I don't think the practice you explained would be legal in the United Kingdom, they use Open Market Operations to provide banks with liquid cash to lend out in exchange for less liquid assets they own. The other options are to reduce the required reserve ratio or to borrow more money from the central bank to lend on. There is another dimension to the whole banking system that I briefly explained earlier and I feel debunks your whole position. That is the very nature of how banks lend money in modern banking. They package debts up and sell them on to other banks rather than the branch style bank lending you seem to describe. When the central bank wants to expand credit it will make cheap loans available to a bank which the bank can then use the funds to buy packaged debt products. The interest rate from the central bank is lower than the return paid from the packaged debt product so this will act as an incentive for banks to borrow more from the central bank to buy more debts, the profit is the gap in between the two interest rates. To expand credit and the size of the loan portfolio a bank has the central bank will offer a lower interest rate loan to act as an incentive to buy more packaged debt products. The bank has to receive the borrowed money from the central bank to then purchase the packaged debt product, which can be fairly expensive. This is the main issue I would make regarding the link between the central bank and expanding credit. When the central bank wants to expand credit it will most likely offer cheap borrowing for banks to buy into the packaged debt market. On another note banks are more likely going to be interested in producing a packaged debt product to sell on the credit market rather than an individual loan. The borrowing for these products is likely to be sizable and the adjustments you refer to needed to maintain the reserve requirement are likely to be insufficient to cover them. When a central bank offers low borrowing prices it makes the ability to fund the issuance of these packaged debt products more viable from either the issuer's or purchaser's position. You seem to be describing the process of extending credit for small scale lending rather than the packaged debt product market, which is where so much debt is traded. By that position you are explaining a different process to the more mainstream modern banking system which deals with more advanced products than a simple one off loan. I understand the US banking system may be more robust than this, however I find it difficult to see that it would allow such a high level of funds to be available to issue or purchase these large packaged debt products. I therefore ask you is the reserve adjustment facility you described capable of handling these large scale packaged debt products or is it as I described made available through either other banks or the central bank offering low priced loans which are then used to issue or purchase the packaged debt products. This has definitely been the practice in the United Kingdom for a long time when the central bank has reduced interest rates. Are you telling me this is not the mainstream practice in America to lend out the low rate loans through buying packaged debts?
I feel the articles, sources and references I have linked to have been effective and accurate. One of them was the Federal Reserve itself. I appreciate that there is a way in the US to lend money without expanding reserves through the 'reserve adjustment facility', however as I explained above I feel this is something that would not be used in the United Kingdom and also not in fitting with the modern banking system which uses packaged debt products. I just don't feel it could deal with the magnitude of the packaged debt market and how the central bank operates to expand the credit market.
And of course the average Joe is right! It's you lunatics that are wrong. The fed is in operational effect an independent branch of the U.S. Treasury that oversees and regulates, and facilitates the Nation's banking system and also acts as the Treasury's bank. This is evident when one examines the consolidated books of the Treasury and Central Bank. It is also evident that the Fed is a Federal operation to those with common sense, as no private, for profit operation is going to transfer 100% of its profit to the U.S. Treasury.
You're referring to what we call "securitization", i.e, creating new securities from packaged and compartmentalized loans. The securities that result, called collateralized debt obligations or CDOs are sold on the open market. not just to other banks. Anyone can buy them. It is the CDO market that became illiquid during the financial crisis making it impossible for their value to be marked to market. The Fed solved that problem by buying discounted CDOs from Bank inventories and crediting the respective banks reserve accounts.
You haven't answered the question. The process of producing these packaged debt products requires funding to either issue or purchase them. In the United Kingdom the central bank or other banks will offer low interest loans which allow banks to either issue or purchase packaged debt products to expand lending. Is the facility you described as a reserve adjustment facility capable of providing the funds that are needed to either issue or purchase these products? It is just that this seems to be the modern large scale banking process rather than the one off loan process you described.
Day to day Aggregate Reserve adjustment by the fed is mainly via open market operations carried out in the repo market. Again you'll have to study this on your own.. I can't write any more. just read Moslers little book. As long as a bank is solvent they will always be able to meet their reserve requirement. A major "adjustment" takes place when the Treasury sells bonds which they do not to raise money, of course, but to drain back out the excess reserves that deficit spending causes. If they didn't do that interest rates would plummet. That's why treasury bond sales are essentially linked to deficit spending. It looks like the government is borrowing in order to spend, but nothing could be further from the truth. Now as far as the money for purchasing mortgages to slice and dice into CDOs goes, that's not ordinarily a problem either. That money, before the financial crisis, was coming mostly from the big investment banks. They can get it anywhere they can steal it. Investment banks operated on borrowed money, i.e., huge leverage, on the order of billions. Until the Financial Modernization Act there was quite a separation between the Investment banks and the commercial banks. Now, not so much, and the distinction is blurred somewhat. We have Phil Gramm and his Lovely wife Wendy to thank for that. That you don't have any real understanding of any of this is not unusual. Hardly anyone does. It's clear to me that you've got your economics out of a textbook somewhere. Well when it comes to money and banking after the Nixon Shock, most of those texts are very badly in need of revision. And the thinking of many older economists, when it comes to money, is also badly out of date as well! Just read Mosler's book. It is essentially up to date.
This paragraph which you wrote confirms what I thought. "Now as far as the money for purchasing mortgages to slice and dice into CDOs goes, that's not ordinarily a problem either. That money, before the financial crisis, was coming mostly from the big investment banks. They can get it anywhere they can steal it. Investment banks operated on borrowed money, i.e., huge leverage, on the order of billions. Until the Financial Modernization Act there was quite a separation between the Investment banks and the commercial banks. Now, not so much, and the distinction is blurred somewhat. We have Phil Gramm and his Lovely wife Wendy to thank for that." To get the money the banks would need to deal with the packaged debt product they would have to borrow from other banks. There will be a period even if it is brief where they would have to expand their excess reserves. The reserve adjustment facility you state the banks use would not be enough to cover it. Otherwise why they be getting it from other banks' loans? I also feel you have made an error in your view of deficits and treasury bond sales. The higher the interest rate is and the rate of inflation is the more interest the government has to pay on its debts. This makes carrying high debt and high inflation or interest rates expensive. The statement you made about interest rates plummeting when government debt increases is contradicting. This is what the government would want, it makes managing debt repayment easier and cheaper. In the United Kingdom they have used pension saving and pension reform alterations to control inflation keeping interest rates low and inflation low making government debt repayments less expensive. It has saved billions year on year and also streamlined the cost of paying pension tax relief. The banking system you are describing is old school single loan agreement banking not packaged debt products, it is old, you need to read new stuff. I feel throughout the discussion we have had on this thread that I have proven that at least in the United Kingdom banks have to use either alterations to reserve requirements or temporarily expand their excess reserves through either open market operations or borrowing from other banks or the central bank to lend more money out. You have stated in America banks can lend money out falling below the required reserve and then adjust it at a later date, which I now understand. However I don't feel the reserve adjustment facility would be able to deal with the modern packaged debt product banking system, so I feel it is old school. I would also like to explain to you that with the new high government debt environment economic management has had to change to make sure the interest paid on government debt is not too great. In the United Kingdom they have switched to my school of economic thought to control economic growth, inflation and also keep interest rates low. There are straight lines for the economic targets and many government cost efficiencies have been achieved. Your old school banking system is costing tax payers big in government debt interest payments. I have linked to a couple of articles below explaining the cost savings and success, update yourself. http://morganisteconomics.blogspot.com/2020/04/pension-saving-as-economic-control-tool.html http://morganisteconomics.blogspot.com/p/success.html