Wednesday, October 1

Competitive Alternatives

I'm really bothered that in all debate around the topic centers on the concept that if one is against this bailout, then one is in favor of 'doing nothing.' I have not heard a single serious alternative even floated about how to fix this problem.
I want to hear more about capital requirements. The Chinese have lowered theirs while theEuropeans have raised theirs. Here is my proposition.

Complicated Proposition
The fed should decrease the reserve ratio from 10% to 8%.  That would change the liquidity multiplier from 10 to 12.5. There are 6.3 trillion in time deposits, which probably means there's 630 Billion in base deposits. Reducing the reserve ratio by 2 points would instantly create 1.58 Trillion in liquidity. The danger here is that doing this could inflate the dollar by a lot. To limit that, announce that the reserve ratio will rise by 1 tenth of a percent each quarter until the ratio is back at 10%.

Simple Proposition
The same thing just explained in more detail for the many who  don't follow all the terms  in the complicated version. Follow the link.

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