Stocks Slump; Car Makers, Housing Hit

[DuncanK]

Originally posted by Lawrence of Arabia
Dunkan - but the majority of the money that the lendor lends does not come off the backs of the working class. In the US, banks need to have 10% of their lendings backed up by cash. that means that out of 100 dollars that you borrow, only 10 of it came from the workers

this money is hardly dripping of blood.

Actually it's 10% of their short term deposits. There is still a dollar deposit for every dollar out on loan.

[DuncanK]

Originally posted by Lawrence of Arabia
and those bonds will in no way cover the deficit, because even if every dollar of the tax cut was invested into bonds, the US would still run a deficit for the next 3 years at least.

LoA,

The deficit is financed by these bonds. That's how the government borrows the money to spend the deficit.

[Lawrence of Arabia]

banks fail when everyone goes there to collect. this is because they only have 10% of the money to back up their loands

[DuncanK]

Originally posted by Lawrence of Arabia
banks fail when everyone goes there to collect. this is because they only have 10% of the money to back up their loands

Yes, I know that. I'm not talking about the required reserves. I'm talking about the deposits.

[DuncanK]

Originally posted by Ted Striker
I've said it before and I'll say it again.

The day Saddam is DEAD, the entire world will begin to turn around.

It might be late by then. Things could get pretty ugly.

[Lawrence of Arabia]

i dont understand what this has to do. the government borrows from private banks to cover t heir deficit.

[DuncanK]

Ugh! Poly went down again.

LoA,

After the Treasury bond auction, the dollars can be put back in the banks from the savings from the tax cuts. In that case interest rates wouldn't go up too much. Either that or the people who recieve the tax cuts will buy bonds and the result will be similar.

On the other hand, if the people who recieve tax cuts niether make bank deposits or buy treasury bonds interest rates will go up. But I think that there is a good chance that rates won't go up much.

[Solly]

[DuncanK]

Nice graph. I think i is right about at that point right now too.

[Lawrence of Arabia]

T bonds go into the Fed. People dont borrow from the Fed they borrow from private banks.

so the government borrowing from the private banks increases, and with decreased interest rates, people borrow more. as a result, there is less money in the banking system and the price of money at those individual banks goes up. the interest rates increase.

[Sten Sture]

Larry - not quite right there. The Fed controls the liquidity in the banking system. The Treasury borrows through issuing debt (Bills, Notes and Bonds) to a wide variety of investors. Those two are not really related, though the Fed can change their holdings in Treasury isssues to change liquidity.

Interestingly, deficits usually result, at least initially, in lower interest rates, but only because low rates are caused by a lack in general demand for debt that accompanies economic slowdowns and therefore also lower tax receipts.


The lower housing sales figure that Dunk referenced in the first post was for New Homes. Existing Homes sales had a strong result for the same time period. Existing Home sales account for about 7/8ths of Home sales - so don't necessarily read too much into it yet.