If you are new to this blog, you are invited to read first “The Largest Heist in History” which was accepted as evidence and published by the British Parliament, House of Commons, Treasury Committee.

"It is typically characterised by strong, compelling, logic. I loosely use the term 'pyramid selling' to describe the activities of the City but you explain in crystal clear terms why this is so." commented Dr Vincent Cable MP to the author.

This blog demonstrates that:

- the financial system was turned into a pyramid scheme in a technical, legal sense (not just proverbial);

- the current crisis was easily predictable (without any benefit of hindsight) by any competent financier, i.e. with rudimentary knowledge of mathematics, hence avoidable.

It is up to readers to draw their own conclusions. Whether this crisis is a result of a conspiracy to defraud taxpayers, or a massive negligence, or it is just a misfortune, or maybe a Swedish count, Axel Oxenstierna, was right when he said to his son in the 17th century: "Do you not know, my son, with how little wisdom the world is governed?".

Saturday, 1 October 2011

Money multiplier v loan to deposit ratio


I have noted that in discussions going about my blog on some fora - including financial and bankers' ones - many confuse a concept of money multiplier with a concept of loan to deposit ratio. For example:

"Comment:

Re Rosie's excellent questions and the subsequent discussion, it's well worth looking at http://gregpytel.blogspot.com/

The author looks at what happens if the Reserve Ratio is allowed to go negative -- i.e. the banks loan out £101 (or more!) for every £100 deposited. Couldn't happen, right? Read for yourself...

RGB


Response:

That would actually be a very prudent reserve ratio...the banks traditionally would lend £900 for every £100 reserve.and that was in the good old days of Capt Mainwaring,in some cases recently that was stretched to a £100 deposit turning into £4900 in loans!(stupid boys)


The Comment clearly refers to loan to deposit ratio whilst the Response is about money multiplier.

Just as example, loan to deposit ratio of 90% - i.e. lending £90 out of every £100 - gives money multiplier 10, whilst loan to deposit ratio of 101% - i.e. lending £101 out of every £100 - gives unbounded money multiplier (i.e. the money multiplier tends to infinity at exponential pace).

Still confused? Then please read: "Computational complexity analysis of Credit Creation".

14 comments:

  1. As a student of economics in the early 90s, the multiplier effect was discussed. It was never tabled what would happen were the reserve ratio set negative (deposit ratio > 100%).
    Sadly, and to my shame, I have only recently experienced that light-bulb moment of just how cowboy the financial services industry has recently become ... if only we could get the mainstream media to highlight this? Or would that engender a form of financial Armageddon?

    ReplyDelete
  2. The problem is that editors of mainstream media appear to be completely incapable of understanding any mathematical basics of the financial system. So as the politicians. For them economy appears to be only an effect of "will power" and "confidence". Do you know that no member of the British Cabinet is formally trained in a numerical discipline?

    BTW, the depleting reserve banking (i.e. lending with loan to deposit ratio greater than 100%) is still advocated and practiced by the banks. Effectively this is what makes the financial system a wealth transfer mechanism from the taxpayers (i.e. middle classes) to the superrich.

    ReplyDelete
  3. This loan is particularly available for those who need an immediate capital for an advance payment on their new home after a mutual exchange or any other form of tenancy and those just leaving care.

    Payday Loans

    ReplyDelete
  4. I'm also visiting this site regularly, this web site is really nice and the users are genuinely sharing good thoughts.usmilitarylendingcorp.com

    ReplyDelete
  5. It’s really very informative that I wanted ever, thanks for this. go here

    ReplyDelete
  6. I want to say thank to you people for this great and helpful info. Thanks!!! facebook instagram

    ReplyDelete
  7. You fully match our expectation and the selection of our data.business credit builder

    ReplyDelete
  8. I'm certainly very happy to read this blog site posts which carries plenty of helpful data, thanks for providing such information.Click Finance

    ReplyDelete
  9. You have discusses incredible points that sounds good, keep up the great work. pay day loans

    ReplyDelete
  10. I don’t waste my free time that’s why I read the informative things when I got this blog I really enjoyed reading this. what online payday loans can practice in virginia

    ReplyDelete

  11. It’s really such nice information to get advantage from.
    credit glory new york

    ReplyDelete
  12. Hello ,
    Am Mrs Cynthia corvin . Am a lady with a great testimony I live in USA and i am a happy woman today? and i told my self that any lender that rescue my family from our poor situation, i will refer any person that is looking for loan to him, he gave happiness to me and my family, i was in need of a loan of $360,000.00 to start my life all over as i am a mother with 2 kids I met this honest and GOD fearing man loan lender that help me with a loan of $360,000.0.Dollar, he is a GOD fearing man, if you are in need of loan and you will pay back the loan please contact him tell him that is Mrs cynthia corvin, that refer you to him. contact Mr.Zak,via email:- feroozsuptoo@outlook.com

    ReplyDelete