The Role of Shadow Banking in the Business Cycle

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Physiocrat
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The Role of Shadow Banking in the Business Cycle

Post by Physiocrat » Thu Jun 14, 2018 9:11 am

This is an excellent article copied from the Quarterly Journal of Austrian Economics. Its essential argument is that shadow banks by collateralising loans which can be on call act as a near money. Further, since shadow banks can borrow on top of their ownership of a collateralised loan they function similarly to fractional reserve banking and thus contribute to the credit cycle. Most interestingly, he comments that quantitative easing my have failed to stimulate as much as intended since the central banks bought assets upon which the commerical banks used to pyramid collateralised loan expansion.

https://www.cobdencentre.org/2018/06/th ... ess-cycle/
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Merlin
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Re: The Role of Shadow Banking in the Business Cycle

Post by Merlin » Fri Jun 15, 2018 11:07 am

Well well, now what are the defenders of 100% reserve banking going to say: should we abolish half a dozen perfectly voluntary financial products, such as repos? To pose the question is to answer it.

Interesting point with regards to QE and it would make sense. But if that was the case, what to purchase? Smaller countries have the luxury of just buying up foreign currency, but the US could hardly do so. Difficult decisions back in ’09.

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Physiocrat
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Re: The Role of Shadow Banking in the Business Cycle

Post by Physiocrat » Fri Jun 15, 2018 2:16 pm

Merlin wrote:
Fri Jun 15, 2018 11:07 am
Well well, now what are the defenders of 100% reserve banking going to say: should we abolish half a dozen perfectly voluntary financial products, such as repos? To pose the question is to answer it.
Well as a sort of 100%et (i.e. I'm not in its fraud camp) my intuition would be that the reason there are so many repos etc is due to the fiat money and central banking. In their absence there would be less money to create such instruments
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Jon Irenicus
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Re: The Role of Shadow Banking in the Business Cycle

Post by Jon Irenicus » Fri Jun 15, 2018 3:08 pm

In connection with the topic I’d recommend the blog ‘spontaneous finance’, which is maintained by a banker with explicit Austrian leanings.

He also tends to cover MMT and various related readings on a frequent basis.
Former overlord of the original Mises forum.

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Merlin
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Re: The Role of Shadow Banking in the Business Cycle

Post by Merlin » Sat Jun 16, 2018 4:07 am

Thanks for the link Jon, I'll give it a try.

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