Stats are fun and a little bit enlightening...sometimes. But why not do something that not only results in REALLY good statistics, but changes the nature of the pattern under analysis and solves its deepest problems, like a 50% Discount/Rebate policy at retail sale??? Quick answer is because the FED is the handmaiden of the big private banks and doing so would end their monopoly paradigm for the creation and distribution of new money, that is Debt ONLY. Second quick answer is economists, not even progressive economists like MMTers, don't really have a clue about what a paradigm actually is, hence what paradigmatic analysis is and apparently don't know the signatures of accomplished historical paradigm changes...and so no comprende which means no action and no resolution.
If economists were more systems philosophers like R. Buckminster Fuller suggested we become, than mere systems analysts we'd pursue solutions instead of obsessing over and wringing our hands about problems.
Gr8 post, I hope it is correct. One mystery to me with the recent bank failure is why didnt the Fed bail this bank out. The story goes that the bank conservatively invested in safe long term treasury bonds to deal with the ocean of reserves they had on hand. They are a venture capital bank, and not a normal bank, in the sense that they get lots in and lots can potentially go out in the short term, but they are a high risk long term banking enterprise. They are not a short term retailer, like the big banks. So, they have these risk free, low interest bonds which with the high interest of the current market, are not of great value in this short run, but in the long run, the investments are solid. The fed has the repo market and are the lender of last resort, why not loan this bank the funds necessary in the short run to to preserve its value for the long run. We need the venture capital, we dont need well balanced retail banks. We have the Fed. So I noticed that over the last year, the Fed Repo market is above $2T daily, and pretty stable. This means that the Fed is giving our cash and taking back securities. Why not do the same for this bank. Me thinks that pure capitalist greed has raised its ugly head and will destroy what is left of the lesser banking systems. Welsfargo wants to buy the SVB investments for pennies on the dollar, rather than help them by lending them excess reserves during this short term crisis facing the nation. The contagion is the greed of the Major Banks (we know who they are), supported by the Fed. Its time to fight back and demand that the FED save the children and let the adults fend for themselves. Sorry, too much morning coffee.
What a wild day yesterday for sure. I can seen your side and the side of Warren Moseler with regards to interest rates. Yes we all know it boosts demand but yeah at some point, its going to break something and if you keep tightening long enough it will cause an unnecessary recession. The US economy doesn't deserve that because its been on solid ground and the job market has been solid in the face of these ghoulish rate hikes from the Fed. Pertaining to the SVB drama, its funny to see now those on Wall Street now demanding to be bailed out and these are the same people who whined about student loan debt cancelation. But again, a wild week and don't look now there's another inflation report looming then the FOMC meeting.
Why is the Fed still selling treasury bonds? Why not just pay guaranteed "Interest On Excess Reserves"--fully guaranteed by the federal gov't, and be done with it? We see what happened to Silicon Valley Bank. They protected themselves by purchasing bonds at a very low rate of return, but the Fed turned around and screwed them by raising interest rates so quickly that they had no time to hedge their position. Does anyone else think this is just stupid?
And why on earth would any company place their funds in a bank that couldn't fully insure their deposits? This is beyond crazy. Lots of people are going to be unnecessarily screwed out of their paychecks--and for what? Because the Fed wants the space to maintain its target interest rate?
The "natural interest rate" is zero if the Fed doesn't get involved. If excess currency is allowed to stay in the banking system (in other words, if the Fed doesn't sell bonds to remove excess currency from the banking system), then no bank will ever have the need to borrow money from any other bank to settle its accounts. Lots of money + no borrowers = 0% interest rate.
So what happens in a world of zero interest rates? The conventional wisdom is that investors will take their money elsewhere. Really? As we've just seen with SVB, depositers there would gladly have paid a NEGATIVE interest rate to protect their money. The fact is, owners of US dollars HAVE NO LEVERAGE. They will accept any interest rate--positive or negative--that the Fed offers. They have nowhere else to go.
This leaves the question of what happens when inflation rears its ugly head and, because the interest rate is already zero, the Fed has no operating room to affect the economy. This is true. But that's when the federal gov't has to step in and impose temporary price controls until supply can catch up with demand. So the question becomes: Does the gov't want to put millions of people out of work or does it want to figure out a price control regime (admittedly a thorny problem) that imposes less economic damage on its citizens?
I have to admit that your comment takes me back to my undergraduate days of trying to make sense of Hegel's philosophy. It seems your central thesis is the 50% discount/rebate policy at retail sale. I believe you and I have had this exchange before. Your prose is way too dense for me--and thus, I expect, for most readers. You may have something important to say, but for the life of me I can't fathom what it is. I don't want to miss out on your insights, but I wish you could formulate them in a more accessible style. Thanks, Wally
The rapid rise in interest rates left banks like SVB with a lot of Treasuries whose market value had declined significantly. The denouement is that the bank's assets were worth a lot less than before the rate hikes started. This could also happen to many other banks. Pundits say that they should have hedged, but buying interest rate derivatives is partly what caused the Great Recession. No panacea there.
The stresses in the financial & banking system today are almost totally the result of MMT and poor government policy. We've had a decade of ZIRP and massive government spending that added 30% to M2 money stock in less than two years. The inflation that arose was predictable - I predicted it. The flood of money was dangerous and we're now seeing the result.
Yes, bank managements have responsibility for their decisions. But these problems today are not just isolated to one bank. They are systemic and were created by the gusher of government cash that ultimately flowed into banks. Banks couldn't possibly lend it all quickly enough so they had to park it somewhere and it can't all sit as cash or 90 day T-Bills. Governments missed these problems all over again. We have banks in the US and Europe now under intense pressure and not every one of them is run by greedy & self-serving capitalists.
Nationalizing banks is not a solution. Believing that regulators just need more regulation to see and prevent future problems is a dangerous fallacy. It's time for policy makers to accept their share of responsibility for the environment they've created.
The bank wouldn't be doing the insuring. The federal gov't is quite capable of insuring all of the US dollars it has spent into the economy. Note that I'm NOT advocating deregulation of the US banking system--that would lead to all sorts of nonsense. My point is simply that when you deposit your US dollars in a US bank, you should be able to sleep well at night. Hedge funds and other kinds of "shadow" banking institutions are another story. Those investors should be on their own.
Stats are fun and a little bit enlightening...sometimes. But why not do something that not only results in REALLY good statistics, but changes the nature of the pattern under analysis and solves its deepest problems, like a 50% Discount/Rebate policy at retail sale??? Quick answer is because the FED is the handmaiden of the big private banks and doing so would end their monopoly paradigm for the creation and distribution of new money, that is Debt ONLY. Second quick answer is economists, not even progressive economists like MMTers, don't really have a clue about what a paradigm actually is, hence what paradigmatic analysis is and apparently don't know the signatures of accomplished historical paradigm changes...and so no comprende which means no action and no resolution.
If economists were more systems philosophers like R. Buckminster Fuller suggested we become, than mere systems analysts we'd pursue solutions instead of obsessing over and wringing our hands about problems.
Gr8 post, I hope it is correct. One mystery to me with the recent bank failure is why didnt the Fed bail this bank out. The story goes that the bank conservatively invested in safe long term treasury bonds to deal with the ocean of reserves they had on hand. They are a venture capital bank, and not a normal bank, in the sense that they get lots in and lots can potentially go out in the short term, but they are a high risk long term banking enterprise. They are not a short term retailer, like the big banks. So, they have these risk free, low interest bonds which with the high interest of the current market, are not of great value in this short run, but in the long run, the investments are solid. The fed has the repo market and are the lender of last resort, why not loan this bank the funds necessary in the short run to to preserve its value for the long run. We need the venture capital, we dont need well balanced retail banks. We have the Fed. So I noticed that over the last year, the Fed Repo market is above $2T daily, and pretty stable. This means that the Fed is giving our cash and taking back securities. Why not do the same for this bank. Me thinks that pure capitalist greed has raised its ugly head and will destroy what is left of the lesser banking systems. Welsfargo wants to buy the SVB investments for pennies on the dollar, rather than help them by lending them excess reserves during this short term crisis facing the nation. The contagion is the greed of the Major Banks (we know who they are), supported by the Fed. Its time to fight back and demand that the FED save the children and let the adults fend for themselves. Sorry, too much morning coffee.
What a wild day yesterday for sure. I can seen your side and the side of Warren Moseler with regards to interest rates. Yes we all know it boosts demand but yeah at some point, its going to break something and if you keep tightening long enough it will cause an unnecessary recession. The US economy doesn't deserve that because its been on solid ground and the job market has been solid in the face of these ghoulish rate hikes from the Fed. Pertaining to the SVB drama, its funny to see now those on Wall Street now demanding to be bailed out and these are the same people who whined about student loan debt cancelation. But again, a wild week and don't look now there's another inflation report looming then the FOMC meeting.
Why is the Fed still selling treasury bonds? Why not just pay guaranteed "Interest On Excess Reserves"--fully guaranteed by the federal gov't, and be done with it? We see what happened to Silicon Valley Bank. They protected themselves by purchasing bonds at a very low rate of return, but the Fed turned around and screwed them by raising interest rates so quickly that they had no time to hedge their position. Does anyone else think this is just stupid?
And why on earth would any company place their funds in a bank that couldn't fully insure their deposits? This is beyond crazy. Lots of people are going to be unnecessarily screwed out of their paychecks--and for what? Because the Fed wants the space to maintain its target interest rate?
The "natural interest rate" is zero if the Fed doesn't get involved. If excess currency is allowed to stay in the banking system (in other words, if the Fed doesn't sell bonds to remove excess currency from the banking system), then no bank will ever have the need to borrow money from any other bank to settle its accounts. Lots of money + no borrowers = 0% interest rate.
So what happens in a world of zero interest rates? The conventional wisdom is that investors will take their money elsewhere. Really? As we've just seen with SVB, depositers there would gladly have paid a NEGATIVE interest rate to protect their money. The fact is, owners of US dollars HAVE NO LEVERAGE. They will accept any interest rate--positive or negative--that the Fed offers. They have nowhere else to go.
This leaves the question of what happens when inflation rears its ugly head and, because the interest rate is already zero, the Fed has no operating room to affect the economy. This is true. But that's when the federal gov't has to step in and impose temporary price controls until supply can catch up with demand. So the question becomes: Does the gov't want to put millions of people out of work or does it want to figure out a price control regime (admittedly a thorny problem) that imposes less economic damage on its citizens?
It would be great if you could address the consequences of
full employment. The fastest way to bring wages/benefits up would
be for the federal government to be the employer of last resort.
Everyone that wants a job gets one!
I have to admit that your comment takes me back to my undergraduate days of trying to make sense of Hegel's philosophy. It seems your central thesis is the 50% discount/rebate policy at retail sale. I believe you and I have had this exchange before. Your prose is way too dense for me--and thus, I expect, for most readers. You may have something important to say, but for the life of me I can't fathom what it is. I don't want to miss out on your insights, but I wish you could formulate them in a more accessible style. Thanks, Wally
The rapid rise in interest rates left banks like SVB with a lot of Treasuries whose market value had declined significantly. The denouement is that the bank's assets were worth a lot less than before the rate hikes started. This could also happen to many other banks. Pundits say that they should have hedged, but buying interest rate derivatives is partly what caused the Great Recession. No panacea there.
The stresses in the financial & banking system today are almost totally the result of MMT and poor government policy. We've had a decade of ZIRP and massive government spending that added 30% to M2 money stock in less than two years. The inflation that arose was predictable - I predicted it. The flood of money was dangerous and we're now seeing the result.
Yes, bank managements have responsibility for their decisions. But these problems today are not just isolated to one bank. They are systemic and were created by the gusher of government cash that ultimately flowed into banks. Banks couldn't possibly lend it all quickly enough so they had to park it somewhere and it can't all sit as cash or 90 day T-Bills. Governments missed these problems all over again. We have banks in the US and Europe now under intense pressure and not every one of them is run by greedy & self-serving capitalists.
Nationalizing banks is not a solution. Believing that regulators just need more regulation to see and prevent future problems is a dangerous fallacy. It's time for policy makers to accept their share of responsibility for the environment they've created.
The bank wouldn't be doing the insuring. The federal gov't is quite capable of insuring all of the US dollars it has spent into the economy. Note that I'm NOT advocating deregulation of the US banking system--that would lead to all sorts of nonsense. My point is simply that when you deposit your US dollars in a US bank, you should be able to sleep well at night. Hedge funds and other kinds of "shadow" banking institutions are another story. Those investors should be on their own.
Sheila Bair's interview on CNBC this morning is worth your time.
Inflation in Argentina now tops 103%. This didn't happen due to tight monetary policy.
https://www.usnews.com/news/world/articles/2023-04-14/zero-capacity-to-save-argentines-buckle-under-103-inflation