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Do central banks’ mounting losses actually matter?

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Re: Do central banks’ mounting losses actually matter?

#111

Post by gpderetta »

_kbh_ wrote: post #98
californical wrote: post #84

Earlier quoted context omitted.

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

> 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. It's actually the opposite, everyone should be hoping that someone delivers a devastating strike against the Russians for using any size of nuke in Ukraine. Unless…

I think that the nuclear proliferation cat is out of the box. I wouldn't be surprised if even European countries are already looking to acquire nuclear capabilities.

Re: Do central banks’ mounting losses actually matter?

#112

Post by cuteboy19 »

imtringued wrote: post #81
pragmar wrote: post #52

Earlier quoted context omitted.

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.

China is on the way to doing exactly this. There are plans for an Indian equivalent but it's less likely to happen

Re: Do central banks’ mounting losses actually matter?

#113

Post by doubleunplussed »

hristov wrote: post #107
cm2187 wrote: post #99

Earlier quoted context omitted.

You can still lose money on the interest rate you pay to the massive reserves banks have to hold at the central bank when you jack up rates but hold fixed rate bonds. Also in theory, if they really do unwind QE (which I think they will never do), they also hold all sort of long term treasuries and ABS that they would have to sell on the open market, ie too long dated to hold to maturity. And my guess is that those ar…

The FED does pay an interest rate on bank reserves, but the FED sets that rate themselves (this is the IORB rate). One hopes, with all the economists they have on staff, they would not set that rate to such a value that would lead them to insolvency. Regarding long term treasuries and ABS ... it will be much more convenient for the FED if the FED just held them to maturity, and this is probably what they would do. So…

I would hope they set that rate to what they think is optimal for the economy, regardless of their solvency.

I only skimmed the article, but I don't see where it gives reasons why solvency matters, although it hints it might. I was under the impression it doesn't really matter if the fed is solvent, since I can't think of any concrete consequences.

Re: Do central banks’ mounting losses actually matter?

#114

Post by SilverBirch »

I don't understand this... like... at all. At least for the BoE situation. So BoE has a load of bonds on it's balance sheet. These bonds are going down in value, so the bank is making a loss. This presumably goes on the UK deficit? If that's the case we're in trouble right? Because the UK is already at 143% Debt:GDP, interest rates are only now starting to go up, and the government's entire plan is to deficit spend to grow the economy. So it sounds like this increase in interest rates is likely to eat away massively at our budget and force us into more austerity?

Re: Do central banks’ mounting losses actually matter?

#115

Post by cm2187 »

hristov wrote: post #107
cm2187 wrote: post #99

Earlier quoted context omitted.

You can still lose money on the interest rate you pay to the massive reserves banks have to hold at the central bank when you jack up rates but hold fixed rate bonds. Also in theory, if they really do unwind QE (which I think they will never do), they also hold all sort of long term treasuries and ABS that they would have to sell on the open market, ie too long dated to hold to maturity. And my guess is that those ar…

The FED does pay an interest rate on bank reserves, but the FED sets that rate themselves (this is the IORB rate). One hopes, with all the economists they have on staff, they would not set that rate to such a value that would lead them to insolvency. Regarding long term treasuries and ABS ... it will be much more convenient for the FED if the FED just held them to maturity, and this is probably what they would do. So…

On rates, I believe the rates track the monetary policy, they can't jack up interest rates to 5% and pay 0.5% on bank reserves. Not the least because that would create big holes in private banks p&l.

On QE unwind, I think it is more a political pressure and damage control to the economy than convenience.

Re: Do central banks’ mounting losses actually matter?

#116

Post by Pennycade »

SilverBirch wrote: post #114

I don't understand this... like... at all. At least for the BoE situation. So BoE has a load of bonds on it's balance sheet. These bonds are going down in value, so the bank is making a loss. This presumably goes on the UK deficit? If that's the case we're in trouble right? Because the UK is already at 143% Debt:GDP, interest rates are only now starting to go up, and the government's entire plan is to deficit spend t…

The BoE is independent (in theory) from the government. If the bonds that BoE own go to zero, their entries are effectively just deleted from the database. In the same way that an increase in the number of £ in the database doesn't increase the government's deficit.

It's a very simple concept but can have psychological hurdle to overcome, given the simplicity of it and implications once internalised.

Analogy .. BoE has root admin access to the database of £. Government does not, has read only access.

Re: Do central banks’ mounting losses actually matter?

#118

Post by spinchange »

doubleunplussed wrote: post #110

This thread shows a phenomenon that I've noticed a lot of lately: that many smart people turn absolutely loopy when it comes to the topic of central banking. There's nothing quite like it, and I'm not sure how to explain it. The topic seems to make conspiracy theorists out of otherwise very reasonable people. Good to see the highest voted comments are sane, but the sanity ratio is pretty low compared to other topics.

A million times, this. You see extremely smart, rational, people start to attribute all kinds of personalized and emotional motives to things that are literally systemic, technical finance.

Re: Do central banks’ mounting losses actually matter?

#119

Post by cf141q5325 »

doubleunplussed wrote: post #110

This thread shows a phenomenon that I've noticed a lot of lately: that many smart people turn absolutely loopy when it comes to the topic of central banking. There's nothing quite like it, and I'm not sure how to explain it. The topic seems to make conspiracy theorists out of otherwise very reasonable people. Good to see the highest voted comments are sane, but the sanity ratio is pretty low compared to other topics.

Could you give an example? Without this reads a lot like just calling people who dont share your narrative irrational conspiracy theorists.

edit: On second read this sounded confrontational. I only ask because its really dangerous to make such broad non-refutable statements, especially when the conspiracy theorist label is used to no longer engage with people who dont share your narrative.

Differently put, where exactly did you exit the conversation? Because thats really important information to realize if you are in an echo chamber.

Re: Do central banks’ mounting losses actually matter?

#120

Post by spaceman_2020 »

doubleunplussed wrote: post #110

This thread shows a phenomenon that I've noticed a lot of lately: that many smart people turn absolutely loopy when it comes to the topic of central banking. There's nothing quite like it, and I'm not sure how to explain it. The topic seems to make conspiracy theorists out of otherwise very reasonable people. Good to see the highest voted comments are sane, but the sanity ratio is pretty low compared to other topics.

Modern monetary theory is so complex and jargon-filled that the only way lay people can understand it is through conspiracy theories. Conspiracies offer succinct one-paragraph explanations (usually ready-fit for the group's biases) for extremely complex processes.

In a way, it's like climate change. Extremely complex and hard to model, which invariably attracts conspiracy thinkers ready to whip it down into digestible quotes and ideas.

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