Ok first I wanted to create a thread regarding how is it possible for British to have no RR and not have pretty good amount of inflation. AFAIK the banks wanted to always pretty much stay maxed out. Further what do they even need central bank for as every bank is basically a central bank. Other than of course the fact that government can influence central bank.
But now I want to ask a bit broader question. I want to know what are the tools that Central banks can use and WILL use/ are currently using (so no fixed currency rates or changing reserve ratios). Sure they set the interest rates, but do they set this by doing open market operations? AFAIK, in the current system ALL reserves of a bank are in the central FED bank, and the bank then gets interest on those reserves based on how much the banking system as whole wants to pay interest on money.
The interest rates themselves are based on the current savings and demand. But the central bank can influence them by creating money which makes the rates go down as for short time it seems like there is more savings… right? So the FED bank does not set the rates per se, but can only influence them. Are there some rates that the FED actually sets?
I also read that the Member banks get 6% dividend on FED banks earnings. Why is this? The FED bank usually owns a lot of government bonds and why do the member banks get profit on this?
United States is now increasing the money supply, the argument is that it won’t cause inflation, because banking credit has been destroyed. But the banks may now lend a lot more credit money / create inflation as there is basically bigger base money. But how likely is that? If it ain’t happening in UK why would it happen in US though? What if the banks just won’t lend to the maxiumum RR. I know I am making some mistake here, but what?
(Of course the case for hyperinflation is really that the FED start to create a lot more money - but let’s not tuch that).
Also with this logic after a recession where government has monetized a lot of the bank credit, there would be heavy inflation as if banks started to lend again the credit amount would increase = inflation… Is this right?
Finally I watched a clip from Peter Schiff lately, and he said that banks ARE lending money; to government. Why doesn’t this create any banking credit expansion then? What exactly did he mean?
thanks.