Re: Seigniorage in Australia

From: Bill Ryan (william_b_ryan_at_hotmail.com)
Date: 08/21/04 

Date: 20 Aug 2004 23:50:44 -0700

It's true the Fed does not gain income by selling
notes to banks. I explained why in my article at
http://wfhummel.net/seigniorage.html. But the sale
itself was never claimed as to how seigniorage
accrues. Ryan ignores how the Fed does gain income,
namely in the process that results in the public
acquiring the notes. As the public withdraws notes
from their accounts, banks lose reserves.
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[Reply] Only if the ratio of notes to deposits is
increasing. The trend for more than the last half-
century is for the ratio to decrease. We are
becoming a "cashless" society. Or didn't you know?
-

The Fed must replenish those reserves or endanger the
liquidity of the banking system.
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[Reply] The decreasing ratio of notes to deposits
means the necessity to maintain reserves to meet the
demand of the public to convert deposits into
currency is DECREASING.
-

The Fed must replenish those reserves or endanger the
liquidity of the banking system.
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[Reply] Nothing to replenish inasmuch as the trend
for more than the last half-century has been for the
public to increasingly conduct transactions with bank
deposits rather than currency.
-

Obviously it replenishes reserves, and does so by
buying Treasury securities from the public.
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[Reply] "Obviously," there is no need to "replenish"
reserves that do not need to be "replenished." The
Moslerist argument that you propounds is a bit more deceptively
convoluted than this, however.

The "securities" that the Fed purchases from the
public are Treasury securities, since only interest
earned on Treasury securities can logically be
"rebated" to Treasury. But there is no law or
regulation that requires the Fed to purchase Treasury
securities in deference to private or foreign
securities.

There are several other ways that the Fed could
increase reserves, or it could simply reduce the
required reserve ratio. The Fed once (before the
1940s when presumably there was no "seigniorage")
purchased a basket of privately issued securities, as
several foreign central banks still do.

Moreover, what is "rebated" to Treasury is not
interest on the Treasury securities in the Fed's
portfolio (a small percentage of Treasury securities
outstanding, which are mostly held by financial
institutions - foreign and domestic), but ninety
percent (only since 1947) of its self-assessed
"profit" from the totality of its operations,
something quite different indeed.

The Fed could (and does) reduce the amount that is
"rebated" by reducing the amount it charges its
member and corresponding banks (as compared to what
it could charge) for various services. That would of
course effectively be a "rebate" to something other
than Treasury.

And do not forget there is no law or regulation that
requires the Fed to "rebate" anything whatsoever. It
is very much "sovereignty" onto itself. Its quite
trivial voluntarily submitted "rebate" is to pacify
the maverick politicians on the Banking Committee
that could (and once did) stir up trouble.
-

In the big picture, it really doesn't matter whether
seigniorage arises in the classical sense from coins
or in the modern sense from notes issued by the Fed.
The taxpayer is the beneficiary.
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[Reply] Yes, according to bankers' propaganda. I
prefer the more meaningful tern "newspeak sense" to
your "modern sense." See:
http://www.geocities.com/socredus/compendium/orwell.txt

In reality, the beneficiaries of the "seigniorage"
are the bankers and their colleagues on Wall Street.

What the bankers once called "debasement" (when the
King - or Lincoln - tried to intrude on their domain
of banking) they now call "seigniorage," since it
goes directly to them (actually, it always did), not
to what we ordinarily think of as "government."

The term "debasement" has vanished from their
vocabulary.
-

Relevant Pages

  • Re: Seigniorage, Who, What, Why
    ... from their accounts, banks lose reserves. ... The Fed must replenish those reserves or endanger the ... buying Treasury securities from the public. ... requires the Fed to "rebate" anything whatsoever. ...
    (sci.econ)
  • Re: the Fed: comment from weblog
    ... >But the Fed is the monopoly suppier of bank reserves. ... "The Fed sets a target for the Fed funds rate, ... >money, changes in the supply of bank reserves affect the money supply ... The banks can lend that money because it is a part ...
    (sci.econ)
  • Re: the Fed: comment from weblog
    ... >>>But the Fed is the monopoly suppier of bank reserves. ... the Federal funds rate goes down. ... >>>money, changes in the supply of bank reserves affect the money supply ... transferred between banks. ...
    (sci.econ)
  • Re: the Fed: comment from weblog
    ... > However I don't think Volcker ever had a quantity target for the money ... >>> injecting reserves, which are then loaned by banks. ... > The Fed must accommodate or lose control of the Fed funds rate. ...
    (sci.econ)
  • Re: Seigniorage, Who, What, Why
    ... >tax credits with no tangible backing. ... >commercial banks in payment of taxes. ... >aggregate banking system reserves. ...
    (sci.econ)