Thursday, September 8, 2016

Charles Hugh smith: Central Banks Provide Welfare For The Wealthy

http://econintersect.com/pages/opinion/opinion.php?post=201609062314&utm_medium=email&utm_campaign=Daily%20Global%20Economic%20Intersection%20Newsletter%20Feed&utm_content=Daily%20Global%20Economic%20Intersection%20Newsletter%20Feed+CID_365c20a5b13f0a3eb73bf98d82a0d539&utm_source=newsletter&utm_term=Read%20more

The fact that central banks provide welfare for the wealthy is now entering the mainstream. The fact that all central bank policies since 2008 have dramatically increased wealth and income inequality is now grudgingly being accepted as reality by mainstream economists and the financial media.
 The central banks' PR facade of noble omniscience on behalf of the great unwashed masses has cracked wide open. Even The Wall Street Journal is publishing critiques of Federal Reserve policies that suggest the Fed has no idea how the U.S. economy actually works because their policies have failed to help the bottom 95%.
 The grudging admission that central bank policies have enriched the rich while failing to benefit the bottom 95% is a breakthrough--the stone wall of denial has finally been pierced. The mainstream media and the Establishment have resolutely clung to the self-serving fantasy that the Federal Reserve 1) knows what's it's doing and 2) is boosting a "recovery" that will soon achieve self-sustaining "escape velocity"--that is, the economy will generate its own growth and the Fed can dial back its zero-interest rate policy and all its other unprecedented monetary easing measures.

13 comments:

Gary Hart said...

The Fed knows exactly how policy works and so do the people the Fed works for. Not us.

Andrew Anderson said...

ALL government privileges* for private credit creation are welfare for the rich since they are, by definition, the most so-called creditworthy.

*e.g. government provided deposit insurance instead of inherently risk-free accounts for all citizens at the central bank itself.

Bill said...

Smith leaves out an important component of our current malaise, the failure of fiscal policy to stimulate the economy for all of us.

Andrew Anderson said...

the failure of fiscal policy to stimulate the economy for all of us. Bill

Monetary policy -> new reserves ONLY*.

Fiscal policy -> new reserves AND new bank deposits.

*Unless assets are bought from the non-bank private sector. But even in that case, asset price inflation is the likely result as new assets are bought to replace the ones sold to the central bank - the general economy is not likely to benefit.

Ralph Musgrave said...

QE is not a very effective form of stimulus, and it does boost asset prices. But there's a plausible reason for thinking it's beneficial on balance.

Warren Mosler (and Milton Friedman) advocated that governments should borrow nothing at all: a view I sympathize with. If that's right, then we ought to continue QEing till all government debt has been wiped out. As for any excess stimulatory or inflationary effect that has, that's easily dealt with by raising taxes.

Andrew Anderson said...

Warren Mosler (and Milton Friedman) advocated that governments should borrow nothing at all:

Don't know about Miltie but Warren says the US Treasury should issue short term debt, iirc. (Probably, I guess, for repurchase agreements between banks).

Screw that and other privileges for the banks too. Think a little harder, Warren. Why the heck should we care about 100% private banks with 100% voluntary depositors?

Except you don't really care to de-priviledge the banks, Mr. Mosler? Why is that?

MRW said...

Andrew Anderson, you don't understand what fiscal policy is, or its purpose. Bill, at September 8, 2016 at 12:50 PM, is right. Do your homework.

MRW said...

Smith leaves out an important component of our current malaise, the failure of fiscal policy to stimulate the economy for all of us.

Amen.

dilbertgeg said...

Banking institutional setup does allocate credit, a function of capitalism.
The problems as I understand arise from what Fed and Banks don't (can't) do (spend), what they don't (won't) do as should (regulate sanely), and what they should but don't prevent, highly leveraged asset price speculation.

To eliminate deposit insurance cuz "free markets" was tried, failed, recipe for destroying entire economy. Regulate *asset* (risk) side, not limit liabilities side (Mosler). Bank corps and CEOs are not "punished" when innocent depositors lose everything, but entire economy collapsing causes great real distress.

Potential political collapse too. Then what? China runs the planet alone?
It's all interconnected.

Tom Hickey said...

Adam Smith was writing in the 18th century during the gold standard on which he comments in Wealth of Nations, Book 1, Chapter 5

In addition, at that time the British government had to borrow from the Bank of England, which was privately owned.

For Smith, wealth is real wealth in terms of non financial assets with what we now call "capita goods" being the most important form of wealth since it is productive of more wealth. Labor is fundamental to creating wealth, so it is economically fundamental.

Financial instruments including gold as a numeraire are not real wealth but measures of wealth that fluctuate, the same assets being worth more or less at different times irrespective of its existence. If the value of financial instruments is increasing relative to the real assets, wealth is not actually increasing. Wealth is at the outcome of production and growth rather than finance and saving.

For Smith, as MMT, the issue of chief importance economically is availability of real resources and their use to in production.

dilbertgeg said...

Agreed w Tom Hickey and Smith.

The issue I debate w some libertarian types is in a monetary economy, not casual barter, commerce, the bottom line is still The Bottom Line, aka financial profits.

Scarcity of financial capital or weak flows inhibits production when it inhibits the ability to finance debts and expenses necessary for most production and commercial trade.

In an MMT situation, relative abundance OR relative scarcity of financial assets, either way it's "artificial". There's no "natural" scarcity unless that's imposed by political fiat, fixed exchange rate vs gold "backing".

I'm nowhere near as eloquent as Tom. Trying to mostly appeal to "the masses" where they stand or understand.

Andrew Anderson said...

Bill, at September 8, 2016 at 12:50 PM, is right. Do your homework. MRW

I never said he was wrong. You're the one at fault. What are you? 13? No crime that but you should've learned some respect by now.

Hint: Your elders can easily be wrong but they can easily know things things you've haven't even imagined yet.

Andrew Anderson said...

To eliminate deposit insurance cuz "free markets" was tried, failed, recipe for destroying entire economy. dilbertgeg

When, where and especially HOW since abolishing government-provided deposit insurance must be done with considerable forethought, planning and care though it is eminently doable and should reverse a lot of relative wealth inequality since a considerable of new fiat should need to be distributed equally to all adult citizens.