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Do central banks’ mounting losses actually matter?

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Re: Do central banks’ mounting losses actually matter?

#151

Earlier quoted context omitted.

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…

It's not a dilution of value when the risk is deflation; and at zero-inflation, it's not a tax because it encourages growth by investment.

So it's only a "tax" if it (1) causes inflation to rise; and (2) rise above the level which promotes growth.

Neither of those conditions obviously obtains in the era of QE. Indeed, (1) never did.

Re: Do central banks’ mounting losses actually matter?

#152

Earlier quoted context omitted.

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.

Strange to recommend Mankiw, and Modern Monetary Theory (a discredited, non-mainstream economic concept that Mankiw wrote against) in the same sentence.

MMT is practically pseudoscience, makes unclear claims, claims a foundation in mainstream economics but makes completely wild logical leaps when it comes to policy recommendations, and it's promoted by politicians more than real economists.

Re: Do central banks’ mounting losses actually matter?

#153
post #140

Earlier quoted context omitted.

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

The top comments seem pretty reasonable there. Did you have a specific one in mind?

Re: Do central banks’ mounting losses actually matter?

#154
post #126

Earlier 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…

If a subject is too complicated for non-specialists to understand but of critical importance and liable to corruption or incompetence, non specialists must form judgments about the management of the area by the specialists. To do that they are forced to use heuristics since by definition they don’t have the requisite knowledge.

Most of us here have been on both sides of that coin. There are no easy answers. We’ve all seen up close supposed experts in our respective fields that were incompetent or corrupt.

Re: Do central banks’ mounting losses actually matter?

#155

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 exac…

Well, let's have a scroll...

This one:

https://news.ycombinator.com/item?id=33156617

No, the fed having negative equity doesn't stop them controlling the money supply. Unless like, they've literally sold all their assets and there's still too much money left in the system, but that's so far away from being a possibility that it's not worth considering. And even if it did happen, there would be options.

Here we've got fed negative equity apparently resulting in revolutions, wars, and famines:

https://news.ycombinator.com/item?id=33156855

Here we've got "don't be fooled, they just want profit and power":

https://news.ycombinator.com/item?id=33156394

Here's a conspiratorially-toned objection to the whole concept of central banking, likening it to centrally-planned economies and implying it will be equally disastrous:

https://news.ycombinator.com/item?id=33160065

> Differently put, where exactly did you exit the conversation?

I'm still early on in my journey learning about economics (I'm a physicist turned software engineer), but after only learning a little bit it is pretty easy to spot the people who've learned almost nothing but confidently assert it's all a scam or whatever, and pretty much dismiss them.

But walking away from them doesn't mean entering an echo chamber. There are plenty of legitimate objections to how central banking is done. For example, whenever central banks monetise government debt, they buy it via private investors who therefore get to skim a bit off the top. It doesn't really feel fair for these middlemen to make bank off the central bank deciding to fund the government's deficits, an interaction that need not involve them. On the other hand, keeping the central bank and the government at arm's length from each other is an excellent idea. So how best to balance this?

It's starting to look like fiscal policy can be more powerful than monetary policy. How can we leverage this to stabilise the economy without handing the government too much power it might misuse?

Should the target inflation rate be higher? Should we target a different metric, like, nominal GDP? Should the target be symmetric? Should it be level targeting or rate targeting? Can interest rates be negative? Is the zero lower bound an actual problem, or is more QE a fine and sensible response and we're just a little too scared of it? Should the Fed pay interest on excess reserves? Is a corridor system better than a floor system for rate targeting? How can we best deal with moral hazard?

Even though I've got plenty yet to learn, it is extremely clear to me that some kind of control of the money supply is necessary, otherwise you get depressions. So I am not expecting to encounter much serious argument for getting rid of central banks entirely, unless someone invents a distributed way of achieving the same goal, or has a feasible plan for the government taking on the role instead of a central bank. If someone's got a serious argument, I'll hear it, but if it's from the "it's all a scam, we should never have left gold" crowd, I'm not expecting much. It's not a scam, it's a legitimate attempt to make a system that works, and it would be much worse if we were still on gold. Yet there seems to be something about the topic that draws otherwise smart people into dismissing the whole thing.

Re: Do central banks’ mounting losses actually matter?

#156

Earlier quoted context omitted.

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.

Strange to recommend Mankiw, and Modern Monetary Theory (a discredited, non-mainstream economic concept that Mankiw wrote against) in the same sentence. MMT is practically pseudoscience, makes unclear claims, claims a foundation in mainstream economics but makes completely wild logical leaps when it comes to policy recommendations, and it's promoted by politicians more than real economists.

Isn't wild leaps in assumptions just economics in general?

So many economic theories are built on wild assumptions, like assuming everyone is rational as a basis.

Economics is closer to politics than any hard sciences imo. So on a high level like CBs it's all about narrative.

Re: Do central banks’ mounting losses actually matter?

#157
post #142
post #138

Earlier quoted context omitted.

> 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…

"I loan you a billion dollars now to buy assets, then inflate money so billion dollars is worth half a billion dollars, then demand my billion dollars back. This isn't a gift wink wink ."

After QE4, seems to me inflation wasn't particularly high.

Re: Do central banks’ mounting losses actually matter?

#158
post #126

Earlier quoted context omitted.

"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…

If a subject is too complicated for non-specialists to understand but of critical importance and liable to corruption or incompetence, non specialists must form judgments about the management of the area by the specialists. To do that they are forced to use heuristics since by definition they don’t have the requisite knowledge. Most of us here have been on both sides of that coin. There are no easy answers. We’ve all…

The law is so complicated that even specialists like lawyers aren't trusted to get it right, and we bring in the judges who are experts even among the experts to help with the tricky stuff. Sometimes they talk in latin. And yet, when questioned, they still come up with answers that make sense. There is a profound fairness - often the complaint against the legal system is its procedural fairness is too thorough when people think there are obvious answers.

In economics, the argument seems to almost literally be "lol, we have your money hostage, if we don't start the money printers you'll go bankrupt. Yeah, we have policies that will wipe out your savings if you don't put it up as a hostage. This is in your own best interests. No your doubts aren't legitimate you're just not being reasonable and/or we don't want to engage with you in common English. All the evidence was established in 1930 and the debate is settled, we don't really need to provide it now, trust us we're right and you don't understand it anyway".

I say almost because the "lol" is not included in the serious version.

Re: Do central banks’ mounting losses actually matter?

#159
post #103

Earlier quoted context omitted.

I'm not sure that's completely true. Banks are actually the main issuers of new money. The central banks are actually more of a banking lubricant I'm normal times. Obviously they can substitute from banks and make the credit conditions better. But they cannot really make them worse. What's happening now is that most central bank have been stimulating the economy by lending at rates under the "natural" rate and they a…

They can absolutely make credit conditions worse, through capital requirement and liquidity requirement. Also if you withdraw QE, it drains banks deposits and their ability to fund new loans.

Capital and liquidity requirements are not decided by central banks generally. In most democracies it's a legislative branch responsibility. They cannot "withdraw" QE. What they have been doing is buying bonds at a higher price than the market thus lowering the interest rates they simple buy them a bit cheaper now.

Re: Do central banks’ mounting losses actually matter?

#160
post #131

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?

https://en.wikipedia.org/wiki/Betteridge%27s_law_of_headline...
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