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peristaltorJust had a nagging suspicion a few minutes ago. I was sharing the chart I shared a few weeks ago, along with the bit of legal verbiage authorizing the increase in bank held reserves above required. Let's remember that banks must hold money and other assets in reserve of the money they create through lending; in a perfect world, money that is held by the bank above the reserve amount required by both regulation and prudent business practice generates no revenue, since only money lent produces interest and therefore profits. Got that?
Here's the bit of legal authorization from the linked entry:
The legislation was introduced to the Senate in May, 2006. Remember, despite all the high-falutin jargon about its desire to "improve productivity for insured depository institutions," this portion of the bill rewards depository institutions for sitting on excess reserves, not for improving any "productivity." Profitability, yes; productivity, definitely not. More ironic language would be difficult to craft. No, it is not much interest, but it's interest on money kept out of the economy. One may as well pay workers to stay home when they simply don't feel like going to work.
I was typing that last sentence in a comment reply when it struck me: What if one stretched the analogy and paid workers to sit home when both employer and employee didn't anticipate much to do at work? This keeps the workers employed (albeit at a lesser rate), but allows them some income when things at the workplace are projected to be slow. This way, the employers don't have to constantly rehire and retrain workers.
In the same way, perhaps the legislation was written in anticipation of a future fraught with weak lending conditions. Perhaps something happened in the recent past that suggested bleaker times for depository lending institutions. Perhaps this something was heralded by a recent change in, say, driving habits:
Clickee to embiggenate.
Here's the graph I mentioned the other day but did not show. (Remember, the label "June, 2006" should read "June, 2005," the date Mr. Short himself notes in his article; the graph date is probably a typo.)
Could this peak in miles driven per person have had a discernible impact on the economy? Perhaps in lending? Could this impact have motivated bankers to contact their legislators with a raft of amendments to banking law that would help these same bankers weather these anticipated slow-downs in a perhaps-not-to-distant future where lending slowed at a growing rate?
Let's also remember that this law was introduced in 2006, during the term of the most oil connected president and vice president in our nation's history. These two men undoubtedly knew about Hubbert's Peak. They lived through the nation's own peak in production in 1970, and saw first-hand what happened to our nation's economy as a result. Referring to the chart, the recession period from '74, the date of the OPEC embargo, sucked. The recession period from '79, the Iranian revolution that led to the later war between Iran and Iraq, also sucked. Both brought oil production way, way down. Not until the North Sea offshore rigs and Alaska Pipeline completion were supplies slowly but steadily brought back to more predictable levels, something that nearly broke OPEC in the mid-80s. OPEC nations learned that lesson, and kept supplies at levels just below inflation, to prevent massive over-investments in alternative supply (like the Aleyaska and North Sea facilities).
Could someone in or close to the cabinet alerted the bankers or legislators about the need to prepare for a future where economic activity will start a steady decline world-wide, perhaps as early as 2011 (the original activation date for the excess reserve interest provision)? I do remember that some industry types were predicting that date as the probable world-wide peak of production. Having it tucked in the bank laws just in case might have been seen as prudent.
This assumption presupposes an understanding of natural limits to economic growth that have, to judge from the public debate, not infected the minds of most of our leaders. Then again, consider the impact these limits place by necessity on our economy. As currently configured, our economy must expand or it will stall; if it stalls, it will likely recede into, of course, recession. Multiple and sequential recessions equal a depression. Therefore, a lack of expansion is not an option; but without a corresponding increase in natural inputs, one cannot increase the dependent economy. As John Michael Greer succinctly put it, "If you don't have inputs from nature, you don't have an economy."
Could it be that our leaders were providing for the institutions that provide our money supply, or at least anticipating that these institutions were going to need provided assistance in the coming slow-down? I don't agree with how they went about it, but I applaud the proactive approach.
In a letter to Thomas Jefferson, John Adams noted, "All the perplexities, confusions and distresses in America arise not from defects in the Constitution or Confederation, not from want of honor or virtue, as much as from downright ignorance of the nature of coin, credit and circulation." While I don't claim to know if the coincidence I note above is due to an actual connection between those anticipating a time of economic contraction, or due to some other cause, I can see that those who do understand "the nature of coin, credit and circulation" take real advantage of those who are ignorant of it, so much so that finding the existing expertise to answer whether this banking law was connection or coincidence proves just about impossible.
And I find that downright frustrating.
Here's the bit of legal authorization from the linked entry:
The Financial Services Regulatory Relief Act of 2006 originally authorized the Federal Reserve to begin paying interest on balances held by or on behalf of depository institutions beginning October 1, 2011. The recently enacted Emergency Economic Stabilization Act of 2008 accelerated the effective date to October 1, 2008.
(Different portions emphasized this time)
The legislation was introduced to the Senate in May, 2006. Remember, despite all the high-falutin jargon about its desire to "improve productivity for insured depository institutions," this portion of the bill rewards depository institutions for sitting on excess reserves, not for improving any "productivity." Profitability, yes; productivity, definitely not. More ironic language would be difficult to craft. No, it is not much interest, but it's interest on money kept out of the economy. One may as well pay workers to stay home when they simply don't feel like going to work.
I was typing that last sentence in a comment reply when it struck me: What if one stretched the analogy and paid workers to sit home when both employer and employee didn't anticipate much to do at work? This keeps the workers employed (albeit at a lesser rate), but allows them some income when things at the workplace are projected to be slow. This way, the employers don't have to constantly rehire and retrain workers.
In the same way, perhaps the legislation was written in anticipation of a future fraught with weak lending conditions. Perhaps something happened in the recent past that suggested bleaker times for depository lending institutions. Perhaps this something was heralded by a recent change in, say, driving habits:
Clickee to embiggenate.
Here's the graph I mentioned the other day but did not show. (Remember, the label "June, 2006" should read "June, 2005," the date Mr. Short himself notes in his article; the graph date is probably a typo.)
Could this peak in miles driven per person have had a discernible impact on the economy? Perhaps in lending? Could this impact have motivated bankers to contact their legislators with a raft of amendments to banking law that would help these same bankers weather these anticipated slow-downs in a perhaps-not-to-distant future where lending slowed at a growing rate?
Let's also remember that this law was introduced in 2006, during the term of the most oil connected president and vice president in our nation's history. These two men undoubtedly knew about Hubbert's Peak. They lived through the nation's own peak in production in 1970, and saw first-hand what happened to our nation's economy as a result. Referring to the chart, the recession period from '74, the date of the OPEC embargo, sucked. The recession period from '79, the Iranian revolution that led to the later war between Iran and Iraq, also sucked. Both brought oil production way, way down. Not until the North Sea offshore rigs and Alaska Pipeline completion were supplies slowly but steadily brought back to more predictable levels, something that nearly broke OPEC in the mid-80s. OPEC nations learned that lesson, and kept supplies at levels just below inflation, to prevent massive over-investments in alternative supply (like the Aleyaska and North Sea facilities).
Could someone in or close to the cabinet alerted the bankers or legislators about the need to prepare for a future where economic activity will start a steady decline world-wide, perhaps as early as 2011 (the original activation date for the excess reserve interest provision)? I do remember that some industry types were predicting that date as the probable world-wide peak of production. Having it tucked in the bank laws just in case might have been seen as prudent.
This assumption presupposes an understanding of natural limits to economic growth that have, to judge from the public debate, not infected the minds of most of our leaders. Then again, consider the impact these limits place by necessity on our economy. As currently configured, our economy must expand or it will stall; if it stalls, it will likely recede into, of course, recession. Multiple and sequential recessions equal a depression. Therefore, a lack of expansion is not an option; but without a corresponding increase in natural inputs, one cannot increase the dependent economy. As John Michael Greer succinctly put it, "If you don't have inputs from nature, you don't have an economy."
Could it be that our leaders were providing for the institutions that provide our money supply, or at least anticipating that these institutions were going to need provided assistance in the coming slow-down? I don't agree with how they went about it, but I applaud the proactive approach.
In a letter to Thomas Jefferson, John Adams noted, "All the perplexities, confusions and distresses in America arise not from defects in the Constitution or Confederation, not from want of honor or virtue, as much as from downright ignorance of the nature of coin, credit and circulation." While I don't claim to know if the coincidence I note above is due to an actual connection between those anticipating a time of economic contraction, or due to some other cause, I can see that those who do understand "the nature of coin, credit and circulation" take real advantage of those who are ignorant of it, so much so that finding the existing expertise to answer whether this banking law was connection or coincidence proves just about impossible.
And I find that downright frustrating.