Merry Xmas Wall St. from Barack

[August1991]

It is called "macro" economics for a reason. The ideas and principles that may apply to your "micro" household/family do not necessarily apply for the economy as a whole.

I feel obliged to try to explain this quote better.

As individuals, we care about how much we get compared to others. We care about "fairness". But looking at the question from a broad, overall perspective, who cares how much any single individual gets?

As Joseph Stalin is infamously reported to have said, "One death is a tragedy. Ten thousand deaths is a statistic." From the micro perspective, I don't want to be a dead soldier. From the macro perspective, it's important to achieve the goal with the least harm possible.

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To understand better the "macro" perspective, I think that one has to think in terms of incentives rather than fairness.

Edited December 4, 2011 by August1991

[dre]

Cybercoma, when the article in the OP says that the Fed "committed" $7.7 trillion, it means that the Fed deposited money in the banks' accounts with the Fed. Based on this, it is calculated that the banks made $13 billion between the interest rate charged for this loan and what the banks were able to make lending the money out.

Well, a heck of alot of people did the same. As a friend in Spain recently said to me, "With the Fed lending money at such rates, you would be crazy not to borrow." How many Canadians have decided not to pay their variable rate mortage back quickly?

It's called an extremely expansionary monetary policy. (The modern term is quantitative easing.)

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Other notes:

The supposed "ownership" of the Bank of Canada or the US Fed is irrelevant. I have no easy explanation for Canadian banking stability (compared to the US) except history.

English-Canadian nationalists always want to show how Canada is different from the US. Well, money is the best example and yet no Canadian nationalist has ever drawn this obvious example.

Americans have always had a funny relationship with money whereas we Canadians, at least historically, have been pragmatic. Americans would never tolerate the kind of concentrated banking power that we in Canada take as normal.

The governor of the Bank of Canada can deal with Canada's banking sector by inviting five men to lunch in his dining room on Wellington. (Of course, they would speak English.) Quantitative easing? The governor simply deposits government money in whichever bank he wants. Such cozy deals would be unthinkable in the US (as the OP makes obvious).

Here's something (non-PC) to ponder. The two most recent US Fed Chairmen were Jewish. To my knowledge, all of Canada's BoC governors were male WASPs. Canada has never had a francophone (French speaking person) or a Catholic (let alone a Jew) as governor of the Bank of Canada. French-Canadian nationalists are quick to find fault elsewhere but few note this seeming bias.

Mark Carney baragouine le français. Il n'est pas francophone.

In short, I reckon that nationalists (typically leftists) are bad at math. They don't understand money.

Th

e supposed "ownership" of the Bank of Canada or the US Fed is irrelevant.

No its really not. The boc is subject to regular audits. The US private fed had never been audited until a month ago. Theres a huge difference between the way to two central banks run, and its transparency and accountability.

[dre]

OW, commercial banks had to deposit money with the Fed - and received no compensation whatsoever.

Bullshit they dont. They are hugely compensated. Each dollar they put into their account at the federal reserves lets them lend out a shitload of more dollars at interest. Brand new money. And the fed zooms money around and allows banks to leverage their money sometimes as high as 50:1 without being vulnerable to a bank run. The fed shouldnt pay interest on these deposits and almost never does.

Banks lobbied like crazy to get this system. They make out like bandits, can create almost limitless money/credit and they have a lender of last resort.

Edited December 4, 2011 by dre

[maple_leafs182]

In the 1930s, the US unemployment rate rose to almost 30%. It took about 10 years to get back to the same GDP as in the 1920s. Is that what you would want?

The government intervened during the great depression that is why it lasted so long. Look at the depression in 1920 or maybe it was 1919...anyways, the government didn't get involved and it only lasted one year.

Also, if you calculate unemployment rate the same way they did during the great depression, unemployment is around 22 percent now.

Edited December 4, 2011 by maple_leafs182

[bud]

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Edited December 4, 2011 by bud