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| Mac - The hope of the FED is to prime the loan engine pump of the major banks in the US so that money will be once again created via increases in the loan to deposit ratios....IE) the normal monetary creation method that John has so nicely referenced for us.
Interesting article to read from Forbes which details the shrinking loan to deposit ratios over recent years:
http://www.forbes.com/sites/greatspeculations/2014/09/25/a-look-at-...
The trends are actually rooted in the banking crisis in 2008 and may be reversing at this time, although I believe it is way to early to say that we are in recovery mode at this stage. But, theoretically, if the banks start increasing their loan to deposit ratios, more money should be created which, in turn, would allow the FED to reverse their quantitative easing money that they created out of thin air. That is the great hope.
There are too many unknowns to say this will really work from both macro and micro perspective. Honestly, from my admittedly micro perspective in a bank, it is real hard to find quality loans in the banking industry that are sufficient in volume to substantially increase the loan to deposit ratio when one considers the macro level. Mostly, we are just refinancing debt from one lender to another and not really seeing a lot of new loan businesses created that would actually increase the money supply.
For me, it does come back to declining values from both the population in general and the officials we elect to represent us. There are just so many minefields out there, it is real hard for me to see going back to pre 2008 conditions. Honestly, you need to go back another 15 years or so before 2008 to find a time when decisions were really sounder, b/c it was the decisions that were made prior to 2008 that created the crisis in the first place.
It seems to me that politicians have learned that if they just keep on repeating a lie and never come clean, they are not held accountable like they used to be. Why do we not confront evil such as ISIS? Tell me why it is okay for Syrian Muslims to immigrate to the US and Latinos to illegally immigrate, but Christians who face have their heads cut-off from ISIS are told there is no room in the Inn? We are quickly becoming a nation of lawlessness IMO. How about the break-down of the family? I have a brother who is getting a divorce and it was interesting to listen to the horrid advise he and his future-ex received from the marriage counselor. There are kids involved and there was very little concern on the part of the counselor in regards to the kids growing up in a broken family. So, as a lender, I am now told that equal credit standards need to be applied to pot heads and non-pot heads, right? How will that work out? Moreover, as we abort our kids, we wonder how or why there will not be enough workers to support Social Security in the future. How large is the National deficit projected to be in ten years? How can that debt be serviced if there is a crisis in confidence? Moreover, how many crisis in confidences have we had in the past and is realistic to suppose there will not be another in the future? How do you fix the problems when society define "right" as "wrong" and "wrong" as "right"? I could go on and on....hopefully, you see the same problems that I do.
Therefore, I suspect we will not be successful in the long term. The head winds are likely too strong IMO. Short-term....who knows?
So, a more likely scenario from my standpoint will be just more creative math the continue the dysfunction for as long as possible. One of those such tools might be just to offset the bloated FED balance sheet against the US Treasury Notes they purchased. IMO such future economic steps or similar creative past accounting steps are like a dog chasing its own tail and will ultimately fail as well, b/c a society with a systemic broken value system is incapable of producing real wealth or digging itself out of hole that we find ourselves in.
JMOs. (You asked). | |
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Loans make deposits II
