The missing non-borrowed reserves…

[Sapiens]

The missing non-borrowed reserves…


I will give you a clue for those smart enough to figure this out to continue accumulating wealth.


When a borrower signs and issues a promissory note to a bank, he creates an asset for the bank, the reciprocal action is that it also creates a liability for the bank in the “monetary” currency unit called demand deposits.

Under securitization, the liability of the demand deposits are “sold” to the holders of demand deposits, which the results for the bank clearing the liability off the bank’s balance sheet.

What’s the result of the bank clearing their balance sheet? It results in extinguishing currency or medium-of-exchange, i.e. drying up liquidity.

When the 1st wave of sub-primed borrowers defaulted on their mortgages this placed the bank in a bind since the banks had to respond for those demand deposit liabilities with their own capital. Now that real estate prices are declining banks need assets that will maintain their price on the market and not be discounted from the face value, here enters the Gov. with their “stimulus package.” The Fed will monetize those bonds as soon as the President signs the stimulus bill, helping the banks recapitalize.

-Sapiens

[sadsack]

Re: The missing non-borrowed reserves…

The missing non-borrowed reserves…

Under securitization, the liability of the demand deposits are “sold” to the holders of demand deposits, which the results for the bank clearing the liability off the bank’s balance sheet.

What’s the result of the bank clearing their balance sheet? It results in extinguishing currency or medium-of-exchange, i.e. drying up liquidity.

-Sapiens

So, the "fractional reserve system" is in fact a myth? I.e., when TSHTF, the banking system switches to "100% reserves"?

Or perhaps, if your premise is accepted, that "fractional reserve" = transfer of liability to demand depositors in full inverse measure to the regulatory reserve requirements (e.g., 5% reserves -> demand depositors are on the hook for up to 95% of their deposits)?

If the latter, this would imply that under the FDIC regime, the next bucket in the fire brigade, AKA the taxpayer, must make up the losses to the demand depositors?

I'll be the guinea pig - are you implying that cold, hard, physical cash (not necessarily the USD) is soon to be coronated as "king?"

[Sapiens]

Re: The missing non-borrowed reserves…

So, the "fractional reserve system" is in fact a myth? I.e., when TSHTF, the banking system switches to "100% reserves"?

Sadsack, indulge me for a moment, I must choose my words carefully in order to articulate the concepts that follow.

Fractional Reserve Banking is not a myth in relation to what constitutes its “reserves.” But in relation to its fractions it is, since every fraction is backed by anyone willing to accept it. Get it?

Or perhaps, if your premise is accepted, that "fractional reserve" = transfer of liability to demand depositors in full inverse measure to the regulatory reserve requirements (e.g., 5% reserves -> demand depositors are on the hook for up to 95% of their deposits)?

If the latter, this would imply that under the FDIC regime, the next bucket in the fire brigade, AKA the taxpayer, must make up the losses to the demand depositors?

actual demand deposit limited to no greater than 100K per depositor... so says the regs... but see what they have actually done historically.

I'll be the guinea pig - are you implying that cold, hard, physical cash (not necessarily the USD) is soon to be coronated as "king?"

Cash is always "king", the problem is, what is to constitute cash and under what circumstances, i.e., before the credit contraction derivatives where considered cash.