(FINANCE) an amount of precious metals, silver, cash, or other thing of value that a bank keeps in storage to meet unexpected liabilities.
Banks generally accept deposits and lend out money. The deference between the rate of interest paid out to deposits, and the rate of interest required for loans, is called "the spread"; it is the bank's source of income.
Banks are not allowed to lend out 100% of the money they receive as deposits; if they did, then depositors would be unable to take money out of the bank. On the other hand, the bank has to lend most of the money out, since it needs the income earned from interest on loans. Throughout the history of the Usonian banking system, the US states or the federal government have had rules about interest rates, reserves, and financial accounting used by banks.
Since Aldrich-Vreeland Act (1908), banks have been allowed to hold deposits with the US Treasury, then (after 1913) with the Federal Reserve System. Deposits in the FRS do not earn interest, but the reserve banks permit member banks to borrow if they fall short of the reserve requirements (see federal funds rate)
Banks generally accept deposits and lend out money. The deference between the rate of interest paid out to deposits, and the rate of interest required for loans, is called "the spread"; it is the bank's source of income.
Banks are not allowed to lend out 100% of the money they receive as deposits; if they did, then depositors would be unable to take money out of the bank. On the other hand, the bank has to lend most of the money out, since it needs the income earned from interest on loans. Throughout the history of the Usonian banking system, the US states or the federal government have had rules about interest rates, reserves, and financial accounting used by banks.
Since Aldrich-Vreeland Act (1908), banks have been allowed to hold deposits with the US Treasury, then (after 1913) with the Federal Reserve System. Deposits in the FRS do not earn interest, but the reserve banks permit member banks to borrow if they fall short of the reserve requirements (see federal funds rate)
Bank reserves serve two purposes: they allow banks to pay depositors on demand, and they play a role in monetary policy.
by Abu Yahya September 04, 2010
Get the bank reservesmug. (ECONOMICS) Total unemployed, as a percent of the civilian labor force (official unemployment rate). Does not include discouraged workers. Also referred to as "headline unemployment" because it is the statistic reported in the news.
The US Bureau of Labor Statistics regularly publishes six estimates of unemployment. The others are U-1, U-3, U-4, U-5, and U-6. Eurostat publishes one monthly estimate of unemployment for the European Union, which is approximately midway between U-3 and U-4.
The unemployment statistics for the USA are collected through a monthly Current Population Survey (CPS) (also known as the household survey) and an establishment survey.
The US Bureau of Labor Statistics regularly publishes six estimates of unemployment. The others are U-1, U-3, U-4, U-5, and U-6. Eurostat publishes one monthly estimate of unemployment for the European Union, which is approximately midway between U-3 and U-4.
The unemployment statistics for the USA are collected through a monthly Current Population Survey (CPS) (also known as the household survey) and an establishment survey.
U-3 is the official unemployment rate in the USA; it excludes passive jobseekers (people who are just looking for available job openings without applying). Passive jobseekers are counted as part of the labor force in Europe, but not in the USA. Prior to the 2008 economic crisis, this caused unemployment rates in the USA to be about 1% lower than they would have been if the BLS had used European methods of estimating.
by Abu Yahya July 17, 2010
Get the U-3mug. (acronym) American Enterprise Institute; an extremely powerful thinktank associated with the Conservative Movement.
by Abu Yahya May 29, 2009
Get the AEImug. *noun*; global economic collapse; in the USA, this began in 1929 and persisted to 1939; most other industrialized countries emerged from the Depression earlier.
During the Great Depression, unemployment reached over 25% in the USA, and those who had jobs suffered severe wage cuts. The index of industrial output fell over 53% from its high in July '29, while trade and capital markets plummeted to mere fractions of their former levels.
*What Happened*
_____________________________________
Many people imagine that the Stock Market Crash (Oct '29) and the Great Depression are the same thing. However, it took another three years for employment, bank failures, and declining industrial output to run its course.
In 1929 the USA had 25,000 banks. By 1933, 10,000 had either failed or been merged with another to avoid failure. At this time there was no FDIC, so depositors mostly lost their money.
Another phenomenon was plunging prices: the consumer price index fell 25% during the first four years. For businesses, this was a disaster, and forced them to lay off millions.
The Great Depression made farms in much of the Southwest unviable; ruined farmers fled to California or Washington, and their abandoned farms succumbed to the Dust Bowl. This was the single largest ecological disaster in recorded history.
*How It Happened*
_____________________________________
There are basically three main explanations for the Great Depression.
1. During the 1920's, there was a huge and growing disparity between rich and poor. The incomes of the great majority rose much more slowly than productivity, but this was masked by increased borrowing. People were able to borrow because the market value of their assets was larger than what they owed; but when a rash of defaults occurred, then the market value of assets plummeted, and people owed more than their assets were worth. Businesses had to lay off workers, which further reduced aggregate demand.
2. The Great Depression began as another minor downturn, but was made much worse by the failure of the Federal Reserve to respond adequately (see Milton Friedman & Anna Schwartz). While the Fed reduced interest rates, prices fell even faster, so real interest rates soared. This made a quick recovery impossible.
3. The financial markets (combined with Fed supervision) distributed capital badly; for example, speculative ventures in growing wheat in the Great American Desert, real estate in Florida, and so on. When this arrangement of productive resources failed, it constituted an extremely large technology shock. Subsequent policy intervention tended to withhold capital and labor from the most productive enterprises, making the depression deeper.
(Explanation 3 is the New Classical economics explanation; see Harold Cole & Lee Ohanian.)
*Roosevelt Administration*
_____________________________________
Franklin D. Roosevelt was elected by a landslide in 1932, and inaugurated 4 March 1933. The White House immediately used emergency powers to close, restructure, and re-open the nation's banks. During the first 100 days of the FDR administration, Congress passed the New Deal which greatly eased the impact of the Depression on the hardest hit.
The New Deal did not significantly hasten the end of the Great Depression, because it was too small to provide a meaningful fiscal stimulus. However, it did introduce many important programs to help those affected by poverty. The Depression had ended in most of the world by 1937; the US was mostly recovered by 1939, when World War 2 broke out.
During the Great Depression, unemployment reached over 25% in the USA, and those who had jobs suffered severe wage cuts. The index of industrial output fell over 53% from its high in July '29, while trade and capital markets plummeted to mere fractions of their former levels.
*What Happened*
_____________________________________
Many people imagine that the Stock Market Crash (Oct '29) and the Great Depression are the same thing. However, it took another three years for employment, bank failures, and declining industrial output to run its course.
In 1929 the USA had 25,000 banks. By 1933, 10,000 had either failed or been merged with another to avoid failure. At this time there was no FDIC, so depositors mostly lost their money.
Another phenomenon was plunging prices: the consumer price index fell 25% during the first four years. For businesses, this was a disaster, and forced them to lay off millions.
The Great Depression made farms in much of the Southwest unviable; ruined farmers fled to California or Washington, and their abandoned farms succumbed to the Dust Bowl. This was the single largest ecological disaster in recorded history.
*How It Happened*
_____________________________________
There are basically three main explanations for the Great Depression.
1. During the 1920's, there was a huge and growing disparity between rich and poor. The incomes of the great majority rose much more slowly than productivity, but this was masked by increased borrowing. People were able to borrow because the market value of their assets was larger than what they owed; but when a rash of defaults occurred, then the market value of assets plummeted, and people owed more than their assets were worth. Businesses had to lay off workers, which further reduced aggregate demand.
2. The Great Depression began as another minor downturn, but was made much worse by the failure of the Federal Reserve to respond adequately (see Milton Friedman & Anna Schwartz). While the Fed reduced interest rates, prices fell even faster, so real interest rates soared. This made a quick recovery impossible.
3. The financial markets (combined with Fed supervision) distributed capital badly; for example, speculative ventures in growing wheat in the Great American Desert, real estate in Florida, and so on. When this arrangement of productive resources failed, it constituted an extremely large technology shock. Subsequent policy intervention tended to withhold capital and labor from the most productive enterprises, making the depression deeper.
(Explanation 3 is the New Classical economics explanation; see Harold Cole & Lee Ohanian.)
*Roosevelt Administration*
_____________________________________
Franklin D. Roosevelt was elected by a landslide in 1932, and inaugurated 4 March 1933. The White House immediately used emergency powers to close, restructure, and re-open the nation's banks. During the first 100 days of the FDR administration, Congress passed the New Deal which greatly eased the impact of the Depression on the hardest hit.
The New Deal did not significantly hasten the end of the Great Depression, because it was too small to provide a meaningful fiscal stimulus. However, it did introduce many important programs to help those affected by poverty. The Depression had ended in most of the world by 1937; the US was mostly recovered by 1939, when World War 2 broke out.
The NBER business cycle chronology dates the start of the Great Depression in August 1929. For this reason many have said that the Depression started on Main Street and not Wall Street. Be that as it may, the stock market plummeted in October of 1929. The bursting of the speculative bubble had been achieved and the economy was now headed in an ominous direction.
Randall Parker, "An Overview of the Great Depression" (2002)
Randall Parker, "An Overview of the Great Depression" (2002)
by Abu Yahya March 06, 2009
Get the Great Depressionmug. *noun*; the tendency for the public to want to hold income in cash relative to its willingness to hold it as interest-bearing savings (bonds).
The liquidity preference is analogous to a supply curve for lendable funds. If the price for lendable funds--that is to say, the interest rate--is high, then the amount be be large. If the interest rate is low, then the public will be more inclined to hoard income as cash.
Income held as cash is not spent on goods and services, so if the amount increases abruptly then there will be a recession. If it is held in some interest-bearing form, then it can be spent on fixed capital, thereby increasing output and employment.
During a recession, if the liquidity preference is high, a lot of money is going to be held as cash. One could free up some cash for job-creating investment by raising interest rates, but that would eradicate a lot of business opportunities. So monetary authorities monetize debt instead, creating a new supply of credit to replace the savings lost by falling interest rates.
The liquidity preference is analogous to a supply curve for lendable funds. If the price for lendable funds--that is to say, the interest rate--is high, then the amount be be large. If the interest rate is low, then the public will be more inclined to hoard income as cash.
Income held as cash is not spent on goods and services, so if the amount increases abruptly then there will be a recession. If it is held in some interest-bearing form, then it can be spent on fixed capital, thereby increasing output and employment.
During a recession, if the liquidity preference is high, a lot of money is going to be held as cash. One could free up some cash for job-creating investment by raising interest rates, but that would eradicate a lot of business opportunities. So monetary authorities monetize debt instead, creating a new supply of credit to replace the savings lost by falling interest rates.
...An individual’s liquidity preference is given by a schedule of the amounts of his resources, valued in terms of money or of wage-units, which he will wish to retain in the form of money....
John M. Keynes, *General Theory of Employment, Interest, and Money* (1936), Ch.13
John M. Keynes, *General Theory of Employment, Interest, and Money* (1936), Ch.13
by Abu Yahya March 03, 2009
Get the liquidity preferencemug. the sum of the capital account balance and the current account balance; put another way, the net change in financial reserves of a country, whether in the form of income (current account) or foreign investments (capital account)
For example, in all years since 1980, the USA has run a large-to-huge current account deficit, but in most years it has run a capital account surplus that is almost as big as the current account deficit. As a result, the USA has run a medium-to-large balance of payments deficit over this period.
A commonly-overlooked byproduct of BoP is that it determines whether or not a currency can be used as an international reserve currency. Despite repeated efforts by the governments of the EU and Japan to get their currencies established as such, they have failed to dent the US dollar's global primacy as the money for international transactions. This is because EU member states and Japan (as well as other major economies) run very large surpluses in their BoP. Japan, in particular, imports extremely little, and retains huge reserves rather than invest all of its net export earnings overseas. As a consequence, overseas holdings of euros or yen are much to small to serve as an alternative to the US dollar.
For example, in all years since 1980, the USA has run a large-to-huge current account deficit, but in most years it has run a capital account surplus that is almost as big as the current account deficit. As a result, the USA has run a medium-to-large balance of payments deficit over this period.
A commonly-overlooked byproduct of BoP is that it determines whether or not a currency can be used as an international reserve currency. Despite repeated efforts by the governments of the EU and Japan to get their currencies established as such, they have failed to dent the US dollar's global primacy as the money for international transactions. This is because EU member states and Japan (as well as other major economies) run very large surpluses in their BoP. Japan, in particular, imports extremely little, and retains huge reserves rather than invest all of its net export earnings overseas. As a consequence, overseas holdings of euros or yen are much to small to serve as an alternative to the US dollar.
Since the oil embargo of the 1970's, the US has run a balance of payments deficit because its trade deficit was enormous; prior to the embargo, the US BoP deficit was large because the US exported such an enormous amount of finance capital. As a consequence, the balance of payments deficit has persisted since the end of the Korean War (1953).
by Abu Yahya February 14, 2009
Get the balance of paymentsmug. (FINANCE) when a corporation "goes public"; the first sale of stock by a corporation. All sales of stock or bonds on the stock market require the services of an underwriter, or investment bank. Outside of the USA and China, it is common for regular banks to offer underwriting for corporations.
Incorporation is a legal status that allows (but by no means requires) a firm to issue stock. Moreover, once a corporation lists stock, it does not necessarily do so on a major exchange. Some corporations areclosely held, which means they have a small number of shareholders who are mostly affiliated with management; other corporations are "private," which means they have no stock issues at all, and control/shares of profits are determined contractually.
Some corporations have issues of stock, and that stock is traded, but it is not listed. Instead, it is traded on the "pink pages." Such companies are usually in a bad way, but not necessarily.
An IPO is the first issue of stock by a corporation THAT DOESN'T ALREADY have a listed stock. If a company is "taken private" (i.e., bought out by a PE fund and de-listed) then it can have another IPO (or "sponsored IPO"). Most likely, however, if a listed company will need to raise money on the stock market, it will have a "follow-on offering."
Incorporation is a legal status that allows (but by no means requires) a firm to issue stock. Moreover, once a corporation lists stock, it does not necessarily do so on a major exchange. Some corporations areclosely held, which means they have a small number of shareholders who are mostly affiliated with management; other corporations are "private," which means they have no stock issues at all, and control/shares of profits are determined contractually.
Some corporations have issues of stock, and that stock is traded, but it is not listed. Instead, it is traded on the "pink pages." Such companies are usually in a bad way, but not necessarily.
An IPO is the first issue of stock by a corporation THAT DOESN'T ALREADY have a listed stock. If a company is "taken private" (i.e., bought out by a PE fund and de-listed) then it can have another IPO (or "sponsored IPO"). Most likely, however, if a listed company will need to raise money on the stock market, it will have a "follow-on offering."
A fantasy of many entrepreneurs is "going public" with a big initial public offering, and retiring to a beachfront mansion.
by Abu Yahya September 02, 2010
Get the Initial Public Offeringmug.