Do central banks’ mounting losses actually matter? • Hacker News Board

Re: Do central banks’ mounting losses actually matter?

#21

Post by lxgr » Mon, Oct 10, 2022, 9:38 PM UTC

daveslash wrote: post #15

civilized wrote: post #11

Personally, if I had the authority of the government to print money, I would find it easy not to go bankrupt.

That's not how money works. In fact, that's a good way to accelerate a trajectory towards bankruptcy.

No, it's just a trajectory towards inflation (all other things being equal; it can be the right choice in certain economic environments).

A central bank (that issues a sovereign fiat currency) can definitionally not go bankrupt, since its liability is the issued currency itself.

Re: Do central banks’ mounting losses actually matter?

#22

Post by downrightmike » Mon, Oct 10, 2022, 9:39 PM UTC

lotharcable wrote: post #16

They don't go bankrupt in the conventional sense. When they go bankrupt economists like to use the term "Hyper Inflation". This means that the currency they produce becomes worthless.

Yup, BlackRock specializes in closing failed banks. That's why the US gov't gave them all the bad banks from 2007 and also why they are a huge company. They'll only get larger at this point.

Re: Do central banks’ mounting losses actually matter?

#23

Post by unyttigfjelltol » Mon, Oct 10, 2022, 9:40 PM UTC

lotharcable wrote: post #16

They don't go bankrupt in the conventional sense. When they go bankrupt economists like to use the term "Hyper Inflation". This means that the currency they produce becomes worthless.

In the context of a past generation of government sponsored entities, the answer was 'yes', they could go bankrupt but the political branches will bail them out. The issue here is that the political branches are in the middle of being bailed out themselves by the central banks, and it's been going on for a decade or two, so conceptually there is a serious problem with politicians bailing the bailer. The fact that headlines like this are being written, regardless of the answer, should put everyone on alert for the possibility the can no longer can be kicked further down the road the way it has until now.

Re: Do central banks’ mounting losses actually matter?

#24

Post by melenaboija » Mon, Oct 10, 2022, 9:41 PM UTC

chatterhead wrote: post #3

Don't be fooled, the central in "Central Banking" is about decision making power and profit. The losses are all distributed.

And how is the profit distributed?

If you live in Europe, and specially US, you are already part of the shareholders and will profit from it (on average). More or less than other actors in the country, but definitely more than those ones not being under these central banks policies.

Re: Do central banks’ mounting losses actually matter?

#25

Post by luckylion » Mon, Oct 10, 2022, 9:41 PM UTC

lotharcable wrote: post #16

They don't go bankrupt in the conventional sense. When they go bankrupt economists like to use the term "Hyper Inflation". This means that the currency they produce becomes worthless.

Maybe you can explain it to me like I'm five.

I've been occasionally watching the Turkish Lira this past year. The rates against the USD are still sinking. Against the EUR it's pretty stable. Yet allegedly they have something like 80-150% inflation in Turkey, while the EUR-zone has 10%. How does this work, why isn't the Lira becoming "worthless" with that amount of inflation?

Re: Do central banks’ mounting losses actually matter?

#26

Post by unyttigfjelltol » Mon, Oct 10, 2022, 9:43 PM UTC

lxgr wrote: post #21

daveslash wrote: post #15

Earlier quoted context omitted.

That's not how money works. In fact, that's a good way to accelerate a trajectory towards bankruptcy.

No, it's just a trajectory towards inflation (all other things being equal; it can be the right choice in certain economic environments). A central bank (that issues a sovereign fiat currency) can definitionally not go bankrupt, since its liability is the issued currency itself.

A central bank operates within a framework of rules that, among other things, allow it to operate as a central bank. If those rules require it to raise capital before continuing to operate, and the capital cannot be raised, it is effectively bankrupt.

Re: Do central banks’ mounting losses actually matter?

#27

Post by kodyo » Mon, Oct 10, 2022, 9:45 PM UTC

lxgr wrote: post #21

daveslash wrote: post #15

Earlier quoted context omitted.

That's not how money works. In fact, that's a good way to accelerate a trajectory towards bankruptcy.

No, it's just a trajectory towards inflation (all other things being equal; it can be the right choice in certain economic environments). A central bank (that issues a sovereign fiat currency) can definitionally not go bankrupt, since its liability is the issued currency itself.

It can go bankrupt if people stop trusting the currency.

Re: Do central banks’ mounting losses actually matter?

#28

Post by miohtama » Mon, Oct 10, 2022, 9:46 PM UTC

simmerup wrote: post #4

As always, ‘Any headline that ends in a question mark can be answered by the word no‘

Correct, but in this case it has a twist: “No, but bad things will happen.”

Re: Do central banks’ mounting losses actually matter?

#29

Post by orangepurple » Mon, Oct 10, 2022, 9:47 PM UTC

kodyo wrote: post #27

lxgr wrote: post #21

Earlier quoted context omitted.

No, it's just a trajectory towards inflation (all other things being equal; it can be the right choice in certain economic environments). A central bank (that issues a sovereign fiat currency) can definitionally not go bankrupt, since its liability is the issued currency itself.

It can go bankrupt if people stop trusting the currency.

The government forces its subjects to pay taxes in that same currency and enforces this policy through courts, police, and the military. That is where state run currencies get their value. You need $CURRENCY because it is required to pay your taxes. The only way it ever stops is overthrow.

Re: Do central banks’ mounting losses actually matter?

#30

Post by SevenNation » Mon, Oct 10, 2022, 9:48 PM UTC

> On the other hand, central banks are constructs of sovereign states and can literally create money out of thin air, which makes the whole bankruptcy question take on a different dimension.

This is not true, at least in the US. The Treasury issues currency.

What the Federal Reserve can do (and has done under QE) is perform an asset swap. An asset held by a bank (such as a treasury bond) is purchased by the Fed and held on its balance sheet. In exchange, the Fed credits the bank with a reserve asset. This reserve asset can not be spent in the real economy. It is locked in the banking system and can only be used within it.

Reserve assets are not money. They're much more like a utility token. Therefore, the US Federal Reserve does not print money under QE.

But there's the fact and then there's perception. Many are either unaware of how QE actually works, or think the distinction between currency and reserve assets doesn't matter. So they behave accordingly.