tag:blogger.com,1999:blog-5538185165116620726.post7187681011932802826..comments2024-03-27T00:20:00.926-07:00Comments on Understanding the Basics of Banking: Banking Example #9: Paying TaxesTom Brownhttp://www.blogger.com/profile/17654184190478330946noreply@blogger.comBlogger5125tag:blogger.com,1999:blog-5538185165116620726.post-92012933018945392702014-12-05T03:18:14.504-08:002014-12-05T03:18:14.504-08:00I was in quest of various topics that are enough w...I was in quest of various topics that are enough well-liked and lastly got your blog, it has outstanding topics with immense popularity. <a href="http://monumentcapitalgroup.com/updates_and_articles.html" rel="nofollow">monument capital group updates</a><br />Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-5538185165116620726.post-78440416835045879812014-11-24T02:32:43.676-08:002014-11-24T02:32:43.676-08:00Enthralling stuff I haven't been finished part...Enthralling stuff I haven't been finished particular data in a lasting time. <a href="http://www.huffingtonpost.com/shane-paul-neil/big-data-bigger-breaches-_b_6109928.html" rel="nofollow">monument capital group</a><br />Anonymoushttps://www.blogger.com/profile/12677807212060565290noreply@blogger.comtag:blogger.com,1999:blog-5538185165116620726.post-88324673496184301062014-02-11T20:32:08.059-08:002014-02-11T20:32:08.059-08:00Vanessa A, I'm not sure I follow your question...Vanessa A, I'm not sure I follow your question completely. But let me try explaining a bit and see if that covers it. You'll note that in my contrived world, at step 2. above (the 1st step, since I'm borrowing the numbering from Example 8), that I've drawn a single empty balance sheet (no assets and no liabilities) for both the CB and the Tsy (I just labeled the one BS "Tsy, CB"). You can take a look at Example 8 to see how we got to that point.<br /><br />Since we know paying taxes is going to result in funds in Tsy's Fed deposit account (the TGA), we know ahead of time that the CB's balance sheet has to expand to accommodate it... any assets in the TGA are necessarily simultaneously CB liabilities. My understanding is that the Tsy must spend from this TGA account. The Tsy also has what are called TT&L accounts at various commercial banks, but these are more like holding accounts: prior to any spending, the Tsy must request the commercial banks holding those TT&L accounts to transfer their funds to Tsy's TGA. Presumably the taxing process would result in the tax payer's bank account balance being transferred by the commercial bank to the TT&L account this bank holds for Tsy.<br /><br />Since I'm starting off with the CB's balance sheet empty, that implies that the commercial bank (just one in this example) has no reserves, since reserve assets for Bank A must also simultaneously be CB liabilities.<br /><br />So in order for Bank A to transfer the TT&L account to Tsy's TGA, the CB must create reserves and then transfer that reserve balance to the TGA. But in order for that to happen the CB has to create the reserves in the 1st place. It could do it via an open market purchase of some asset (for example the house: pretend for a moment that the Fed is allowed to buy houses) or it could loan the reserves into existence. I've chosen to show that it loaned them into existence. This lending may be called a "repo" or a "reverse repo" (I get them confused), but that's essentially what it is.<br /><br />Does that help?<br /><br />Keep in mind that I normally skip all the details involving the TT&L accounts because I don't think it's that important in the grand scheme of things: I just show the end result.<br /><br />You can see the nitty gritty details using the "macro balance sheet visualizer" at econviz.org (they have TT&L operations in the pull down list of commands you can try out).<br /><br />I hope that helped!Tom Brownhttps://www.blogger.com/profile/17654184190478330946noreply@blogger.comtag:blogger.com,1999:blog-5538185165116620726.post-32082659891499194622014-02-08T08:46:40.869-08:002014-02-08T08:46:40.869-08:00Tom,
Can you clarify what the CB loan on reserves...Tom,<br /><br />Can you clarify what the CB loan on reserves mean? Perhaps I'm not getting the illustration, but I thought when a person paid taxes - their balance sheet (bank account) would be debited for the amount of tax paid, these funds would flow via the central bank (meaning CB would receive a credit on the payee bank's account, the CB would debit that account and credit the receiving bank's account for the same amount. The beneficiary in this case is the Treasury.<br /><br />Other than being a clearing mechanism - the CB plays no other role and this movement should not impact the CB's balance sheet, since it's the same banks that fund their accounts at the CB.<br /><br />Am I misunderstanding your illustration here?Dhttps://www.blogger.com/profile/16839998764015490922noreply@blogger.comtag:blogger.com,1999:blog-5538185165116620726.post-53479958796815165402013-12-08T18:47:35.695-08:002013-12-08T18:47:35.695-08:00Thanks, Tom. Much appreciated!
LindaGThanks, Tom. Much appreciated!<br /><br />LindaGAnonymousnoreply@blogger.com