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Do central banks’ mounting losses actually matter?

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Re: Do central banks’ mounting losses actually matter?

#81

Post by imtringued »

pragmar wrote: post #52
melenaboija wrote: post #24

Earlier quoted context omitted.

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.

Cantillon effect says it's just a matter of how "close to money" you are. So living under a central bank is good, but borrowing directly from one is best.

Has anyone created an alternative banking system that is only using central bank money and skips over commercial banks completely?

I swear people have no clue how banking works.

Re: Do central banks’ mounting losses actually matter?

#82

Post by imtringued »

chatterhead wrote: post #72
melenaboija wrote: post #24

Earlier quoted context omitted.

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.

No, you won't profit from it. The people who profit are the member banks. Federal Reserve is an organization made up of member banks. Those banks make money off of interest and investments. The losses are distributed among the masses through dilution of our currency through the necessary expansion of it to absorb the losses. No amount of annual profit returned to the Treasury has ever outweighed the negative effect o…

Tell me why exactly do you need to take the medium of exchange hostage like people take housing hostage as a speculative investment?

Money is there to be used for transactions. Using money to save is literally the opposite how you are supposed to use it.

If anything, people witholding the medium of exchange against interest are what is causing business cycles and bailouts.

Re: Do central banks’ mounting losses actually matter?

#83

Post by centralscam »

Central banking is the central planning of the availability and price of credit.

Central planning of food production has created famines with no equal in history.

Central planning of housing created those lovely soviet style "housing" block developments while the beautiful inner cities of eastern europe rotted away.

Central planning of car production gave you cars like the Trabant which you literally had to queue 18 years for.

I am sure there is nothing that could go wrong with central planning the money supply but just in case economic live feels harder than it ought to maybe it's because of certain institutions continuously inflating away the value of your currency.

Re: Do central banks’ mounting losses actually matter?

#84

Post by californical »

rnk wrote: post #80
gdy wrote: post #60

Earlier quoted context omitted.

I'm Russian living in Russia and it feels like that since 2/24. Now almost 90% are concerned about the events in the Ukraine [0]. Personally, in February I was concerned about loss of lives, mostly Ukrainian, political repressions and Russian economy, today the economy looks okeyish, but with all the Western help to the Ukraine, it looks like it's only the question of time when Putin turns to tactical nukes. [0] http…

If he uses a nuke, even a small tactical nuke, nato and the US will respond with overwhelming conventional forces, destroying some significant Russian military assets. The world will be on a precipice of doom. I don't see how it will stop. Russia is too weak, their only response is more nukes, and then it's over for all of us.

NATO and the US will likely not respond if Putin uses a small nuke in Ukraine. There’s too much to lose. They’ll just let it happen, as they should. Which is obviously terrible and devastating for Ukrainians, but probably best for the rest of the world.

Hopefully other Russian leaders are aware of the risk though, and would actively disobey Putin if he gave the call to use nukes

Re: Do central banks’ mounting losses actually matter?

#85

Post by imtringued »

danielmarkbruce wrote: post #45
SevenNation wrote: post #42

Earlier quoted context omitted.

What kind of stuff do you think a bank can use reserve assets to buy?

Treasuries, back from the central bank, or all manner of assets from other banks. It's done every day.

People don't pay their groceries with treasuries. This is getting circular.

Commercial banks sell their treasuries to buy other treasuries? Really?? And where is the money to buy groceries and cause inflation supposed to come from?

Come on the answer is so simple you don't need to act stupid.

Commercial banks issue deposits against the treasuries and buy more treasuries which they then sell to gain reserves which then lets them issue more deposits to buy treasuries. This is definitely a loop but it has nothing to do with the central bank. The commercial bank could have done the same thing by creating deposits against illiquid treasuries without central bank help but it would endanger the banking system via bank runs.

QE basically just turns illiquid treasuries into liquid treasuries, it is basically a duration transformation provided by the central bank so individual banks do not need to take that risk. This by itself can't cause inflation because the type asset changed but not the quantity. You need the government to actually issue more treasuries for inflation to occur and the commercial bank to play along.

Re: Do central banks’ mounting losses actually matter?

#86

Post by centralscam »

lcw wrote: post #57
SevenNation wrote: post #30

> 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 h…

Obviously you are correct in that the Fed doesn't print money. That does seem like a misconception. However, they do make money more available by lowering interest rates and QE. This does give banks a disproportionate opportunity to lend more. Both because it's more lucrative for businesses and consumers to take on debt, but also because they need less real money on hand to do so. While I agree it's not printing mone…

It's literally creating money out of thin air. The process is just obfuscated behind shell games and big words.

Anytime someone borrows money from a bank new money is created. It's supposedly not a problem because when the debt is paid back the money is destroyed again. In reality, though, debt is never paid back, especially by governments. Instead it's refinanced be taking on ever more debt. The amount of debt is only ever growing and so is the money supply.

Re: Do central banks’ mounting losses actually matter?

#87

Post by imtringued »

rr888 wrote: post #67
SevenNation wrote: post #41

Earlier quoted context omitted.

Treasuries are one of the most liquid form of money there is. Reserve assets are not very liquid at all. If anything QE sucks liquid money out of the economy, elevating the price of that money (somewhat, according to central banks) in the process.

I think you need to go back to your text books. Treasuries aren't money. They are are super liquid and with repos you can very easily turn them into money but they aren't money as measured by m1, m2, mb etc. Treasury bills (<12m) are included in m4.

He means that there are non US banking instituions that need US treasuries outside the US but if the Fed is buying them and turning them in reserves they are locked in the US banking system. Central banks of other countries actually use US treasuries not dollars as their medium of exchange between each other. QE actually forces them to hold their medium of exchange in the US banking system. So paradoxically QE can have the opposite effect by turning an asset with wide acceptance into an asset that barely anyone is allowed to access outside the US.

Re: Do central banks’ mounting losses actually matter?

#88

Post by imtringued »

lcw wrote: post #57
SevenNation wrote: post #30

> 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 h…

Obviously you are correct in that the Fed doesn't print money. That does seem like a misconception. However, they do make money more available by lowering interest rates and QE. This does give banks a disproportionate opportunity to lend more. Both because it's more lucrative for businesses and consumers to take on debt, but also because they need less real money on hand to do so. While I agree it's not printing mone…

Instead of printing like there is no tomorrow, call it deficit spending or the government massively overdrawing it's credit card.

Or just call it borrowing money because debt is the real problem.

Printing is rhetorical framing that people use to say the government is stealing from you through inflation.

The problem is that paying off debt cripples the economy because people aren't using money as a medium of exchange, they save in liquid money when they should be saving via CDs.

Re: Do central banks’ mounting losses actually matter?

#89

Post by berdario »

luckylion wrote: post #25
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?

Inflation is measured ex post facto. TRY against EUR has been pretty stable from January, but the August 2022 rate compares the difference from August 2021. It's not cumulative every month.

If TRY against EUR will stay stable until January 2023, I expect that we will talk about TRY having roughly the same inflation as EUR.

Re: Do central banks’ mounting losses actually matter?

#90

Post by imtringued »

centralscam wrote: post #86
lcw wrote: post #57

Earlier quoted context omitted.

Obviously you are correct in that the Fed doesn't print money. That does seem like a misconception. However, they do make money more available by lowering interest rates and QE. This does give banks a disproportionate opportunity to lend more. Both because it's more lucrative for businesses and consumers to take on debt, but also because they need less real money on hand to do so. While I agree it's not printing mone…

It's literally creating money out of thin air. The process is just obfuscated behind shell games and big words. Anytime someone borrows money from a bank new money is created. It's supposedly not a problem because when the debt is paid back the money is destroyed again. In reality, though, debt is never paid back, especially by governments. Instead it's refinanced be taking on ever more debt. The amount of debt is on…

>It's literally creating money out of thin air. The process is just obfuscated behind shell games and big words

It is done that way to prevent out of control money printing. This process has stopped the concept of money printing since 1970 and it ensured there is less inflation. The central bank is doing its inflation fighting job right now. The difficulty of creating more money is being increased. At some point the deflationary forces of paying back money will arrive and inflation won't continue. It takes time.

>In reality, though, debt is never paid back, especially by governments. Instead it's refinanced be taking on ever more debt. The amount of debt is only ever growing and so is the money supply.

This is actually orthogonal to how money is created. The gold standard wasn't safe from a permanently expanding money supply even though digging gold is very expensive.

If you want to stop debt expansion you would need to read up on Silvio Gesell. Essentially the argument goes that money is both a medium of exchange and a store of value. Those two functions contradict each other. Saved money cannot be used to buy things. As a country becomes more prosperous the medium of exchange becomes scarce because people are saving and delaying consumption. There are still some people who have the need to transact and they need money. They could borrow money but that would make the debt problem worse because they would have to pay interest. They could issue more money but that would make the money supply problem worse. How is this supposed to be resolved? That saved money is like a blocked road, if a road is used as a parking lot, it cannot be used for its intended function, driving. We fine people for illegal parking and they will get their cars off the road and pay for private parking. What is a parking fee on money? It is effectively a negative interest rate or a demurrage fee. It encourages people to save in non money assets and give money to people who still have transaction needs.

This is completely orthogonal to what kind of money you have whether it has to be dug out, is printed by the government directly or you have a credit money system. All of them must have what amounts to a parking fee when debt is being paid off.

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