The banks rate of return on more than $207 billion is obviously 207% higher. The conclusion is obvious. Legal reserves are not a tax, they are like manna from Heaven. I.e, the banks get paid twice.
  
  
  
  And unfortunately for the rest of us, this money creation does not provide the remotest assurance or possibility that the dollars created will be matched in the marketplace by an offsetting addition to the volume of goods and services offered.
  
  
  
  There are 3 taxes: (1) direct tax is the one on the citizens of the United States, and (2) the TAX, is INFLATION, (3) (and the last one, on the capacity of these collaborator's minds).
  
  Legal reserves are a credit control device. The money supply can never be managed by any attempt to control the cost of credit.

  posted by flow5 at October 20, 2008

• The crux of the cause of our monetary mismanagement, especially since 1965, is the assumption that the money supply can be managed through interest rates, specifically the federal funds rate, (or via the federal funds “bracket racket”, or thru a series of temporary “pegs”, or via a Taylor-like rule).
  
  We should have learned the falsity of that assumption in the Dec. 1941-Mar. 1951 period. That was what the Treas. – Fed. Res. Accord of Mar. 1951 was all about.
  
  The effect of tying open market policy to a fed Funds bracket is to supply additional (and excessive legal reserves) to the banking system when loan demand increases.
  
  The Fed’s technical staff either never learned, or forgot, how Roosevelt got his “2 percent war”. This was achieved by having the Fed stand ready to buy (or sell) all Treasury obligations at a price which would keep the interest rate on “T” bills below one percent, and long-term bonds around 2-2 1/2%, and all other obligations in between.
  
  This was achieved through totalitarian means, involving the control of total bank credit and the specific rationing of that credit. Plus there were controls on prices and wages that kept the reported rate of inflation down.
  
  There are only 3 interest rates that the Fed can directly control in the short-run; the discount rate charged to bank borrowers & the primary credit rate for both the PDCF & ABCP. The effect of Fed operations on all other interest rates is INDIRECT, and varies WIDELY over time, and in MAGNITUDE.
  
  As any monetarist knows, the money supply can never be controlled by any attempt to control the cost of credit.
  
  The only tool at the disposal of the monetary authorities in a free capitalistic system through which the volume of money can be controlled is free/gratis legal reserves.

  posted by flow5 at October 20, 2008
• This was the worst part of the entire bill.
  
  Please see: http://en.wikipedia.org/wiki/Talk:Eme...

  posted by James Salsman, U.S. Citizen at November 19, 2008