Dont be too quick to judge the 1%

[GostHacked]

Not at all. The central banks can destroy money as easily as they create it. For example, if the central bank sells the bonds it holds it destroys money. The same happens to interest payments it receives but I guess the interest could be used to purchase more bonds if it wanted to expand the money supply.

So the money never goes away it just changes. How does selling the bonds destroy money? Someone must be using money to buy said bonds? The money supply is always expanding. Maybe you can show me where it has in fact shrunk?

The important point is there is no 'profit' for a central bank. Any 'profit' is either spent increasing the money supply or destroyed.

If they make money on their services, it's profit.

If they give money back to the gov, they made a profit.

And yet our national debt keeps getting higher and higher.

I think the current Euro crisis is irrefutable evidence that a global currency will never happen.

That is what some said about the Euro I suspect.

[TimG]

So the money never goes away it just changes. How does selling the bonds destroy money?

The central bank does not keep cash. If it sells bonds the cash it recieves is vapourized. Similarily when it buys bonds it creates whatever cash it needs.

The money supply is always expanding. Maybe you can show me where it has in fact shrunk?

http://www.telegraph.co.uk/finance/economics/7769126/US-money-supply-plunges-at-1930s-pace-as-Obama-eyes-fresh-stimulus.html

The stock of money fell from $14.2 trillion to $13.9 trillion in the three months to April, amounting to an annual rate of contraction of 9.6pc. The assets of insitutional money market funds fell at a 37pc rate, the sharpest drop ever.

If they make money on their services, it's profit.

A non-profit organization is an organization that is not out to seek a profit. Non-profits can make money on their operations (technically a profit) but they are required to spend it on activities related to their non-profit objectives. In the BOC case, it chooses to expand the money supply by buying government bonds. Keep in mind we are talking about $2 billion/year in a economy that is > $1 trillion/year. It is noise. Edited November 21, 2011 by TimG

[TimG]

That is what some said about the Euro I suspect.

And those Euro skeptics were right in the long term. The failure of the Euro will ensure that any future currency union is a political non-starter. Edited November 21, 2011 by TimG

[dre]

And those Euro skeptics were right in the long term. The failure of the Euro will ensure that any future currency union is a political non-starter.

Oh I dunno. If anything I think the crisis shows us exactly how far international bankers will go to prop up the failing global financial/monetary/banking system. If the Euro really gets threatened, they'll just keeping throwing funny money at it. 10's of trillions if need be.

I wonder how much of the 16 trillion dollars that the private&foreign owned US Federal Reserve system dumped into the global banking system to prop up the failing global fiat empire went to banks in the Eurozone.

The Euro will prove resilient just like other fiat currencies have, because the system can remove as much money from the pockets of every single person on earth as they want to, and use it to keep the system solvent. I think everyone knows that it will collapse under its own wieght at some point, but it will be a while still. Maybe two or three more gigantic recessions caused by gigantic asset bubbles caused by gigantic credit/currency bubbles.

Edited November 21, 2011 by dre

[TimG]

The Euro will prove resilient just like other fiat currencies have, because the system can remove as much money from the pockets of every single person on earth as they want to, and use it to keep the system solvent.

I don't see why this is an issue. The Canadian dollar dropping in the 90s was an essential part of the successful deficit reduction plan because it was an efficient way to cut everyone's wages without sparking protest. Inflation works the same way. We are in a situation where real wage levels need to go down in most developed countries yet people greatly resist real wage cuts. Inflation will achieve that objective with minimal complaints.

Sure people with savings would rather see those greedy workers take a huge cut in their pensions/wage levels. But politically that is not going to happen which leaves inflation as the only political viable strategy.

In any case, the Euro has already failed since no future group of economically hetrogeneous countries would ever consider such a union in the future. It may persist in its current form but it will not expand futher (i.e. the UK wont be joing).

Edited November 22, 2011 by TimG

[dre]

I don't see why this is an issue. The Canadian dollar dropping in the 90s was an essential part of the successful deficit reduction plan because it was an efficient way to cut everyone's wages without sparking protest. Inflation works the same way. We are in a situation where real wage levels need to go down in most developed countries yet people greatly resist real wage cuts. Inflation will achieve that objective with minimal complaints.

Sure people with savings would rather see those greedy workers take a huge cut in their pensions/wage levels. But politically that is not going to happen which leaves inflation as the only political viable strategy.

In any case, the Euro has already failed since no future group of economically hetrogeneous countries would ever consider such a union in the future. It may persist in its current form but it will not expand futher (i.e. the UK wont be joing).

Dont count on it!

The UK is in sad shape, and they are planning to dump a mountain of money into economic stimulus, infrastructure, and they also want to dump a mountain of public money into the housing sector subsidizing first time home buyers. Conjure up a few trillion dollars and wave it under their noses and they just might bite! Like Greece just did...

[GostHacked]

I don't see why this is an issue. The Canadian dollar dropping in the 90s was an essential part of the successful deficit reduction plan because it was an efficient way to cut everyone's wages without sparking protest. Inflation works the same way. We are in a situation where real wage levels need to go down in most developed countries yet people greatly resist real wage cuts. Inflation will achieve that objective with minimal complaints.

The cost of living increases from employers don't reflect the inflation in prices for every day goods. Are you willing to take a pay cut??

Sure people with savings would rather see those greedy workers take a huge cut in their pensions/wage levels. But politically that is not going to happen which leaves inflation as the only political viable strategy.

Political strategies don't mean they are sound strategies.

In any case, the Euro has already failed since no future group of economically hetrogeneous countries would ever consider such a union in the future. It may persist in its current form but it will not expand futher (i.e. the UK wont be joing).

The unions are already going to take place.

[TimG]

The cost of living increases from employers don't reflect the inflation in prices for every day goods. Are you willing to take a pay cut??

Well you don't seem to understand that a monterary system without inflation is a political impossibility because the overwhelming majority of people will accept small pay reductions because of inflation but will not accept wage cuts.

Political strategies don't mean they are sound strategies.

Look - you get out there and convince the big public service unions to accept absolute wage and pension reductions. Once you have done that I will agree that alternative political strategies do exist. Until then I will argue that inflation is the only viable strategy that will allow wages to decrease when they need to.

[maple_leafs182]

The BIS has no control of a currency which means it is not a central bank. It is regulatory agency.

I know, hence why I said it is not a central bank.

[maple_leafs182]

Banks only borrow short term money from the central bank. These overnight loans are used to make sure the books balance every night and interbank transactions can clear. If banks want to get long term funding they got to go to bond market like all other corporations.

Here is a record of Apr 7, 2010 sale of bonds by the Royal Bank:

http://www.reuters.com/article/2010/04/07/royalbankofcanada-debt-notes-idUSN0746200120100407

Why would the Royal Bank be issuing bonds if it could get a special deal from the BOC?

I get what your saying and I do understand how central banks work.

Thanks to Bloomberg and Fox we saw that the Fed loaned out 16 trillion dollars to foreign banks and corporations, Canadian banks did receive some of that money. That is what I mean when I say the banks and corporations are getting loans from the central banks.

[GostHacked]

Well I admit TimG you got me thinking more about this stuff. I really don't get economics, it does not make sense, because it really does not make any sense. But regardless, the current system is not going to last much longer.

Edited November 22, 2011 by GostHacked

[dre]

I get what your saying and I do understand how central banks work.

Thanks to Bloomberg and Fox we saw that the Fed loaned out 16 trillion dollars to foreign banks and corporations, Canadian banks did receive some of that money. That is what I mean when I say the banks and corporations are getting loans from the central banks.

Canada central bank is a lot different than the US's. We nationalized it in the early 1940's, and all of its shares are held by the minister of finance on behalf of Canadians, and its regularly audited. Contrast that with the privately owned US Federal Reserve system which is privately owned and mostly privately controlled and almost never gets audited.

Given that its not a real big suprise that our central bank has behaved better.

Edited November 22, 2011 by dre

[blueblood]

Well I admit TimG you got me thinking more about this stuff. I really don't get economics, it does not make sense, because it really does not make any sense. But regardless, the current system is not going to last much longer.

It makes sense when a person doesn't try and over complicate it. When you use occam's razor it's the best way to understand economics.

[Michael Hardner]

Wait a second... TimG, doesn't it feel strange to argue 'conventional wisdom' on the economics side of the fence when you have maintained that groupthink has domain over the 'conventional wisdom' on the science side of the fence....

Hmmmmmmmmmm.............

[TimG]

That is what I mean when I say the banks and corporations are getting loans from the central banks.

Central banks are also lenders of last resort in order to prevent a collapse of the financial system. These loans made in 2008/2009 fall into that category yet you tried to imply that banks can access these funds whenever they want (as opposed to when there is a major crisis).

As far as emergency loans go: banks are heavily regulated businesses that perform an essential service. Being able to access emergency funding is a consequence of the regulations that they must live with. There is a need to discuss how to increase regulation to prevent another repeat of 2008.

[TimG]

Wait a second... TimG, doesn't it feel strange to argue 'conventional wisdom' on the economics side of the fence when you have maintained that groupthink has domain over the 'conventional wisdom' on the science side of the fence.

I was wondering when that would come up. My opinion on climate science has two aspects: on the science my opinion has been coloured by a few prominent idiots like Mann who are allowed to get away with producing junk science and be praised for it. I simply cannot take a field seriously that idolizes junk peddlers link Mann.

The second aspect is purely economic: I simply do not believe that meaningful CO2 reductions are possible and that the various schemes to attempt the impossible are a huge waste of money if they are not outright frauds. That opinion will not change even if climate science, as a field, cleans up its act and convinces me that they should be taken seriously. I would simply argue that we need to spend aggressively on adaption if I become convinced of the predictions of disaster.

Edited November 22, 2011 by TimG

[Michael Hardner]

Are economists susceptible to Groupthink?

[TimG]

Are economists susceptible to Groupthink?

The difference is you do not have the dominate school of economists seeking to vilify and personally discredit economists from other schools. They use reasoned arguments to make their case. This open and professional debate protects against group think. Edited November 22, 2011 by TimG

[blueblood]

Central banks are also lenders of last resort in order to prevent a collapse of the financial system. These loans made in 2008/2009 fall into that category yet you tried to imply that banks can access these funds whenever they want (as opposed to when there is a major crisis).

As far as emergency loans go: banks are heavily regulated businesses that perform an essential service. Being able to access emergency funding is a consequence of the regulations that they must live with. There is a need to discuss how to increase regulation to prevent another repeat of 2008.

You do know that increased regulations bring about with them unintended consequences. For example gov't insured bank accounts allow depositors to become complacent with their money which allows bankers to make riskier loans because the gov't will bail them out. Same goes with artificial low interest rates, which flooded the market with cheap money and in the early 2000s followed the path of least resistance which was the housing sector instead of production projects. Had interest rates been higher at true market value, many of those loans couldn't have been made because the interest would have been too high.

The best way to prrevent a 2008 is to realize that society cannot save poor people, people and govts must live within their means, and that we need to find ways to lower costs of production through unwinding the regulations which made it so costly in the fist place - even though some people will be upset by it.

[Michael Hardner]

There's no structural reason for a difference to exist is there?

Isn't Marxism a discredited and contrarian theory espoused by academic non conformists?

Anyway... I am glad to be consistent in supporting conventional thought... it's correct most of the time.

[blueblood]

There's no structural reason for a difference to exist is there?

Isn't Marxism a discredited and contrarian theory espoused by academic non conformists?

Anyway... I am glad to be consistent in supporting conventional thought... it's correct most of the time.

There's more thoughts besides Marxism vs capitalism. You have Keynes vs the Austrian school. Krugman vs, Friedman. And if you watch financial shows there is often quite polarizing debate concerning fiscal policy.

[TimG]

For example gov't insured bank accounts allow depositors to become complacent with their money which allows bankers to make riskier loans because the gov't will bail them out.

The moral hazard created by the bailouts is something that really worries me even thought I am not convinced there was any other choice. The government should have done a better job of penalizing the banks that needed to be bailed out.

[TimG]

There's no structural reason for a difference to exist is there?

I think economics has always been closely linked to the political process so economists understand what they need to do to avoid getting dragged through the political mud. Climate scientists stumbled into the political limelight and did everything wrong.

Anyway... I am glad to be consistent in supporting conventional thought... it's correct most of the time.

At the same time you need to keep your mind open to the possibility that 'conventional thought' is sometimes dead wrong.

[blueblood]

The moral hazard created by the bailouts is something that really worries me even thought I am not convinced there was any other choice. The government should have done a better job of penalizing the banks that needed to be bailed out.

Here's one, if they want money they can go into bankruptcy like status. That means they can gut executive salaries and tear up management's contracts, and pay them a pittance for optics sake. Then there is closing the tax loopholes of those bailed out banks, etc. Etc.

[TimG]

Here's one, if they want money they can go into bankruptcy like status. That means they can gut executive salaries and tear up management's contracts, and pay them a pittance for optics sake.

Yes - there needs to be away to make executives pay a heavy price personally without requiring that they be convicted of a criminal offense because the bar to prove criminal intent is pretty high. Sure some executives will argue that it was not their fault but when banks fail millions of people who are not at fault pay a huge price. It is only fair to expect executives to share the pain. Edited November 22, 2011 by TimG