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Warren Mosler — Credit check1
Iruzkinak:
- MRW said…
- Matt, is your discussion of Present Value meant to explain the downturn in the charts Mosler showed?
- Ryan Harris said…
- Matt is saying the banks have reported the value of their stock of loans in their “inventory” fell because of interest rate change adversely affected their value using that mathy formula.
Maybe someone could ask Warren. If anyone know bank loan values, it’s him, he owned his own bank and had to deal with annoying regulators and accountants - MRW said…
- And FRED wouldn’t know? Historically did the value of the stock of loans in their “inventory” increase when the interest rate fell to 25 basis points a few years ago?
- Ryan Harris said…
- Doesn’t make sense BC growth slowed, amount didn’t fall.
- Dan Lynch said…
- Matt raised an interesting point, with some help from Ryan’s plain English translation.
I turned to FRED to see if, in the past, a rising discount rate correlated to falling credit creation. To the contrary, credit creation and the discount rate usually have risen and fallen together. FRED graph at link
The chart also tells us that not all downturns in credit creation led to a recession — sometimes there were bumps in the road during expansions. But all recessions were accompanied by a downturn in credit creation. Usually the credit creation downturn preceded the recession, other times it coincided with the recession.
- Ryan Harris said…
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This explains the problem with credit. Defaults and delinquencies rising amid a deep dive into low credit scoring consumers by finance and auto companies reaching for sales targets.
Early in a recovery, they can bet on lower credit scores improving but late in the cycle, it’s reckless. This is the first credit cycle we are going to enter with the new 6-10yr longer-duration auto-loans and larger portions of the workforce in disposable 1099 and part-time positions. The reason collateral values are falling is because Auto-companies are heavily discounting to keep volumes up which is late-cycle behavior before layoffs become the only alternative to keep profits from eroding. - Matt Franko said…
- The other thing is that if you look at what Treasury has been doing with reserves, they have been fluctuating the reserves via the TGA and remember those reserves are assets to the depository institutions just like loans…
The reserves have been wildly fluctuating by +\- 500B over the last months…
If those institutions seek to maintain a constant capital to assets ratio, if Treasury runs the TGA down by 400B in a few months like they just did, then reserve assets increase at the institutions so the institutions may increase the rate of securitization of loan assets (sell the loans) to get them off the balance sheet which would show up on the H.8 as a decrease in loan assets… this would be in order to maintain a constant target capital:asset ratio at the institutions which they always seek to do
.i.e. If govt forces 100s of $billions more reserve assets onto the depository institutions balance sheets in a short period of time the institutions have to get rid of other assets to maintain a constant capital:asset ratio… so they sell the loans…
- Matt Franko said…
- The frequency response of bank capital is waaaaay lower than the frequency reponse of bank assets… and banks (depository institutions) seek to maintain a constant ratio of capital:assets and take action to do so…
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