“Tell me what the wires do”
Jan08
on January 8, 2013
at 10:05 am
This article begins with a tweet from the US economic blogger Noah Smith, who posts at Noahpinion:
Here we go, I thought – yet another mainstream attack on my non-mainstream economics. But why on earth would he see Minsky – my simulation program for modelling the economy as a fundamentally monetary system – as basically absurd? Because “DSGE modelling is so much better”, perhaps? Or because there are so many other good system dynamics programs already, why produce another one?
Guessing that it was the former rather than the latter, I fired back:
The battle was then started:
And then, suddenly, I realised that this wasn’t going to be a battle at all:
“Tell me what the wires do”? Oh dear…
@ Mmb, January 15, 2013 at 10:01 am
An answer to a question on transfer between customers of a single bank, and a customer cashing a check at the writer’s bank, and if the central bank is involved:
In short such transactions do not require check clearing outside the bank, so the central bank could possibly not be involved at all.
If a bank’s reserves are defined as the sum of currency on hand and it’s demand (checking) account with the central bank the answer could be simple. (There might be a better definition of reserves.)
In one case you asked about if customer, A, of bank X gives a check to B. Then B endorses the check to the bank and Deposits it in her account at bank X. There is no cash involved and only credit is transferred from A to B. There is no change in reserves.
In the second case, where customer, A, of bank X gives a check to B. Then B endorses the check to the bank X, who takes currency out of the drawer and hands it to B.
Because of the definition of reserves above. Bank X’s liquidity reserves has decreased by paying currency to B, but bank X’s the (demand) reserve account at the central bank is not touched.
If you want more detail you could ask me for more details.
Here is an interesting blogger http://coppolacomment.blogspot.com/
She might be able to help on further questions as she claims a background in banking and seems to understand bookkeeping. She may be getting back in to banking. She might know how one learns this stuff too.
@ Mmb (followup)
http://en.wikipedia.org/wiki/Bank_reserves
http://www.amosweb.com/cgi-bin/awb_nav.pl?s=wpd&c=dsp&k=Federal+Reserve+deposits
http://en.wikipedia.org/wiki/Reserve_requirement
Looks like he should rename his site to Noah Clue.
Steve,
This is worth having a look at (in relation to the Minsky program) if you haven’t seen it already: Interactive Exploration of a Dynamical System