Do central banks’ mounting losses actually matter?

The Federal Reserve can be thought of as there to balance out the cost of this arrangement (unending inflation) with the benefits it provides (expanded access to capital by those who would otherwise perhaps never be able to raise the funds -- hard to run a business when you don't have the "machinery" that makes it go).

It turns out, this is really hard. At the end of the day though, if they weren't there "picking winners" as it sometimes appears they're doing, we'd still have winners being picked, as we did under the old gold backed currencies in the past, but we'd also get to contend with the effects of banks going bust from failing to adequately navigate the markets, which would be further made turbulent by a lack of coordination between their interest rates being haphazardly determined. Presumably, those with the most money and clarity would be the only ones left after an epic game of Monopoly, and we'd be left with...a central bank, much like we have today.

At the end of the day, the premise that infinitely growing debt isn't the end of the world is probably sound, provided that its rate of growth is kept in check. Avoiding a situation where the money supply goes exponential is crucial. Unfortunately... https://fred.stlouisfed.org/series/M2SL looks a lot like some charts I remember from 8th grade algebra. That we likely just need to fix the trajectory rather than actually bring down the money supply should offer some solace, but those used to the sugar high of the last decade or so are likely in for a rude awakening over the next few years -- and whether that awakening is enough to rip apart civil society may ultimately be something that remains to be seen.

So when you think a random walk around 0, you think of an ever-increasing positive trend? Because that isn't what a random walk looks like.

> And you can't avoid external shocks: if you embargo Russian gas, prices are going to go up, and that's inflation regardless of money supply issues.

Later on it would go down. It is a commodity market, and trade will normalise.

The issue here isn't that prices rise and fall, it is that the people who make prices rise continuously are forcing everyone to use their system. They shouldn't do that. And if there were any choices, it'd be a rare bird indeed who voluntarily signs up for a system where prices always trend up.

> Quite hard to find a safer asset, though.

I mean, maybe I've badly misunderstood what a "margin call" means, but my feeling on this one is it suggests margin is involved. It is not a conservative financial decision if they involve buying safe assets for someone's retirement on margin, because they aren't safe assets any more.

Bond prices go down and I'm at no risk whatsoever of being sent bankrupt by that, because I'm not stupid enough to start using debt in my retirement savings. To claim they're buying "safe assets" while simultaneously they are in need of assistance due to playing around in the gilt market derivatives is an impressive take.

> Which people? Which loans? Please please be specific.

When someone (A) lends money to another person (B), that person becomes a counterparty. So if B goes bankrupt, A loses money. If B is about to go bankrupt, gets big loans from a central bank then pays back A, A has effectively gotten a handout. What should happen is A loses money for taking on a risky gamble.

> Again, which loans? What are the collateralization rules for them? What are the interest rates? Do you think an individual and a bank have the same credit score?

Yeah, good point, that part doesn't actually make any sense. I was thinking about QE1 when I wrote that, but the issue there wasn't really any deals getting done as much as the general money printing.

> Please distinguish between "default" and "rollover". There is nothing wrong with rollover unless the risk has changed?

There absolutely is something wrong with rollover. If entities can perpetually roll over their debt, and the entity issuing the debt is a government entity or bankrolled by a government entity - ie, risk insensitive and unable to go bankrupt because of policy - then all the usual economic controls to make sure the money is well spent are removed.

> Example of "wasting"?

If a banking entity goes bankrupt due to enormous losses it has effectively wasted all the money it was given. Which is fine, happens from time to time, but the people responsible shouldn't get a chance to try again because the regulators like them.

> ...if you just allege "crime"...

Sorry, I missed a step here. What crime are you talking about? I don't think anything criminal is happening.