The Financial Entangling Alliances Thicken
From CNBC:
The world’s major central banks unleashed coordinated action Wednesday to ease the increasing strains on the global financial system, a move that sent stock markets up sharply.
The European Central Bank, U.S. Federal Reserve [cnbc explains] , the Bank of England and the central banks of Canada, Japan, and Switzerland are all taking part in the operation, which is designed to “enhance their capacity to provide liquidity support to the global financial system.”
The ECB said in a statement the banks are making it cheaper for banks to get U.S. dollar liquidity when they need it, starting next Monday.
They are also taking steps to ensure banks can get ready money in any currency if market conditions warrant.
…
Fears of more financial turmoil in Europe have already left some European banks dependent on central bank loans to fund their daily operations. Other banks are wary of lending to them for fear of not getting paid back.Such constraints on interbank lending can hurt the wider economy by making less money available to lend to households and businesses.
You have to like the last part: They’re doing it for the average household, not the big bankers sitting on sovereign debt.
Although the Fed likes to say that it “bears no exchange rate risk” in such swaps, and though (back a few months when they expanded the swap lines with Europe in a different “coordinated central bank action”) they like to stress that the Fed isn’t on the hook when the ECB lends the dollars to European banks, strictly speaking this isn’t true. If the Fed gives $50 billion in dollars to the ECB, which (at those market prices) gives $50 billion worth of euros to the Fed, then the ECB lends out the dollars to private banks and, before they repay the loans, the euro crashes against the dollar…then the ECB has no means of acquiring dollars to repay the Fed. Even though the ECB has a printing press, it is configured for euros, not dollars.
The experts tell us that these types of arrangements are necessary, lest the whole (financial) world fall apart. Back in September 2008, when many of us were vociferously objecting to TARP and Bernanke’s incredible monetary inflation, the experts told us such things were necessary lest the whole world fall apart.
The current round of interventions will not solve the problem. Down the road–probably much sooner rather than later–the central banks of the world will engage in some further extraordinary measures, again lest the whole world fall apart.
Even so, printing money doesn’t fix the underlying problems. No matter what they do, eventually the whole financial world will fall apart.
“From CNBC:”
Mistake #1: watching CNBC
“then the ECB lends out the dollars to private banks and”
Loans are collateralized by dollar assets.
“before they repay the loans, the euro crashes against the dollar”
So what.
“then the ECB has no means of acquiring dollars to repay the Fed”
Not true. They have dollar assets that can be sold for dollars.
“Even though the ECB has a printing press, it is configured for euros, not dollars.”
Irrelevant.
“Even so, printing money doesn’t fix the underlying problems”
True. Except the ECB is not printing money. It’s performing asset swaps. ECB is not capable of generating monetary inflation with these actions. Impossible. Maybe spend some time critiquing this essay by Warren Mosler, instead of wasting time with the neo-liberal nonsense Karl Smith prints?
http://moslereconomics.com/2011/11/26/mmt-to-the-ecb-you-cant-inflate-even-if-you-wanted-to/
“Mistake #1: watching CNBC”
Your mistake #1: reading this blog?
“Loans are collateralized by dollar assets.”
The prices of which are backed by printing USD.
“So what.”
So read what follows.
“Not true. They have dollar assets that can be sold for dollars.”
Which depends on the Fed system creating them. If the Fed stopped inflating, the dollar prices of those assets would plummet as demand for cash rises in response.
“Irrelevant.”
False. It is relevant if they cannot create dollars.
“Except the ECB is not printing money. It’s performing asset swaps.”
Swapping newly created Euros for previously issued securities is printing money. Merely calling the inflation an “asset” doesn’t change the monetary dynamics.
“ECB is not capable of generating monetary inflation with these actions.”
Yes, they are.
“Maybe spend some time critiquing this essay by Warren Mosler”
Warren Mosler is a fool. He doesn’t understand the basics of how the monetary system works. The ECB can create new reserves in Euros for the European banks. That is inflation.
“instead of wasting time with the neo-liberal nonsense Karl Smith prints?”
You’re wasting your time listening to Mosler.
“Warren Mosler is a fool. He doesn’t understand the basics of how the monetary system works”
A very rich fool investing based off his lack of understanding the monetary system
A very rich fool investing based off his lack of understanding the monetary system
Not as wealthy as Jim Rogers, a very VERY rich Austrian fool investing based off his lack of understanding the monetary system.
Warren Buffett and George Soros are vastly wealthier than any Austrian or MMT type and they don’t buy either perspective.
Of course all that’s really relevant is how you personally perform based on your particular understanding of markets, and I don’t read anything about your performance.
You’re both just children.
Warren Buffet was trained well by his dad. Look him up.
Buffet and Soros are crony capitalists. They make their money by being politically connected.
Of course all that’s really relevant is how you personally perform based on your particular understanding of markets, and I don’t read anything about your performance.
Likewise.
You’re both just children.
Not really interested in the dysfunctional family baggage you haven’t dealt with yet.
Lerner, you’re arguing against the evidence. Yield curves rose today, asset prices, etc. Where was your money when the day started?
European stocks.
and ask Bob Roddis about my track record. he’s been stalking me for 2 years now, and knows i got the rates and dollar call spot on.
but you are right about one thing, this thread is childish
Which European stocks are you in?
Stock-wise, I parked money in inferior goods producers and sellers that do well whether the market moves up or down, though they do better when markets are down. Well-known examples are McDonald’s, Family Dollar, O’Reilly Automotive, among others. I’ve beaten the market all year with the stocks alone, to say nothing of my derivatives trading.
I’m basically betting Europe won’t solve its problems.
Something that the bobbleheads on CNBC, as well as Keynesians, ought to learn: After decades of inflation, the demand for money holding has been reduced by so much, and indebtedness has been encouraged by so much, that now any serious effort to end inflation serves to bring about a major depression. The Fed tightened in 1999-2000 and then again in 2005-2006 after fearing consumer price inflation to be heating up too rapidly, and soon after the economy busted.
In July, the Fed System has rapidly inflated once more, and this has resulted in a staving off of bankruptcies and bank failures, as well as increasing money denominated economic statistics such as net investment, wages, and consumer spending.
Unless and until we can get these people to understand the fact that money is not neutral, that changes in the quantity of money changes the real structure of the economy, and requires accelerating inflation in order to avoid the inevitable correction, then we will continue down the path of destruction of civilization.
The people are now, through no fault of their own, “addicted” to inflation, and it’s getting so bad that major banks are now completely dependent on it in order to even remain in operation. This has made the financial system very indebted and very rigid and unable to accommodate large drops in spending and large increases in interest rates. Just imagine if the Fed were to raise the fed funds rate to 1981 levels.
then we will continue down the path of destruction of civilization.
that must be the funniest thing you’ve said this year.
MF, take your pills.
Typical economically illiterate mystic. Believes capital is ineradicable, believes modern material civilization is not contingent, and does not appreciate what the destruction of currency actually does to economies.
We just went through the largest financial collapse since the Great Depression, on account of the destruction of the currency, and you hilariously say that civilization is not being destroyed, but built?
Mammy, take economics.
Typical bigotry. No currency has been destroyed, and even if one were destroyed it would be replaced by another one almost immediately, and civilization will keep marching on.
MF, take your pills, if you insist in refusing therapy.
No currency has been destroyed
Yes, Weimar and Wimbabwe are just conspiracy theories.
and even if one were destroyed it would be replaced by another one almost immediately, and civilization will keep marching on.
From a far worse beginning, yes.
Mammy, take economics.
All I need to know about economics I learned from Keynes: In the long run, we’re all dead.
No currency has been destroyed even if we just went through the largest financial collapse since the Great Depression.
And in the case of Weimar or Zimbabwe, which are totally different from anything happening now, civilization just kept going from the very same point when the currency was destroyed.
Mam, these impoverished brains don’t understand that to save the Euro, much more of it has to be created. They’re utterly incapable of understanding that simple fact.
What are you talking about? A lot of Austrians would argue that if the ECB doesn’t start printing the EU will fold and with it the Euro. Where we differ is we believe the correct thing is to allow the insolvent to go bankrupt and stop bailing them out. Doesn’t it embarrass you to make such adolescent comments?
Dan, I don’t remember if you were among the hopelessly ignorant I was purposely ignoring, but it doesn’t matter anymore, because you are now.
So I take that as a no.
I wish you would ignore the entire blog you blathering know-nothing.
Your ignorant brain is definitely unable to understand that the reason the Euro is in so much trouble in the first place is precisely because “more of it has already been created” in the past, which distorted the capital structure of the EU economy.
The simple fact is that printing Euros IS the problem. The seeming truth that there is a “Euro shortage” is due to the fact that the real EU economy is messed up, and the current structure cannot be maintained.
You MMT yahoos are totally clueless about basic economics. It’s so good to have you around as easy cannon fodder.
The funny thing is that you actually believe you are right, which only makes it that much sweeter for those of us who actually understand economics.
But please, don’t let that mean you should stop spewing nonsense. Keep posting here!
Your ignorant brain is definitely unable to understand that the reason the Euro is in so much trouble in the first place is precisely because “more of it has already been created” in the past, which distorted the capital structure of the EU economy.
Bollocks. The ECB, who has the monopoly of Euro creation, didn’t create too many.
Absolute garbage.
Yes, they did create too many Euros in the past. That’s why the EU economy is poised for collapse.
Bollocks. There were too few Euro, that is why the Euro was overvalued for a long time and why the EZ economy is poised for collapse, unless the ECB keeps injecting more Euro.
Utter garbage.
Yes, they did create too many Euros in the past. That’s why the EU economy is poised for collapse.
Injecting more Euro will just bring on another collapse in the future.
” the demand for money holding has been reduced by so much”
this is hilarious. The demand for money is reduced so much there is a shortage of money due to the overwhelming demand of money. You guys can’t have it both ways. Either the Fed prints money, and the demand for dollars is lower, or there is such a shortage of dollars, that Fed needs to open up swap lines to meet that demand. Which is it?
You guys are so blinded by your ideology that you fail to see the real danger in the Feds actions. But hey, I guess it’s intellectually easier to just scream ‘money printing’ and ‘inflation’ despite all the evidence to the contrary.
this is hilarious. The demand for money is reduced so much there is a shortage of money due to the overwhelming demand of money. You guys can’t have it both ways. Either the Fed prints money, and the demand for dollars is lower, or there is such a shortage of dollars, that Fed needs to open up swap lines to meet that demand. Which is it?
There is no a shortage of money. There is more money now than there has ever been in US history.
The increased demand for money is on account of the real productive structure of the economy being messed up, and current prices being unable to sustain it. That doesn’t mean the solution is more money. For that caused the distorted structure to begin with. The solution is to allow peaceful interaction to solve the problems that past violence backed inflation has caused.
This is not having things both ways.
And your false dichotomy that is in reality a single alternative is what is hilarious. You say that the choice is between the Fed printing money and the Fed printing money (the latter printing of money you call “opening up swap lines”).
The choice is to stop printing money, or continue to print money. Continuing to print money will just further reduce the demand for money holding, which will encourage debt, and what I said before follows. Stopping the printing of money will increase the demand for money holding, reveal all the malinvestments that were financed by funny money, gains and losses will be redistributed based on real consumer demand, and the economy can finally have a true recovery.
You guys are so blinded by your ideology that you fail to see the real danger in the Feds actions. But hey, I guess it’s intellectually easier to just scream ‘money printing’ and ‘inflation’ despite all the evidence to the contrary.
The shoe is on the other foot you demagogue. You are so blinded by your statist inflationist ideology that you fail to see the real danger in destruction of currency.
Despite all the evidence of growing economic collapses, and the now global sovereign debt bubble, which is the end of the line because the sovereigns are the currency manipulators, the next collapse will be the collapse of the monetary system.
You lack an informed economics theoretical background, on the basis of only being able to think superficially via historical data. By your logic, if you lived in the 1920s, you’d have been a moron like Fisher and said in early 1929 that the stock market has reached a permanent high plateau, and that inflation is contained because consumer prices weren’t rising by very much.
What you call “evidence” is not actually evidence of economics, but in reality it is nothing but history.
Why do central banks go through these procedures? It’s to provide purchasing power to people who didn’t have such purchasing power before, right? Purchasing power they didn’t earn, right? So that they can buy stuff or pay off a debt that they couldn’t before, right? And those payments are larger than ZERO, which would have been the price without the new purchasing power, right? And that’s not price inflation? Or theft of purchasing power from those holding the existing money?
No Roddis, it isn’t, because someone in Des Moines is unemployed, and some house in Detroit is unoccupied. Printing money is not theft as long as this person is unemployed and as long as that house is unoccupied.
It only becomes theft once there is 100% employment and 100% resource utilization.
In other words, inflation will never amount to purchasing power theft because full employment and full resource utilization are impossibilities. HAHA! Let the printing presses go full blast bitchez! Daddy wants a new Maserati.
^That’s sarcasm for all of you just joining us.
Pedal to the metal!!! Print baby print! Only a matter of time until we overturn the law of scarcity!!
lol these Keynesians are completely out of control
Bob Wenzel finds a PIMCO guy who says Fed swaps expand the monetary base:
http://www.economicpolicyjournal.com/2011/11/why-fed-swaps-announced-today-will.html
I thought AP “Hut Tax” Lerner was a PIMCO kind of guy.
No, not a Pimco guy. When did you ever hear me say to short treasuries?
But Paul McCulley does give better free advice.
I have a question.
What would European banks do with U.S. dollars?
Repay USD loans?
Sorry, but this is wrong. Fund USD assets is the correct answer. Big differance
http://online.wsj.com/article/SB10001424052970204443404577054230765039546.html
BTW: Was a great talk at MI Canada!
Skylien,
Thank you, on both accounts! So basically, the Federal Reserve is buying up foreign debt?
Incorrect. They are providing the funding for USD assets. Huge differance
Well, they are funding banks to pay back US dollar denominated debt, so that instead of owing their debtors money now the banks will owe whoever they borrow dollars from (ECB), who ultimately owe the U.S. Fed. So yes, the Fed is taking up the responsibility of being creditor.
Doesn’t this sound oftly familiar to the narrative offered in Garet Garrett’s The Bubble That Broke the World? For those who haven’t read the book, I review it here: Garet Garrett’s Invaluable Lesson.
Where’ve you been hiding, Jon?
“And that’s not price inflation? Or theft of purchasing power from those holding the existing money?
No Bob it isn’t. First off, price inflation is running at a low end in the developed world. Second, Cantillon Effects don’t provide a justification for Austrian economics. they are most destructive when there is massive, accelerating price inflation, and hyperinflation. At, a average 2% rate of inflation its the equivalent of a pinprick to those who hold their savings in cash. Its just part of the overhead of cash saving. Remember, massive deflation is only good to CASH savers, it is murder on bonds and stocks.
This brings me to my final point. No one is forcing people to hold their savings is cash or government paper for the long term. Purchasing power can be preserved by buying real and financial capital. SO where exactly is the theft here? Why do cash savers have some kind of a divine right to a risk free return on their assets?
Major Freedom-
“There is no a shortage of money. There is more money now than there has ever been in US history.
The increased demand for money is on account of the real productive structure of the economy being messed up, and current prices being unable to sustain it. That doesn’t mean the solution is more money. For that caused the distorted structure to begin with. The solution is to allow peaceful interaction to solve the problems that past violence backed inflation has caused.
…
You guys are so blinded by your ideology that you fail to see the real danger in the Feds actions. But hey, I guess it’s intellectually easier to just scream ‘money printing’ and ‘inflation’ despite all the evidence to the contrary.
The shoe is on the other foot you demagogue. You are so blinded by your statist inflationist ideology that you fail to see the real danger in destruction of currency.
Despite all the evidence of growing economic collapses, and the now global sovereign debt bubble, which is the end of the line because the sovereigns are the currency manipulators, the next collapse will be the collapse of the monetary system.
You lack an informed economics theoretical background, on the basis of only being able to think superficially via historical data. By your logic, if you lived in the 1920s, you’d have been a moron like Fisher and said in early 1929 that the stock market has reached a permanent high plateau, and that inflation is contained because consumer prices weren’t rising by very much.
What you call “evidence” is not actually evidence of economics, but in reality it is nothing but history.”
(Thumps head against table) Your first sentence “there is no shortage of money,” is pure imbecility. But you touch upon the real issue later, money demand., namely precautionary cash holding. It frustrates ,me to no end to see the arguments on the Feds’ massive inflation” and things along those lines. If you have a raging firestorm, and the firefighters push more water at it than they ever used in the history of the town,, the fire slows down quite a bit, but still isnt out, that isn’t an excuse for the firemen to sit on their asses while the fire still burns.
I DONT CARE IF THE FED INCREASES M1 by 500%, provided its in response to an increase in the demand for money by 500% If the Fed doubles the money supply, thats not easy money, neither if it increases by 200, 300, or 400 percent . Only when it offsets the rise in cash holding or hits it NGDP target or MV target can it finally say its done its job.
“kavram at
Pedal to the metal!!! Print baby print! Only a matter of time until we overturn the law of scarcity!!”
Grrrr! The level of distortion an and straw men that Austrians use against Keynesians and Monetarists (Especially the idiotic and loathsome attack on Milton Friedman by Murray Rothbard), is amazing. No one is saying, like major freedom, William Anderson, robert Murphy, and tons of other ignoramuses here think, that governments and central banks can abolish the fundamental law of scarcity. No one. Even AP Lerner believes, (correct me if i’m wrong) that deficits in excess of the private sectors desire to save net financial assets create ever increasing inflation.
What Keynesians and Monetarists have in common is their approach to dealing with financial crises, namely print money to fill up money demand until the target has been reached and no more. No one is underestimating the dangers of hyperinflation, of Weimar and Zimbabwe.
“The shoe is on the other foot you demagogue. You are so blinded by your statist inflationist ideology that you fail to see the real danger in destruction of currency.”
The most evil tyrant and warmonger in human history, namely Adolf Hitler, cam to power directly as a result of chancellor Bruning’s hard money policies of 1930-1932. The Germans were like people who, after being hit my massive rainstorms, were terrified of flooding. They were so afraid of floods that they let their houses burn to the ground FOR FEAR OF EXCESSIVE WATER It was an understandble mistake for them.
It is less understandable for us.
that brings me to ABCT, both versions of it, One i call the “softcore” version, which is basically Hayek post 1971, It is ABCT, but within reason, Hayek is open about their being dangers to “secondary deflation”
The other version is the hardcore version, it is the Rothbard Mises version, it is pedantic and smug, and just wont die. . It wont admit ANYTHING WHATSOEVER OF VALUE IN OPPOSING VIEWPOINTS, it will just scream STATSIM! as if thats an argument. There are so many things wrong with hardcore, unreconstructed ABCT. Many natural rates, and multiple stable equilibria. No expectations effects. If Frac reserves or the central bank lower the market rate. below the natural rate, but promises publically to raise rates later on, what then? No answer from Mises and Rothbard. Capital Structure? Capital structure is unique to every good being produced. I happen to disagree with Daniel Kuehn here, low interest rates have nothing to do with. it. More time intensive techniques? An absurdity, Yes you can produce more WITH A GIVEN SET OF TECHNIQUES up until diminishing returns. But entrepreneurs will only crank up the juice if there is demand for the products. And consumers are quite impatient, preferring products in the present all things being equal, to products in the future. Ergo, to think that the most time intensive producers will be rewarded, full stop even in a false “malinvested bubble” is pure fiction
Finally, and this is to you Bob Murphy. It was a noble effort, trying to defend ABCT from Paul Krugman a while back, when you noted the difference between percentage and absolute declines between housing and the rest of the economy. It still fails though. Why should the rest of the economy be affected at all. Don’t say its obvious it isn’t. If you’re a hardcore Austrian trying to abolish demand, the there shouldn’t have been a downturn AT ALL in 2008 in any sector but housing. The evidence just doesn’t add up . It was falling NGDP growth, and rising demand for safety, that triggered the downturn. Occam Razor.
Bob, Since youve been posting recently on religion, let me offer a prayer on your behalf. Its not too late. Leave the darkness and come into the light. I’m waiting for you brother.
P.S. Ironically, the one place where the “quasi/soft core-Austrian” story seems to make sense is.., China. If there ever was an economy configured for capital goods instead of consumption, and malinvested as well, China is it.
But even in this case, when the Austrians are right, they’re still wrong. Its not FRB or the central bank causing the bubble. its the distortions causes by the regular government. Subsidies high sales taxes, exchange rate madness.
Hey everybody, this thread is getting particularly hostile. Let’s all take a break, and go get a gold coin or a Treasury bond, as it suits your fancy.