Banks, Shadow Banks and Balance Sheets

Macro economics: LM and IS curves

Micro economics: Fischer Diagram

Although @pmerhling says these won't be referenced much, and will be connected to at the end.

!time:00:57 bank balance sheet has assets on the left hand side, and liabilities on the right #sr

balance sheet example

!time:02:29 solvency vs liquidity. a lot of economists' discussion of banks is about solvency, but bankers focus on liquidity and the day to day operations of the bank.

bank assets: loans, securities, cash reserves. bank #sr

liabilities: deposit accounts, other borrowing, net worth as balancing value (assets == liabilities). #sr

!time:03:07 what is liquidity: does the bank have enough cash reserves to fulfill a depositor's request to make payment or transfer from their deposit account (bank's liability)? banks have to clear their accounts everyday. #sr

!time:05:05 asset and liabilities of shadow banks

shadow bank balance sheet example

shadow bank assets: residential mortgage backed securities RMBS, interest rate swaps IRS, credit default swaps CDS #sr

shadow bank liabilities (money market borrowing): repurchase agreements RP, eurodollars ED, asset backed corporate paper ABCP. #sr

shadow banking, not traditional banking is the dominant institution through which credit flows today

!time:10:35 banks don't print money, when they expand the money supply they expand both sides of the balance sheet: assets and liabilities. #sr

!time:00:33 Two Key Ideas: Banking as a clearing system. Banking as Market Maker.

!time:01:43 Goal of course is to understand where the four prices of money come from.

Interest Rate is the price of money today in tomorrow's dollars #sr

Par price is the price of one money in terms of another money today #sr

Example of par money: the cash (public money) price of your deposit account (private money) at the bank which typically trades "at par" but can break during a financial crisis. #sr

A good example of this in #crypto is #tether and the USD/USDT price which should theoretically be 1:1 but we can see the peg deviate

Another example might be the socialized losses at poloniex exchange where user accounts were discounted from par https://twitter.com/Poloniex/status/1136695104238960640

#posted https://twitter.com/metamitya/status/1148633595147370496

Exchange Rate is the price of domestic money in terms of foreign money #sr

Price Level is the price of money in terms of some commodity #sr

!time:08:46 in order to get out of the crisis we need to transcend pro-banker or anti-banker politics and understand how the system works so we can approach potential solutions "as scientists".

!time:09:28 1950s Irving Fisher is not a good guide for today's global financial system. Badget of the 19th century is a better guide because he operated in the global financial system of the British pound sterling.

!time:11:11 all banking is a swap of IOUs

!time:12:27 we're trying to develop monetary theory in a wold of financial globalization

!time:00:32 Allyn Young reading: chapters written for encyclopedia. writing about the new federal reserve and how it compares it to the bank of england.

Allyn Young Monetary System of the US notes