by This overly simplistic analysis misses the mark there is more to it than this Accounting:This is why understanding accounting is so important. If I’m a bank with 0 in assets, in deposit liabilities, and equity (residual), my total equity capital as % of assets = / 0 = 10%. If reserves and deposits both ⬇️ by , now equity capital = / = 11% https://t.co/eKQKyCWWbW— Applied MMT Podcast 🎙️ (@AppliedMMT) August 10, 2023 The MMT people say this here which implies a Depository will always have the reserve balances to settle a withdrawal.. (btw while at the same time saying “reserves don’t matter” so which is it?). (btw They also say “loans create deposits” while implying here that a deposit liability creates a reserve asset, so again which is it?)The Fed reduced its
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This overly simplistic analysis misses the mark there is more to it than this Accounting:
This is why understanding accounting is so important. If I’m a bank with $100 in assets, $90 in deposit liabilities, and $10 equity (residual), my total equity capital as % of assets = $10 / $100 = 10%. If reserves and deposits both ⬇️ by $10, now equity capital = $10 / $90 = 11% https://t.co/eKQKyCWWbW
— Applied MMT Podcast 🎙️ (@AppliedMMT) August 10, 2023
The MMT people say this here which implies a Depository will always have the reserve balances to settle a withdrawal.. (btw while at the same time saying “reserves don’t matter” so which is it?). (btw They also say “loans create deposits” while implying here that a deposit liability creates a reserve asset, so again which is it?)
The Fed reduced its own RRR from a former ≈10% of deposit liabilities (btw a policy MMT people criticized) to the current 0% back in 2020 so now what is supposed to happen if the Depository doesn’t have the reserve balances to settle large depositor withdrawals?
As happened back in March, Depositories have to sell other forms of regulatory required govt issued financial assets now at severe losses… due to same incompetent Fed psycho’s unprecedented risk free rate increases to reduce their figure of speech “inflation!” … which can lead to a total loss of the Depository’s equity… and the Depository has to be closed with uninsured deposits at risk of total loss for the unsuspecting innocent depositors…
So there’s a lot more to it..