Central Banking models

[Martinghoul]

Quote from Misthos:

Marting... cynics like me define your phrase above as:

"We need a Central Bank to better strip wealth from the productive members of the economy, and to concentrate wealth in the hands of the elite few."

Fine... And even more cynical cynics )) like me would respond (as I usually do) to your statement thus:

"We need a Central Bank because it makes it a little bit more difficult for the politicians (the elite few) to easily strip wealth from the productive members of the economy, and to concentrate wealth in their own hands"

My view is that it's a choice between two evils. I personally would pick a Central Bank over Congress in a nanosecond, without any hesitation whatsoever.

 

[SNBthetrue]

however, when the fire is started nothing will stop it, as you know money is made of paper...

CBS knows that...

the second most important problem, is admitting that there is great viable solution, how to implement it smoothly

 

[SNBthetrue]

ohoho ! to compare the different CBS you could check their mandate. What are the contractual obligation in different countries...

 

[Martinghoul]

Quote from SNBthetrue:

easy, it's called the russian paradigm...

The indivual actions of free indiviual will always lead to a better results... fairer, efficienter, nicer...

Hmmmm, let's see... Did individual actions of free individuals in the US mtge mkt lead to better, fairer, more efficient, nicer results?

What you're describing is the simplistic theory. In practice, there's all sorts of coordination issues.

So how could a very smart group of people, outsmart the all community ?

They will always be to slow, or to fast in raising or lowering, secondly by the incertitude their actions create in the market place they lower the efficiency of the system...

The point is not to outsmart the community. The point is to fulfill a certain necessary function. As to them being too slow or too fast, we know that politicians are even worse at doing this, so what's your alternative? Finally, what do you mean by incertitude? If you're referring to uncertainty surrounding interest rates, it's actually beneficial to the mktplace.

the only fundamental problem of any capitalist economy is:
what's the value of money...

This issue, the choice of numeraire, is hardly a problem. The issue is that, once you've made this choice, you need to make sure that the system functions properly.

ohoho ! to compare the different CBS you could check their mandate. What are the contractual obligation in different countries...

I actually already know the answer to this question for most G10 CBs, my friend. Do you?

 

[Misthos]

Quote from Martinghoul:

Fine... And even more cynical cynics )) like me would respond (as I usually do) to your statement thus:

"We need a Central Bank because it makes it a little bit more difficult for the politicians (the elite few) to easily strip wealth from the productive members of the economy, and to concentrate wealth in their own hands"

My view is that it's a choice between two evils. I personally would pick a Central Bank over Congress in a nanosecond, without any hesitation whatsoever.

Good point, but...

Voters control Congress. The Fed? not so much. And you have the secrecy issue as well. God knows what happens in that darkness...

How about a hybrid type organization - part popularly elected part appointed? Checks and balances.... that kind of thing.

 

[Kassz007]

Quote from Scataphagos:

Let's see... our country is basically bankrupt, our currency threatens collapse, we've got >20% REAL unemployment, and unfunded liabilities of >$100 Trillion just at the time our largest population segment is reaching retirement... with virtually no savings.

Oh yeah... our situation is soooo much better and our problems are so much less severe than they would have been had we not had one...

These problems are not due to the Fed...you need to start thinking bigger. There is more to the world than the USA. Most (if not all) countries have a central bank and they do not have the same problems as you are describing. Therefore, the concept of a central bank is not to blame.

 

[SNBthetrue]

Quote from Martinghoul:

Hmmmm, let's see... Did individual actions of free individuals in the US mtge mkt lead to better, fairer, more efficient, nicer results?

Yes ! those selling the house took the money home. Thusfar only the less informed people, or those having made a wrong analysis made the mistake of buying an overpriced home...
However who creates this bubble ? Isn't it the Fed how lowered the rates ? And then asked the people to leave their fixed mortage ?

Quote from Martinghoul:

The point is to fulfill a certain necessary function. As to them being too slow or too fast, we know that politicians are even worse at doing this, so what's your alternative? Finally, what do you mean by incertitude? If you're referring to uncertainty surrounding interest rates, it's actually beneficial to the mktplace.

What is the necessary function ? Priced the money isn't it ? I don't have an alternative, I am just saying that a system not centralized is always better... Secondly, thank you for helping, me. Yes, I am speaking about the uncertainty surronding interest rates... I don't see how it can be beneficial. Did you ever trade a FOMC annoncment ? Or a Fed chairman comming in the middle of the day, moving the market away ? Could you please explain me your point of view ?

Quote from Martinghoul:



This issue, the choice of numeraire, is hardly a problem. The issue is that, once you've made this choice, you need to make sure that the system functions properly.

Okay with you, once the choice is made, the next is to see if it's work . However I don't understand your "choice of numeraire"... what do you mean by that ?

Quote from Martinghoul:


I actually already know the answer to this question for most G10 CBs, my friend. Do you?

shhhh... you got me ! For the laugh : I only need to know one... the rest will follow ( Fed )

 

[Martinghoul]

Quote from SNBthetrue:

Yes ! those selling the house took the money home. Thusfar only the less informed people, or those having made a wrong analysis made the mistake of buying an overpriced home...
However who creates this bubble ? Isn't it the Fed how lowered the rates ? And then asked the people to leave their fixed mortage ?

Huh? What do you mean 'leave their fixed mtge'? This is not about buying an overpriced home. It's about a problem with mis-aligned incentives at every step of the housing value chain. Starting with the buyer all the way to the end investor and the central bank. It's an issue of coordination and that's exactly why regulation is necessary. Or do you see a problem with regulation, 'cause it cannot be conducted by a private entity?

What is the necessary function ? Priced the money isn't it ? I don't have an alternative, I am just saying that a system not centralized is always better...

Necessary function is to optimize the long-term performance of the economy. As to centralization, the US banking system has been very decentralized and deregulated for a few years now. How has that worked out?

Secondly, thank you for helping, me. Yes, I am speaking about the uncertainty surronding interest rates... I don't see how it can be beneficial. Did you ever trade a FOMC annoncment ? Or a Fed chairman comming in the middle of the day, moving the market away ? Could you please explain me your point of view ?

I have traded inter-meeting FOMC announcements and worse, but I fail to see what that has to do with anything. The central bank isn't there to make punters like me happy, so why would they necessarily care about the mkt moving? It is NEVER in the interest of a CB to commit to any particular course of action, since it limits their options. Moreover, it's been demonstrated time and again that the more surprising monetary policy decisions are, the more effective they prove in the long run.

Okay with you, once the choice is made, the next is to see if it's work . However I don't understand your "choice of numeraire"... what do you mean by that ?

Don't worry about the numeraire, that's just quant talk...

shhhh... you got me ! For the laugh : I only need to know one... the rest will follow ( Fed )

I wouldn't be so sure... If you just think about the various differences between the operations of the ECB, the BOE, the SNB, the Riksbank and the Fed, just to take a few, there's all sorts of useful lessons that might be learned.

 

[Apex]

Ghoul, could you be a bit more specific about the lessons we could learn? I'm not too familiar with those banks...

 

[Martinghoul]

Quote from Apex:

Ghoul, could you be a bit more specific about the lessons we could learn? I'm not too familiar with those banks...

Well, where to begin... Note these are all my personal opinions, nothing more.

Firstly, the Swedes (Riksbank) in the early 1990s and the Swiss (the SNB) last year have probably been the best at handling/recapitalizing the banking system. Quick, efficient and, ultimately, at low cost to the taxpayer.

We could look at the ECB for lessons in political independence.

The BoE is probably the leading CB that is aggressively tackling the "too-big-to-fail" issue (cf Haldane and King).

Another lesson to be learned from the Swiss is the simple and transparent monetary policy transmission mechanism. The SNB targets LIBOR directly, which makes things a lot more transparent (but more challenging for them).

There's a lot more...