Sunday, June 23, 2013

P.W. — The Sermon from Basel

The Sermon from Basel
The Economist
I'm a central banker, get me out of hereP.W.

The BIS is off its meds.

See also BIS Says Party Over for Quantitative Easing by Robert Oak at The Economic Populist
The Bank for International Settlements has demanded Central Banks stop their quantitative easing in hopes of a global economic recovery.  All that has happened is a stock market love affair while the real economy languishes.  BIS has issued their annual report demanding nationsdeleverage, which is codespeak for austerity.  The Bank fo International Settlements is the bank of the central banks, so these ultimatums to their 58 Central Bank members are significant.   The BIS demand is clear, quit quantitative easing, adding to balance sheets and issuing zero interest rates and get back to layoffs, downsizing and austerity.  Those are the BIS marching orders to their members as their annual report implies Central Banks are simply staving off the inevitable with unforeseen financial consequences.
The gnomes at the BIS have learned nothing. They need to get out of the vault more.

Oak sums it up. "The report is quite offensive."


28 comments:

paul said...

In other news, water is wet.

F. Beard said...

I guess they'll continue, knowing no other way, till they're swinging from lamp posts.

Someone please tell them that money can and should be issued as Equity?

One day it will be, regardless, since equity as money is entirely consistent with Scripture, I dare say, having actually read it.

But how ironic that liberals and Progressives don't to like to "share" either!

F. Beard said...

Central Bankers used to be expert parasites in that they knew they were crooks and were thus careful not to hurt the host too much. Have they now believed their own propaganda? That they are benign?

paul said...

"But how ironic that liberals and Progressives don't to like to "share" either!"

That is an unfair characterization...many of us believe in sharing, and do so every day.

On the other hand, selfishness is an age-old human trait, and in the end, everything we do is borne of selfishness...we do whatever we do because it pleases us...including sacrifice.

F. Beard said...

That is an unfair characterization...many of us believe in sharing, and do so every day. paul

But common stock shares power, not just wealth. There's the rub with liberals and progressives, I'd bet.

Dan Kervick said...

I believe in sharing. I consistently argue for an economy that is more egalitarian and socialized, in which the fruits of our economic product are more equally shared, and the labor burdens of producing that output are more equally shared as well.

This has little in itself to do with the mechanisms by which new money is introduced into the economy, although I support heavier reliance on direct spending and somewhat less reliance on credit.

But equity shares aren't "sharing". A monetary system built out of negotiable stock shares in private companies is just an extension of capitalism. It's close to the "free banking" touted by the Austrian defenders of 19th century-style rampaging capitalism.

Matt Franko said...

F,

OK I looked up "Equity" here it is:

"Equity (finance), the value of an ownership interest in property, including shareholders' equity in a business."

https://en.wikipedia.org/wiki/Equity_(finance)

What units is the value measured in?

Like we have miles, gallons, volts, pounds, etc... so we can measure things.

How can you tell if we have "equity" as defined in this context:

"Equity or Economic equality, is the concept or idea of fairness in economics, particularly in regard to taxation or welfare economics."

https://en.wikipedia.org/wiki/Equity_(economics)

How can an authority judge whether outcomes have 'equity' with no units to work within?

This "equity" scheme you have is headed directly towards chaos...

Look at it this way: Cannot the amount of currency units one possesses in stock or flow be looked at as how much 'equity' one has in our society?

rsp,

F. Beard said...

But equity shares aren't "sharing". Dan Kervick

Of course they are. The shareholders collectively own the company. They can hire and fire the management. And suppose, reductio ad absurdum, that all American companies were equally owned by Americans? Would automation hurt anyone or would it bless all Americans? Would outsourcing hurt Americans or would lower cost foreign labor be a blessing? Would illegal immigration hurt or bless Americans? Wouldn't we be far more united as a country?

It's close to the "free banking" touted by the Austrian defenders of 19th century-style rampaging capitalism. Dan Kervick


Hardly:

1. Money as debt is lent into existence; money as equity is spent into existence.
2. Money as debt must be repaid with interest - deflation is built-in; money as equity does not necessarily have to be repaid, much less with interest - deflation is NOT built-in.

3) With money as equity, price inflation affects only the issuers of the money since every money recipient becomes by definition a part-owner of the issuing company. This is an important moral consideration.

4) Money as equity requires no reserves since common stock is normally non-redeemable.

5) Money as equity requires no deposit insurance for the same reason.

And btw, "free banking" often enjoyed government privileges such as the suspension of species redemption during financial crisis. Also, the use of anything other than its own inexpensive fiat as money by a State (exception: use of Federal fiat) was to privilege special interests such as gold owners and usurers. Common stock as private money requires no privileges.

F. Beard said...

One other thing, money as debt REQUIRES exponential growth just to pay the compound interest. There's the rat race. Money as equity ALLOWS but does NOT REQUIRE growth.

One hand full of rest is better than two fists full of labor and striving after wind. Ecclesiastes 4:6

paul said...

"One other thing, money as debt REQUIRES exponential growth just to pay the compound interest."

No, it doesn't.

You are making a special-case the default situation, one in which we've never been.

Just because it's a possibility doesn't mean it will happen, and in any case the currency issuer has complete control over the situation, whether it chooses to exert it or not.

One can stand in front of an oncoming train if one wishes. There's no accounting for irrational behavior.

None of this is a real constraint…

Are we here to discuss politics or systems? Seems we keep switching back and forth and confusing ourselves.

y said...

F. Beard,

We've been over this nonsense before. Here you are again, acting as if the previous discussions on your idea never happened. Do you suffer from short term memory loss?

y said...

State money can be a considered a form of equity rather than debt (coins are treated as such). If interest is paid on it, it's like a consol, or 'consolidated stock'.

F. Beard said...

"One other thing, money as debt REQUIRES exponential growth just to pay the compound interest." FB

No, it doesn't. paul

Except it does when a government-backed credit cartel exists. Then the option is borrow or be priced out of the market by those who do borrow. So nearly everyone borrows and thus exponential growth is generally required.

and in any case the currency issuer has complete control over the situation, paul

Neither excessive price inflation nor taxation to control it will be tolerated for long, especially in a democracy. Nor price controls nor anything else your guys might try to square a circle with.

F. Beard said...

State money can be a considered a form of equity rather than debt (coins are treated as such). If interest is paid on it, it's like a consol, or 'consolidated stock'. y

That's fascism, friend - using the authority and power of government to benefit the rich - instead of the general welfare. You're essentially saying that government should be owned by the rich.

F. Beard said...

We've been over this nonsense before. y

Gold as money is nonsense. But Equity as money is backed by (hopefully) performing assets just like Liabilities are. So where is the nonsense? Huh?

But my point is this: If private money creation is good (and I believe it is) it can be done ethically with common stock. So where is the need for a government-backed credit cartel? There is none, especially after the population has received just restitution for previous theft by that cartel ala Steve Keen's "A Modern Debt Jubilee" or similar.

paul said...

"Then the option is borrow or be priced out of the market by those who do borrow."

This is nonsense…the world is full of people like me that don't abuse credit and we have plenty of purchasing power.

Tell Dave Ramsey he doesn't have any purchasing power.

Borrowing reduces purchasing power as the interest deducts from income, and gains snap back if the fiscal authority doesn't follow through with funds for the payments. It's all on the borrower who, you know, has a choice.

The main thing wrong with the choice element is that banks have a fiduciary responsibility…they agreed to it when they got their charter…not to make loans to borrowers that can't repay with a high confidence factor. Failure to do so is a regulatory problem, not a system problem.

It is folly to think we can design a system where people and human behavior are out of the loop. That's why we have laws.

y said...
This comment has been removed by the author.
y said...

"You're essentially saying that government should be owned by the rich".

No I'm not. I just said that if you pay interest on money, instead of issuing at at zero interest, it's like a consol, otherwise known as "consolidated stock".

We've been over why your idea is nonsense again and again. For some reason you seem to have no recollection of that.

y said...

Let me briefly recap.

Issuing shares as a form of payment is occasionally used by companies and might happen a bit more in future. But the idea that you can create an alternative world where there is almost no debt and people pay for everything by issuing shares is utter NONSENSE.

So please stop saying that people are somehow immoral and "don't want to share" because they don't agree with a nonsensical idea you just made up inside your head.

F. Beard said...

otherwise known as "consolidated stock". y

Sure, because the fiat wastefully spent on paying the interest obtains it purchasing power from the "consolidated" activities of the entire economy. That's government for the rich = fascism.

F. Beard said...

Correction: I guess the interest on "consolidated stock" should more properly be called "dividends." But that gives away the game, eh?

F. Beard said...

not to make loans to borrowers that can't repay with a high confidence factor. paul

That's morally irrelevant. "Prudent" theft is nonetheless theft. And was "redlining" prudent or was it racial prejudice that led (among other injustice ) to the urban riots of the 60s?

y said...

the term comes from the fact that consols were originally issued to replace various pre-existing forms of UK government 'stock', these were 'consolidated' into one form of annuity, referred to as 'consolidated stock' or 'consols'.

F. Beard said...

…the world is full of people like me that don't abuse credit and we have plenty of purchasing power.
paul

What is "abusing credit?" I suppose using the poor's stolen purchasing power to start a business and yet NOT SHARING the profits with them is not "abusing credit", according to you?

y said...

f.

let's say we had a system where there was no central bank or federal deposit insurance. If you wanted to start a business you could go to a bank and they could 'extend credit' to you so that you could do that. According to you this action is theft. Or is it not theft because there is no central bank or FDIC?

F. Beard said...

Or is it not theft because there is no central bank or FDIC? y

Correct, assuming all other explicit and implicit (e.g. lack of a risk-free fiat storage and transaction service provided by the monetary sovereign for all its citizens) privileges for the banks are abolished then it is not theft. Then it is merely a private business risk assumed by the banks and its purely voluntary investors/depositors.

paul said...

"What is "abusing credit?" I suppose using the poor's stolen purchasing power to start a business and yet NOT SHARING the profits with them is not "abusing credit", according to you?"

You're conflating so many things here your argument has become completely incoherent.

Focus on one logical chain at a time or at least tie everything together so that it paints a coherent picture.

You are generating statements at random. There's no way anyone could fogure out what your argument is without reading your mind.

F. Beard said...

make that "assumed by the bank", please