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Do central banks’ mounting losses actually matter?

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Re: Do central banks’ mounting losses actually matter?

#121

Post by orwin »

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…

Central banks owe their debt in their issued currency to themselves. So basically, those bonds going down in value are just a countability artifact and mean nothing.

Some media and politicians love to make a big deal about this, but they are either misinformed or disingenuous (or both).

Re: Do central banks’ mounting losses actually matter?

#122

Post by hydroreadsstuff »

doubleunplussed wrote: post #113
hristov wrote: post #107

Earlier quoted context omitted.

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.

Afaik the needed difference in interest payment from the fed comes from the treasury. So it’s indirectly connected to the budget. In theory though you can still raise more debt to pay the interest. But I’m not sure about the longterm consequences of this.

Having inflation above the interest rate helps decreasing the debt/gdp ratio.

Re: Do central banks’ mounting losses actually matter?

#123

Post by orwin »

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…

Insolvency to who? Who is the Fed final debt holder?

(It sounds harsh but I'm genuinely interested in your response)

Re: Do central banks’ mounting losses actually matter?

#124

Post by mjburgess »

photochemsyn wrote: post #19

“Control the coinage and the courts. Let the rabble have the rest.” - Frank Herbert, Dune Anyone wanting to have even a hope of understanding central banking globally should read Nomi Prins "Collusion". It's pretty dense, but it explains things like inter-central bank currency swaps, which might be relevant today: > "The following day, on June 24 [2016], just after the Brexit results were tallied, the Fed said that i…

> that central banks would use their money-conjuring tools whenever there was a shock to the system

of course, that's why we have central banks and fiat currency.

Without that, there'd be a currency crisis every other minute; as there was on gold. You can't "spin up the gold mines" during a pandemic.

Re: Do central banks’ mounting losses actually matter?

#125

Post by mellavora »

arcticbull wrote: post #97
centralscam wrote: post #83

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…

> Central planning of food production has created famines with no equal in history. The Farm Bill in the US (right now) centrally plans food, and subsidizes some crops to below the cost of production. Individuals in the US spend less of their paychecks on food than any other country in the world, and in fact, so much so, that 40% of food in the US is wasted each year and individuals still spend less than anyone else…

> [edit] And since we're on the topic of money, decentralized currency issuance in 1800s gave us wildcat banks that went under and took everyone's value with them. [3]

Yes, well now we have crypto currencies to take care of this function.

Re: Do central banks’ mounting losses actually matter?

#126

Post by roenxi »

spaceman_2020 wrote: post #120
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 digestibl…

"lay people": It looks a lot like you're printing money and handing it out to your wealthy buddies.

"experts": This matter is too complex and jargon-filled for you to take part in the debate.

"lay people": Explain again why we have an institution that alternates between handouts to asset owners and crashing the economy? I think prices going up exponentially with time might be bad for my welfare!

"experts": Those crazy conspiracy theorists! At it again. They can't even using the word inflation the way we defined it.

...

There are complex things involved here, but a lot of it is pretty obviously bankers being confused at the idea that there are options other than taxpayers backstopping their obviously bad gambles.

It looks like this round it might turn out pension fund style entities are the ones backing the whole show, I have my popcorn at hand if so and my pitchfork if it happens to be me. I don't want to pay for stuff that I never supported to start with. I don't want my taxes spent on foreign military expeditions either, I think that is actually bad for the economy.

Re: Do central banks’ mounting losses actually matter?

#127

Post by ShredKazoo »

spaceman_2020 wrote: post #120
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 digestibl…

Can anyone recommend educational resources that cut through the jargon and explain the subject accurately?

Re: Do central banks’ mounting losses actually matter?

#129

Post by _Algernon_ »

mjburgess wrote: post #124
photochemsyn wrote: post #19

“Control the coinage and the courts. Let the rabble have the rest.” - Frank Herbert, Dune Anyone wanting to have even a hope of understanding central banking globally should read Nomi Prins "Collusion". It's pretty dense, but it explains things like inter-central bank currency swaps, which might be relevant today: > "The following day, on June 24 [2016], just after the Brexit results were tallied, the Fed said that i…

> that central banks would use their money-conjuring tools whenever there was a shock to the system of course , that's why we have central banks and fiat currency. Without that, there'd be a currency crisis every other minute; as there was on gold. You can't "spin up the gold mines" during a pandemic.

What's the difference between inflating away the buying power of the people, versus taxing away the buying power of the people? Mathematically there should be no difference.

But I guess the transparency of the latter and the unpopularity for the politicians involved is too scary, so that's why we print monopoly money instead.

Re: Do central banks’ mounting losses actually matter?

#130

Post by mjburgess »

_Algernon_ wrote: post #129
mjburgess wrote: post #124

Earlier quoted context omitted.

> that central banks would use their money-conjuring tools whenever there was a shock to the system of course , that's why we have central banks and fiat currency. Without that, there'd be a currency crisis every other minute; as there was on gold. You can't "spin up the gold mines" during a pandemic.

What's the difference between inflating away the buying power of the people, versus taxing away the buying power of the people? Mathematically there should be no difference. But I guess the transparency of the latter and the unpopularity for the politicians involved is too scary, so that's why we print monopoly money instead.

Right, but deflation has been the largest risk during that era of "printing".

Inflation is only now a risk due to global supply-side problems, and changes in demand characteristics, and the cost of energy.

But even if we say the amount of money creation during the pandemic is a principle cause of inflation today -- isnt that great? In the sense that we survived a global shut down of the economy *only at the price* of 10% inflation for a few years.

People who decry central banks managing the supply of money seem only to have one, bad argument, "intuitively, money is a commodity and printing dilutes its value" -- well money *is not* a commodity.

Money is a ledger of promises whose values is proportionate to future economic activity. There is no "intuition" here. The actions of central banks have not created "monopoly money", since I can still spend mine now on basically what i've always been able to.

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