Full title: > Are central banks going bankrupt? > No, but there are some interesting issues surrounding their QE P&L Love seeing Betteridge validated so quickly.
Who is Betteridge?
Do central banks’ mounting losses actually matter?
131–140 of 241 posts
Re: Do central banks’ mounting losses actually matter?
#132I 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…
What's your source for that Debt:GDP figure? From these sources it seems to be closer to 100% currently [1][2][3]
[1]https://www.ons.gov.uk/economy/governmentpublicsectorandtaxe... [2] https://tradingeconomics.com/united-kingdom/government-debt-... [3] https://www.theguardian.com/business/2022/sep/04/now-britain...
Re: Do central banks’ mounting losses actually matter?
#133Earlier quoted context omitted.
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* o…
>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.
No. I'm saying inflation through money printing is mathematically equivalent to taxation, as it causes the same level of loss in buying power. Since one of these is more transparent in what is actually happening (taxation), that one should be used.
Additionally money printing largely affects people who hold cash which is primarily poor people. Anyone who has money invested in the marked will not be affected. Taxation can be applied selectively. Money printing is effectively a hidden tax (thus not gaining the unpopularity it deserves), which selectively favours the rich, to which a better - or at least more honest - approach exists.
Not to mention that money printing is controlled by people who were never elected and have no mandate from the electorate.
Re: Do central banks’ mounting losses actually matter?
#134Earlier quoted context omitted.
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 hea…
When the can meets the end of the road the ways out include - Hyperinflation - Great reset Likely effects may include - Revolution - War - Famine Here is a nice BBC article how hyperinflation has been solved in the past https://www.bbc.com/news/business-45523636 Usually there is a period, or permanent, “dollarisation” of the economy https://en.wikipedia.org/wiki/Hyperinflation#Aftermath but not sure if this is an opt…
What's "great reset"? Is that economics jargon?
Re: Do central banks’ mounting losses actually matter?
#135This 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.
It’s funny. I would personally say many people who think of themselves as smart suddenly realise their limits when faced with monetary theory and prefer loopy theories to facing the truth.
Alternatively, you could frame it less harshly with people who have very little economic background prefer loopy theories to actually engaging with the complexity of monetary theory.
Re: Do central banks’ mounting losses actually matter?
#136Earlier quoted context omitted.
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?
There is not that much jargon. It’s just an advanced topic so people use economic terms they expect people to know. Grab an introduction on macroeconomics for exemple Mankiw then any book on modern monetary theory and everything should be quite clear.
Re: Do central banks’ mounting losses actually matter?
#137This 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.
It’s funny. I would personally say many people who think of themselves as smart suddenly realise their limits when faced with monetary theory and prefer loopy theories to facing the truth. Alternatively, you could frame it less harshly with people who have very little economic background prefer loopy theories to actually engaging with the complexity of monetary theory.
[deleted]
Re: Do central banks’ mounting losses actually matter?
#138Earlier quoted context omitted.
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 craz…
> printing money and handing it out to your wealthy buddies.
So much confusion is caused by the inability to distinguish between "gift" and "loan".
The problem with allowing banks to hard-fail is that imposes real, huge costs on customers even if the deposits are 100% covered, because the failover is not instant and you end up with money locked up for a period and are unable to make your own payments.
> prices going up exponentially with time might be bad for my welfare!
And prices going down exponentially is bad for investment, and precisely keeping prices the same forever is impossible; that's why the target is 0-2% and central banks have been extraordinarily successful at meeting that target through interest rate adjustment.
> pension fund style entities are the ones backing the whole show
Pension funds are more or less obliged to buy the safest assets they can?
Re: Do central banks’ mounting losses actually matter?
#139Earlier 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…
Insolvency to who? Who is the Fed final debt holder? (It sounds harsh but I'm genuinely interested in your response)
The debt of the fed is the money it creates, typically through reserves (ie a commercial bank has a bank account at the central bank), and a little bit the paper money (which is an IOU from the Fed).
But insolvency means the value of your equity is negative, ie your debt exceeds your assets. At this stage a private company would automatically be declared bankrupt, it’s not clear what would happen to the fed. Printing money won’t solve the solvency (you create as many assets as liabilities), but it’s not going to run out of cash either because it can print more.
Re: Do central banks’ mounting losses actually matter?
#140This 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 exac…
I agree with parent. There are so many.
Here's a recent example where almost every comment in the thread is so off the mark as to be unrecognizable for the comments section of your local TV news station. https://news.ycombinator.com/item?id=33028673