Liquidity injection by central banks
- Thread starter kashirin
- Start date
What means "cutting their bonuses" ??? There must be even harder consequences : Let them pay back their bonuses !!! This is the right answer to prevent selling BS to clueless investors !
Agree. However, it's pretty self-evident that a form of money whose supply is knowingly increased each year, will be fairly poor as a store of value. Since storing value is one of the 3 main functions of money, this seems problematic.
This is particularly so when you consider that it is the most vulnerable in society who are the least aware of this issue, and the least able to combat it. The costs of inflation to small savers, people on fixed incomes (e.g widows & orphans) are devastating over the long run. Whereas owners of inflation-hedged assets, such as landlords, stock market investors and so on, benefit disproportionately. That money goes directly from the pockets of cash savers to fixed-income debtors (mainly the government and business) and financial investors (mainly rich people). It's basically reverse wealth-distribution, on the sly.
One of the advantages of a gold-backed currency is that the world gold supply does not double every decade. Gold-backed currencies therefore tend to hold their value over the long-term. You can also do this by having a fiat currency, with a law to restrict the money supply growth to a certain amount (or to disallow any growth in the money supply).
Yes but there is still a market at work. No one in the free world is forced to hold dollars, you can exchange to gold if you prefer. You can set up your own commodity backed currency and then issue it if you want.
It's not like the 70s or 30s where gold was made illegal, and there were exchange controls. Currently the market can choose to use commodity-backed currency, or fiat money, and it is choosing the latter.
How about 19th century USA? There were long periods where they had no central bank. During the 19th century American had higher growth and almost no inflation relative to the 20th century. On the contrary, the US's greatest economic collapse came in the 1930s, long after the Fed was set up. Indeed, many economists say that the great depression was *exacerbated* by the fed.
The record if anything shows that a system without a central bank is more stable. Yes there will be financial panics from time to time, just like there are under central banking. Credit bubbles are a result of poor human behaviour and decision-making, not the nature of the monetary system. But without a central bank, there will not be long-term systematic inflation, and avoiding that is extremely useful.
Yep. Now we are seeing the "Trichet put". This will likely work about as well as the Greenspan put did during the 1990s. It will encourage excessive risk-taking on the belief that the government will always bail you out if things go wrong. Eventually there'll be repercussions when the next credit bubble reaches excess.
I find it remarkable that the banking industry is shielded from the natural free market process. If you make stupid, irresonsible loans that my mother would be able to see the problem with, then you should take the consequences. If you lend prudently, diversify, hedge yourself, and do not overleverage, then you should reap the rewards.
Why can't governments allow banks to operate on market principles like most other industries have to? We would all be better off.
What a wonderfully intelligent and civilized exchange. I am lucky to have blundered into this Forum by surfing the Internet.
I am firmly in Buzzy2âs camp. Cuttenâs question âWhy can't governments allow banks to operate on market principles like most other industries have to?â is a very reasonable and important one.
The answer is contained in the American Constitution which in essence declares that no human being(s) should be given absolute power over others, squarely contradicted by the creation of an American Central Bank in 1913. A Central Bank in fact exempts the banking industry from the rigors and penalties of the market and puts its management in the hands of a group of humans, the Central Bankers, who, no matter how intelligent, remain human and are therefore bound to suffer of the unavoidable âfatal conceitâ which Hayek warns us against. The conceit that Hayek is talking about is the profoundly misguided belief that humans can âengineerâ a social system better than the market can and thus 'protectâ us from its inefficiencies. If this was true, centrally planned economies would have never been the failures they proved to be and Communism would be the ideal way to organize a society: just like Marx has taught us.
Unfortunately, this misguided belief had over the course of history an irresistible populist appeal which has not been lost to this day, despite its numerous proven failures. There are always conceited individuals who - honestly or dishonestly - claim that âthis time it will be differentâ, i.e. under their much more capable and enlightened leadership the world at large or at least one nation, will head toward true happiness. This is where economics and politics become inextricably intertwined, a fact being intentionally distorted by many professionals, misunderstood or not understood by others and of which the economically illiterate public is completely ignorant and thus easy to manipulate.
With the conniving of governments, from Kings to Parliaments and the Congress, banks have created the Central Banks to serve their own interests and they continue doing so. Other industries would have loved to do so too, they tried but, at least so far, they have mercifully failed in such endeavors. A disappearance of the Central Banking system and a return to a true gold standard (as opposed to the fake âgold-exchange standardsâ instituted in 1925 at Genoa and in 1945 at Bretton-Woods) is in my very humble opinion, unfortunately not very likely in the near future.
But I did not foresee the collapse of the Berlin wall either, so anything can happen. What I think will actually happen is the subject of a much longer piece which, if I am lucky to live long enough, I may write about one day.
As for this Monday, I would be curious to have a poll among the readers and writers in this enlightened Forum. Do we think that the stock market(s) will:
a) see the injections of cash by the ECB and the FED as an act leading to inflation, which, just like Greenspan did after 1987, Bernanke will be forced to counter â sooner or later - with a raise in interest rates? And thus head south?
or
b) see it as an act of saving us all from the speculative bubble and give everybody the license to proceed with our lives and businesses as if nothing important had happened? And thus go up?
I am firmly in Buzzy2âs camp. Cuttenâs question âWhy can't governments allow banks to operate on market principles like most other industries have to?â is a very reasonable and important one.
The answer is contained in the American Constitution which in essence declares that no human being(s) should be given absolute power over others, squarely contradicted by the creation of an American Central Bank in 1913. A Central Bank in fact exempts the banking industry from the rigors and penalties of the market and puts its management in the hands of a group of humans, the Central Bankers, who, no matter how intelligent, remain human and are therefore bound to suffer of the unavoidable âfatal conceitâ which Hayek warns us against. The conceit that Hayek is talking about is the profoundly misguided belief that humans can âengineerâ a social system better than the market can and thus 'protectâ us from its inefficiencies. If this was true, centrally planned economies would have never been the failures they proved to be and Communism would be the ideal way to organize a society: just like Marx has taught us.
Unfortunately, this misguided belief had over the course of history an irresistible populist appeal which has not been lost to this day, despite its numerous proven failures. There are always conceited individuals who - honestly or dishonestly - claim that âthis time it will be differentâ, i.e. under their much more capable and enlightened leadership the world at large or at least one nation, will head toward true happiness. This is where economics and politics become inextricably intertwined, a fact being intentionally distorted by many professionals, misunderstood or not understood by others and of which the economically illiterate public is completely ignorant and thus easy to manipulate.
With the conniving of governments, from Kings to Parliaments and the Congress, banks have created the Central Banks to serve their own interests and they continue doing so. Other industries would have loved to do so too, they tried but, at least so far, they have mercifully failed in such endeavors. A disappearance of the Central Banking system and a return to a true gold standard (as opposed to the fake âgold-exchange standardsâ instituted in 1925 at Genoa and in 1945 at Bretton-Woods) is in my very humble opinion, unfortunately not very likely in the near future.
But I did not foresee the collapse of the Berlin wall either, so anything can happen. What I think will actually happen is the subject of a much longer piece which, if I am lucky to live long enough, I may write about one day.
As for this Monday, I would be curious to have a poll among the readers and writers in this enlightened Forum. Do we think that the stock market(s) will:
a) see the injections of cash by the ECB and the FED as an act leading to inflation, which, just like Greenspan did after 1987, Bernanke will be forced to counter â sooner or later - with a raise in interest rates? And thus head south?
or
b) see it as an act of saving us all from the speculative bubble and give everybody the license to proceed with our lives and businesses as if nothing important had happened? And thus go up?
The ECB injected money into the overnight market, which is dealt in by banks with AAA ratings, hardly "irresponsible" - top quality debt at the shortest possible duration, risk free effectively.
It doesn't matter who sold what in spot fx, it's the lending/borrowing market and paper market that was screwed, those holding euro, sterling and usd were not lending overnight for less than base rate + 75bps on Thursday. If you have a reuters, go on it and look at the LIBOR quotes for Thur and Fri, especially Thurs 9am-11am London time. Total lack of liquidity, drier than a nun's nasty.
On the subject of people not lending to irresponsible thieves, isn't banks lending to irresponsible idiots the cause of this to begin with?
I don't see how joe public is "responsible", borrowing endlessly on credit cards and not paying his mortgage, it's not just Wall St and the City that need disciplining.
Contrary to your belief, if you steal from a store in Europe, you will not be tried before the ECB.
Hehehe,
That's pretty funny. You need to realize that there has not been a real free market system when it comes to MONEY for almost 2 centuries.
This ain't your ancestor's market anymore.