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Central Banking and why it's not as simple as people think


Moonbox

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14 minutes ago, Dougie93 said:

how does a 3.75% interest rate posted by the BoC address a 7% inflation rate ?

BoC interest rate is the overnight rate, and not the rate that banks are lending money out to people and businesses.  

The other consideration is that most of today's unusual inflation is global supply-driven and raising domestic interest rates doesn't solve this largely temporary problem.  

14 minutes ago, Dougie93 said:

I'm not going to admit that it is over my head to understand that the BoC is compromised and so full of shit

You don't have to admit it.  You've already proven it.  Go ahead and tell us how the "compromised" BoC has caused global inflation to double in 2022.  I'll wait.  ?

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37 minutes ago, Hodad said:

This is a very good post. The machinations of the central bank are extraordinarily sophisticated. I have extensive economics education (as a student, it's not my profession) and have no problem admitting that it's way over my head.

It's mostly over my head too.  That was my education as well, and I've spent the last decade or so in the industry.  I do, however, know enough about it to understand that Justinflation, or Bidinflation is goofy nonsense, and I do speak to the experts who do understand what's going on.  

37 minutes ago, Hodad said:

I don't mean to say that it's unlearnable, but one would need both a good foundation and a lot of specialized training on top of it--and a good bit of practice. We're talking multiple textbooks. Nobody's going to do it in a blog post 

It's multiple textbooks and courses to get even a foundational level of knowledge.  We're talking PhD-level education and/or work experience to be able to usefully contribute to these topics.  

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5 minutes ago, Moonbox said:

You don't have to admit it.  You've already proven it.  Go ahead and tell us how the "compromised" BoC has caused global inflation to double in 2022.  I'll wait.  ?

the BoC is compromised because the Prime Minister can hire & fire the governor

the BoC governor is a political prestige position which only sociopaths would be interested in now

so the BoC is not really at arms length,

]y the BoC governor is just another crony, like everybody else in government

so rather than do what they are charged to do, the BoC governor will try to prop the ruling Liberals up

and by doing so, he will bring the Canadian economy down, into a depression

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24 minutes ago, cannuck said:

I am endlessly amused at the doings of economists and bankers.   They have managed to codify and institutionalize a mess of hogwash that can precisely calculate and predict things they actually know very little about.  Spoken by someone once trained as a banker and still involved peripherally with compliance and regulation.

I'm a little amazed that economics is just a social science. Given the gravitas economics is given I'm surprised it isn't considered more important than STEM or medicine in the scheme of things.

Moonbox mentioned brain surgeons, how's their pay compared to an economist?

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6 minutes ago, eyeball said:

I'm a little amazed that economics is just a social science. Given the gravitas economics is given I'm surprised it isn't considered more important than STEM or medicine in the scheme of things.

Moonbox mentioned brain surgeons, how's their pay compared to an economist?

don't forget, the Bank of Canada is a privately owned cartel

the Bank of Canada governor doesn't actually work for Canada

he is employed by the five big banks

funny how these Millennial's trust this guy, as if he was a public servant, when actually he is not

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see, the problem you have in Canada, is that you have an oligopoly of only five  big banks

the government is then bound to bail those five banks out

and those banks are so bound to bail the government out

so its an utterly incestuous relationship

you can't trust anything the government says

you can't trust anything the Bank of Canada says

the conflicts of interest are exponential in Canada

all you can do is the math for yourself

and in doing so see that the whole Canadian economy is a massive debt bubble destined to implode

then make your preparations accordingly,

knowing full well that both the GoC & BoC are lying to you, as ignominious traitors. all day every day

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26 minutes ago, Dougie93 said:

how does a 3.75% interest rate posted by the BoC address a 7% inflation rate ?

I'm not going to admit that it is over my head to understand that the BoC is compromised and so full of shit

because it's simple math

the interest rate needs to be above the inflation rate

but the BoC won't do it, because they are corrupt

I mean, duh

It is not anything close to simple math. And they don't have to raise interest rates above inflation to tame inflation. Not sure where you're getting that. Any increase in interest rates at the central bank tightens the money supply on business and retail lenders and those increases eventually get passed along to people and starts chipping away at the margins of people making actual spending decisions. 

Sure, setting a crazy high rate would instantly be tame inflation. Volcker did it when necessary, and it surely worked,  but it also shocked the economy into deep recessions. The whole point is to moderate volatility in the economy, not create it. They are pumping the brakes 3/4 of a point at a time rather than slamming them down, trying to find the *just right* level of drag. They want to slow the car without putting us through the windshield. It's not corrupt. It's responsible.

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13 minutes ago, Hodad said:

It is not anything close to simple math. And they don't have to raise interest rates above inflation to tame inflation.

yes they do

the only way to tame inflation is to remove excess dollars from the economy

the only way to do that is to raise the interest rate at the central bank

inciting the five big banks to pull their dollars out of the economy to park them at the BoC

this is very basic economics, so you obviously don't know what you are talking about

 

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29 minutes ago, Hodad said:

Sure, setting a crazy high rate would instantly be tame inflation. Volcker did it when necessary, and it surely worked,  but it also shocked the economy into deep recessions. The whole point is to moderate volatility in the economy, not create it.

it's a four to one debt to productivity ratio global economy

it's too late to moderate that

it has been runaway money printing by every central bank on earth, since 2008

there is no soft landing

neither the government nor the central bank is going to announce that we are on the brink of catastrophe

 

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1 hour ago, Hodad said:

They want to slow the car without putting us through the windshield. It's not corrupt. It's responsible.

that's not how it works

it's not a car, there is no windsield

there are too many dollars flooding the economy in relation to workers wages

the only way to remedy that, is to remove dollars from the economy

the only way to do that, is to set the interest rate well above the inflation rate of 7-8%

only an interest well above the inflation rate removes dollars fast enough, something like 12-15%

but that would incite all the asset classes to massively correct, real estate & stock market most of all

which would incite a political upheaval

so they are not responsible

these are sociopath politicians trying to save their political necks by lying to you about it

and the central bankers whom these politicians appoint to tell lies for them

bear in mind how naive Canadians are, how financially ignorant most Canadians are

literally millions of Canadians are going to end up homeless in the streets as a result of this

as a Christian, I feel impelled to try to warn Canadians as to what is coming

on the other hand I think. perhaps Canadians deserve it

it's such a godless atheist degenerate fake country now

perhaps Canadians need to feel the full force & fury of God's wrath for their false idolatry

it's a quandary

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1 hour ago, Moonbox said:

The other consideration is that most of today's unusual inflation is global supply-driven and raising domestic interest rates doesn't solve this largely temporary problem.  

You don't have to admit it.  You've already proven it.  Go ahead and tell us how the "compromised" BoC has caused global inflation to double in 2022.  I'll wait.  ?

OK we all agree it take an entire team to figure out, how we calculate inflation. And BOC has a huge team.

My question is this if the BOC with their big team cannot control or influence inflation why we have mandated them to keep these nations inflation numbers between 1 and 3 percentage. today we are way above those numbers, suggesting that they are not very good at their jobs, or it is beyond their ability, and the truly don't have a function to play in controlling inflation. what one is it. the second question is Why, and if they have no control what we pay they for, why is it we have a mandate with them. 

Quote

Under the new agreement, the Bank of Canada may decide to allow inflation to sit closer to either end of the bank's target range of one to three per cent for short bursts as it determines when the labour market hits its full potential.

BoC to maintain inflation mandate, will consider job market in rate decisions | CTV News

 

 

 

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I listen to renowned trade economists regularly.  What's astonishing to me is that with the depth of understanding, and the ability to analyze, create models and explain all of that.... these people have such humility.  They have seen what happens when you tie your ego to your words, the results will make you look foolishly eventually.

We're all learning and trying things out but experts can foresee the impacts of risky moves to a large degree.  That doesn't prevent the 'common man' or the Trump who thinks that experts are 'hogwash' and that they know better.  As eyeball says, we don't have trust in these people but we should at least trust them to try.

And I'm hoping that in the age of the web, we can gain a collective sense of who is earnestly knowledgeable and giving us good faith advice and who is an absolute charlatan.  I know we have seen a lot of the latter lately, but maybe it's just a phase in our evolving maturity.  After all, we USED to have public intellectuals, experts and such that people had faith in and listened to.  Maybe it will come back...

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1 hour ago, Dougie93 said:

yes they do

the only way to tame inflation is to remove excess dollars from the economy

the only way to do that is to raise the interest rate at the central bank

inciting the five big banks to pull their dollars out of the economy to park them at the BoC

this is very basic economics, so you obviously don't know what you are talking about

 

Yes, you're using VERY basic economics to second-guess the world's best experts. That's sort of the point of the thread.

It's not like inflation and interest exist in an isolated vacuum. They are trying to"time" it with all the other moving forces. 

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3 hours ago, Army Guy said:

My question is this if the BOC with their big team cannot control or influence inflation why we have mandated them to keep these nations inflation numbers between 1 and 3 percentage. today we are way above those numbers, suggesting that they are not very good at their jobs, or it is beyond their ability, and the truly don't have a function to play in controlling inflation. what one is it. the second question is Why, and if they have no control what we pay they for, why is it we have a mandate with them. 

BoC to maintain inflation mandate, will consider job market in rate decisions | CTV News

Because they can only control the things they can control, and they cannot control global supply chains or prevent them from falling part.  They have little/no influence on the price of gas.  They have little/no influence on global commodity prices.  They have zero influence on the weather, and thereby little influence over food input prices when there are droughts etc.  

inflation.thumb.png.2b92b018efd66d5d8341516ab771d3c0.png

I'm pretty sure I've already explained this to you, but inflation is a global phenomenon.  Blaming the Bank of Canada for today's inflation problem would be like us blaming the army for a storm surge flooding Halifax and swamping the city.  The army's job is to keep Canada safe, so would we say they're not very good at their jobs if people died in the flooding?  Blaming the Bank of Canada for short-term global inflation spikes is similarly absurd.  The numbers are right there for you to look at, and they prove the fallacy of your narrative.  

 

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6 hours ago, Hodad said:

Yes, you're using VERY basic economics to second-guess the world's best experts. That's sort of the point of the thread.

It's not like inflation and interest exist in an isolated vacuum. They are trying to"time" it with all the other moving forces. 

the emperor simply has no clothes

the "world's best experts" are all compromised by politics, so they are lying to you

they're not trying to "time" anything

inflation is way higher than they admit

it's already a crisis

nothing is slowing down, you're already "going through the windshield" of inflation

all they are doing is what they did in the 1970's

raising the interest rates, but nowhere high enough to reduce inflation

so you're going to have a recession, with inflation, otherwise known as stagflation

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9 hours ago, Moonbox said:

Because they can only control the things they can control, and they cannot control global supply chains or prevent them from falling part.  They have little/no influence on the price of gas.  They have little/no influence on global commodity prices.  They have zero influence on the weather, and thereby little influence over food input prices when there are droughts etc.  

inflation.thumb.png.2b92b018efd66d5d8341516ab771d3c0.png

I'm pretty sure I've already explained this to you, but inflation is a global phenomenon.  Blaming the Bank of Canada for today's inflation problem would be like us blaming the army for a storm surge flooding Halifax and swamping the city.  The army's job is to keep Canada safe, so would we say they're not very good at their jobs if people died in the flooding?  Blaming the Bank of Canada for short-term global inflation spikes is similarly absurd.  The numbers are right there for you to look at, and they prove the fallacy of your narrative.  

 

Thats not what i asked or said but thank you for the attempt. my first question was if the BOC cannot control or influence inflation as you say, what is it they do?  Why is their mandate to control inflation between 1 and 3 if like you say they really have no influence or control at all. 

And i don't recall blaming the BOC for anything, perhaps you're mistaking me for someone else, Your answers seem to reinforce what my questions were probing at, The Bank of Canada has NO control over inflationary numbers, and only job is to control interest rates here in Canada and print money ie buy government bonds more or less.  

 

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10 minutes ago, Army Guy said:

Thats not what i asked or said but thank you for the attempt. my first question was if the BOC cannot control or influence inflation as you say, what is it they do?  Why is their mandate to control inflation between 1 and 3 if like you say they really have no influence or control at all. 

The Bank of Canada does have influence on inflation, particularly as it respects to the money supply.  It does not have influence over global commodity prices, nor the inflation that causes.  If they'd not doubled the interest rates over the last 12 months, inflation would not only be higher but probably also accelerating.   

10 minutes ago, Army Guy said:

And i don't recall blaming the BOC for anything, perhaps you're mistaking me for someone else, Your answers seem to reinforce what my questions were probing at, The Bank of Canada has NO control over inflationary numbers, and only job is to control interest rates here in Canada and print money ie buy government bonds more or less.  

Nobody said they have no control over inflation.  They just don't have control over global markets, geopolitics or other major outside factors that can also drive it.  No central bank has complete control over inflation, nor do they even try to.  Like any job or profession, you spend your time and energy on the things you CAN control, and you adapt and make do with circumstances outside of that.  

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11 minutes ago, Moonbox said:

The Bank of Canada does have influence on inflation, particularly as it respects to the money supply.  It does not have influence over global commodity prices, nor the inflation that causes.  If they'd not doubled the interest rates over the last 12 months, inflation would not only be higher but probably also accelerating.   

Nobody said they have no control over inflation.  They just don't have control over global markets, geopolitics or other major outside factors that can also drive it.  No central bank has complete control over inflation, nor do they even try to.  Like any job or profession, you spend your time and energy on the things you CAN control, and you adapt and make do with circumstances outside of that.  

So you agree that the BOC can influence our nations inflation numbers, especially when it comes down to money supply, so printing money or in this case buying up government bonds, did in fact effect our inflation numbers, who do we assign blame for that the BOC or the government for making up all the bonds. I'm assuming it was the government as that where the power is held. I'm also assuming the BOC was advising the government on the possible outcomes of these actions. and it was in the end Justins decision, to spend like a wild man of fire, which has played a role in today's inflationary numbers.  

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37 minutes ago, Army Guy said:

So you agree that the BOC can influence our nations inflation numbers, especially when it comes down to money supply, so printing money or in this case buying up government bonds, did in fact effect our inflation numbers, who do we assign blame for that the BOC or the government for making up all the bonds. I'm assuming it was the government as that where the power is held. I'm also assuming the BOC was advising the government on the possible outcomes of these actions. and it was in the end Justins decision, to spend like a wild man of fire, which has played a role in today's inflationary numbers.  

I've told you many times before.  It's perfectly reasonable to criticize Justin's overspending.  He's a bad fiscal manager this was true long before COVID.  Money doesn't come out of thin air, and we'll have to pay the price at some point.  His policy has been to kick the can down the road and it will mean future governments will have to pay off his debt. 

As far as inflation goes, up until 2022 it wasn't a problem despite Trudeau's overspending.  Even today, with inflation at 40 year highs, most of that can be attributed to post COVID supply/demand problems and commodity price volatility.  The skyrocketing interest rates we've seen this year are meant to counteract the inflationary effect of monetary/quant stimulus and keep this within the 1-3% mandate.  That part they've (so far) managed reasonably well.  The rest of our inflation problem is mostly global supply oriented and something the whole world is dealing with.  The BoC and Trudeau have no influence over it. 

That doesn't mean that Trudeau's easy money policies are free.  The higher interest rates we're paying now and into the future can at least in part be blamed on him, and should conceptually be viewed as a form of tax on Canadian pocketbooks.  Even this this a gross oversimplification that ignores a lot of other factors in play, but the point is that nobody is saying Trudeau's spending doesn't lead to negative outcomes.  

 

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5 hours ago, Moonbox said:

I've told you many times before.  It's perfectly reasonable to criticize Justin's overspending.  He's a bad fiscal manager this was true long before COVID.  Money doesn't come out of thin air, and we'll have to pay the price at some point.  His policy has been to kick the can down the road and it will mean future governments will have to pay off his debt. 

As far as inflation goes, up until 2022 it wasn't a problem despite Trudeau's overspending.  Even today, with inflation at 40 year highs, most of that can be attributed to post COVID supply/demand problems and commodity price volatility.  The skyrocketing interest rates we've seen this year are meant to counteract the inflationary effect of monetary/quant stimulus and keep this within the 1-3% mandate.  That part they've (so far) managed reasonably well.  The rest of our inflation problem is mostly global supply oriented and something the whole world is dealing with.  The BoC and Trudeau have no influence over it. 

That doesn't mean that Trudeau's easy money policies are free.  The higher interest rates we're paying now and into the future can at least in part be blamed on him, and should conceptually be viewed as a form of tax on Canadian pocketbooks.  Even this this a gross oversimplification that ignores a lot of other factors in play, but the point is that nobody is saying Trudeau's spending doesn't lead to negative outcomes. 

the debt based economy long predates Trudeau

Quantitative Easing actually started in the wake of the Dot Com bust,  over twenty years ago

the crisis we are in now was obviously incited by the financial meltdown of 2008

what Trudeau did to break the damn,  was pump $600 billion directly into the retail economy during COVID

it's not even a question of fault per se

that is simply the mechanism by which the stimulus broke out of the central bank balance sheet unto the streets

newly printed dollars to buy bad assets & government bonds to incite net negative interest rates 

is what created the massive debt burden

but that did not in of itself cause inflation, since it was contained at the Bank of Canada

when Trudeau opened the spigots to flood the retail economy with newly printed dollars

that is what caused the prices to be bid up across the board

and when that happens, suddenly the massive debt burden amassed since 2008 becomes the crisis

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On 11/23/2022 at 7:05 PM, eyeball said:

I'm a little amazed that economics is just a social science. Given the gravitas economics is given I'm surprised it isn't considered more important than STEM or medicine in the scheme of things.

Moonbox mentioned brain surgeons, how's their pay compared to an economist?

Because if scientists examined the body of evidence they would expose the BS behind the scam.   Economics as a profession exists to perpetuate the scam of banking and finance's world of Casino Capitalism.   You can not run perpetually on speculation

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On 11/23/2022 at 4:01 PM, Dougie93 said:

again, it's quite simple

inflation is too many dollars flooding the economy driving prices above what wages can sustain

the only remedy is to remove dollars by raising interest rates above the inflation rate

when the Bank of Canada raises interest rates to 3.75% when the inflation rate is 7%

that's when you know, by logical deduction, that the central bankers are not serious

because they can't raise the interest rate to what it needs to be, at something like 12%

because Canadians and their governments are too indebted to handle that rate

We all knew that there was going to be a huge problem with the amount of covid cash that was flooded into the economy, simple economics says that if we give everyone $10,000,000 dollars they can't all run out and buy Ferraris because there aren't 20 million of them to go around in Canada.

But people got so much money to sit on their asses [aka "heroically social distance"] during covid that no one could afford to pay them enough to do actual work, and shortages everywhere are the new thing. Our gov't was pumping out lots of money and Canadians were buying more shiny baubles than ever, while not contributing nearly as much to the economy as we were previously.

That's all compounded by the fact that instead of creating our own energy, and using our own labour to do it, we arbitrarily limited our own supply and outsourced to "green" (ie "China-based") energy. Wind farms, solar, batteries etc... China, China, China. That costs money too.  

Canada under Harper skated through '08 relatively unharmed, but I don't think 2023 is going to go as well for us. I hope I'm as wrong as moonbox for once. 

 

Leftists - this isn't as complicated as you think. Spending money that you don't have while you're taking too much time off work is never a good thing. And if you suddenly struck oil and found a huge coal deposit in your back yard, you wouldn't say "Nah, I'm gonna leave it there. I'm gonna buy some solar panels and lithium batteries from China instead, while they create twenty times as many new coal-fired plants as Canada ever had."

Leftist policies are costing us money six ways from Sunday. 

This whole thread is an exercise in "Biden and Trudeau good. Canadians dumb. Economy hurted itself."

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20 hours ago, cannuck said:

Because if scientists examined the body of evidence they would expose the BS behind the scam.   Economics as a profession exists to perpetuate the scam of banking and finance's world of Casino Capitalism. 

but the folks who understand the "body of evidence" aren't coming to these conclusions at all.  The politicization of ignorance is all that's going on here.  By all means ignore the economists when you go buy your house near the top of the market despite all the warnings of it being overheated and inflated.  Go ahead and liquidate your investments in preparation of the calamity you think is coming but never will. 

You're only making yourself poorer, but sometimes ignorance and foolishness is a choice.  

20 hours ago, cannuck said:

You can not run perpetually on speculation

This is true enough, but so much of the speculation is driven by the average person's greed and short-sightedness, and when it goes wrong they turn and look for someone to blame (like the economists who warned it would happen).  

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6 hours ago, Moonbox said:

By all means ignore the economists when you go buy your house near the top of the market despite all the warnings of it being overheated and inflated.

Speaking of which, should we listen to economists when they say the natural environment is an externality?  Do economists acknowledge the term natural capital when trying to figure out why supply chains are screwy especially for food? I'd suggest higher prices for our produce has more to do with a lack of water and poor crop growth due to climate change in the US Southwest than the price of diesel.

Take Canada's fisheries management for another example of blind, perhaps intentional, management. Only about 25% of DFO's management documents especially as they relate to rebuilding depleted stocks mention climate change.  This is due to managers not the scientists they manage.

I don't know if central bank governors take these sorts of things into consideration but I suspect not for the most part.  I think there's definitely a little finger-in-their-ears while singing la-la-la going into their thinking as well.

I'm sure you've heard stories of land use planners in Florida, especially in coastal areas, being fired for including mention of climate change in their reports.  What on Earth to Central bankers think about this I wonder?

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15 hours ago, eyeball said:

Speaking of which, should we listen to economists when they say the natural environment is an externality? 

Things like droughts and floods are part of scenario testing for economic models, but it's more of a stress-testing of external variables. 

15 hours ago, eyeball said:

Do economists acknowledge the term natural capital when trying to figure out why supply chains are screwy especially for food? I'd suggest higher prices for our produce has more to do with a lack of water and poor crop growth due to climate change in the US Southwest than the price of diesel.

Sure, they acknowledge it.  They know that food prices this year are a result of this years crop yields (or even last years, or from the year before), and they account for that when trying to breakdown inflation factors for the year.  

On the longer time horizon, also yes.  Economists are absolutely trying to include climate change into their models, though it's almost certainly in a very generalized/scenario sense.  Like monetary policy, this is a complicated science and they probably don't integrate well or provide useful tools together.   

15 hours ago, eyeball said:

I don't know if central bank governors take these sorts of things into consideration but I suspect not for the most part.

I don't really know, but this is well outside their wheelhouse/mandate, so I suspect you're right.  That's a good thing.  

15 hours ago, eyeball said:

I'm sure you've heard stories of land use planners in Florida, especially in coastal areas, being fired for including mention of climate change in their reports.  What on Earth to Central bankers think about this I wonder?

Probably not much.  Their interests are much more focused on numbers than general policy.  

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