Who’s Really King Of The World Today
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Library of Congress Dalls motorcade minutes before shooting November 22, 1963 Well, if you thought you’d seen all the madness and absurdity that could
[See the full post at: Who’s Really King Of The World Today]When will the U.S be forced to quit QE? It seems like as currency of last resort that it has a long way to go. Maybe 2 or 3 more years. Ted
Rajiv Sehti, Ken Rogoff and Susan Webber/Yves Smith are all wrong about central banking. Not just a little bit, either: they offer politically-motivated drivel/wishful thinking.
The Fed is a reserve bank not a depository institution. It’s job is to backstop deposit banks when the market mis-prices bank assets during a money panic. It does so by lending against these assets at par (face price). During a panic, the market discounts assets in ‘unpleasant ways’; the central bank insists that the market is temporarily wrong and backs its opinion with credit.
The central banks can hold reserves (they do not create reserves). Reserve amounts in excess of currency are for all practical purposes non-existent. They are assets that only appear as bank liabilities in the even of an extraordinary demand for them — shrinking deposit bank balance sheet as during a bank run.
QE is lending against assets; a) without a repurchase agreement, b) when the asset holders are insolvent rather than during a money panic, and c) when the cause of financial distress is outside the reach of monetary policy; the relentlessly increasing real cost of energy. QE = scraping the bottom of the barrel.
Sehti & Co.’s claim is as clueless as Susan Bair’s ‘suggestion’ that the Fed lend everyone $10 million. Only those with $10 mil in collateral can borrow from the central bank … anyone with that much unencumbered collateral doesn’t need a loan! People with no money need the loan and nobody will risk lending to them because they cannot service the loan … that is they cannot borrow. (Loans are serviced by refinancing them.)
Central banks have no capital structure, only balance sheets; there is very little capital and no equity to speak of. Fed capital is <$50bn yet is has a $3+ trillion balance sheet. However, assets and liabilities are equal, there is no leverage against collateral @ the Fed.
Think of the Fed as a giant pawn shop. It will lend you $500 (billion) but you have to hand over the Rolex watch. No watch, no $500. The Fed cannot lend $500 billion against a watch. It has no underwriting department. It cannot tell of the loan is good or bad. At the same time, if the Fed loaned $500 bn against a watch, all the other banks would show up @ the Fed’s doorway with watches. Long before that point the Fed would cease to be a serious institution => would be a joke, instead.
https://upload.wikimedia.org/wikipedia/commons/6/65/Confederate_5_and_100_Dollars.jpg
If the central bank leverages against its collateral it becomes instantly insolvent … and is so the same as the other insolvent deposit banks … and for the exact same reason. When the central bank becomes a deposit banks there is effectively no lender of last resort => no guarantor of assets => bank run.
This would be a bank run that could not be stopped by the central bank = it would be a run out of the currency. This run is already underway with all this foolish nonsense in the media about NGDP targeting, Abenomics and from the central banks themselves. This is the reason for the taper talk:
This is what a run out of dollars looks like, folks.
BTW: giving depositors incentives to flee is also a bank run, not likely that any bank would do so. Sometimes the things bankers say is simply gibberish.
Liabilities are impossible to guarantee b/c they are pledged as collateral as soon as they appear on the bank ledger. Any subsequent pledge(s) become … ‘excess claims against underlying real wealth’.
Insert gratuitous, well-deserved clubbing of Webber here, she’s clueless … I don’t know about the other dude but Rogoff should know better, he’s a paid economist. Next thing you know he will be saying the Fed prints money … oops, he did!
(Central banks don’t create new money, they cannot.)
“But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost.” Ben Bernanke
How many electrons in a keyboard?
“Thus, as I have stressed already, prevention of deflation remains preferable to having to cure it. If we do fall into deflation, however, we can take comfort that the logic of the printing press example must assert itself, and sufficient injections of money will ultimately always reverse a deflation.” Ben Bernanke
Sufficient injections? No limit?
“A striking example from U.S. history is Franklin Roosevelt’s 40 percent devaluation of the dollar against gold in 1933-34, enforced by a program of gold purchases and domestic money creation. The devaluation and the rapid increase in money supply it permitted ended the U.S. deflation remarkably quickly. Indeed, consumer price inflation in the United States, year on year, went from -10.3 percent in 1932 to -5.1 percent in 1933 to 3.4 percent in 1934.17 The economy grew strongly, and by the way, 1934 was one of the best years of the century for the stock market.” Ben Bernanke
Deflation remarkably ended? And all it took was a 40% devaluation? A 300% devaluation might be even more remarkable!
https://www.federalreserve.gov/boarddocs/speeches/2002/20021121/
Still believe deflation is just around the bend?
Inflation first, then the Crack Up. Then deflation, after the Fed has imploded, along with it’s FRN’s. Cue Steve’s Confederate note link.
Large multi national corporations are sovereign or at least approaching it. The problem now is governments still claim sovereignty so there is a dust up over which power is sovereign over what. It’s kind of a dual sovereignty system. Corporations have almost achieved sovereignty over money. Not by force but simply by convincing anyone who can achieve political or government backed power that corporate interests are in the interest of the common good. Oddly the only common good that is accepted as being define-able or recognizable comes out of things that allow corporate profits. It’s really all a stunning intellectual achievement. Well if historical trends are an intellectual affair. Maybe a better word is cognitave, as in cognative shift.
Let’s face it, central government have not always been a benign organizational model over the last 100, 500 or 8000 years. So if the environment allows it I posit that a newer form of human organization based upon corporations will continue to evolve.
Insertable bits are definitely not kings of all that may be surveyed but merely what they survey . The keystroke made, the burger flipped but never how life could be lived.
I was in to Vancouver for an overnight stay, first in several years, last being just before the 2008 episode. It never struck me, till now, just how insertable and part-like people had become under the newly anointed corporate kings and Queens. Watching, from my hotel bedroom downtown, the day starts with a frenetic activity of machine parts reinserting themselves after their period of downtime. Bikes and cars the two main means of reinsertion are for a brief period ubiquitous. As the system reboots these become rarer with merely the odd late, or replacement part passing. Next the greaser parts start moving about 10 am, these are the bits that the machine needs to grease it’s wheels of commerce and are commonly called consumers. At one time they might have been considered to be citizens but that was in the time before global corporatism.
That was just my impression that morning, but it seems to have stayed and these past few days I have been left increasingly wondering that ‘they’ allow themselves to be used so.
Myself I am old enough to predate the brave new new corporate world and currently live in a secluded universe that allows the freedom that most under that thrall of amalgamated rule have never known. If the machine were to stop what indeed will all those parts do. Keystrokes and burger flipping are not skills easily transferable to a life outside the machine. When there is no cry of ‘long live’ after the shout goes up that the king is dead, how will those parts function? What will they do when the kingdom and so their horizon explodes?
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