I assume everyone here reads Warren's blog but if you don't, this is an important post not only for understanding current events but also Warren's thinking.
The Center of the Universe
Comments on crude pricing, the economy, and the banking systemWarren Mosler
"Deflation is highly problematic for banks. Here’s what happened at my bank to illustrate the principle:
ReplyDeleteWe had a $6.5 million loan on the books with $11 million of collateral backing it. Then, in 2009 the properties were appraised at only $8 million. "
I guess Bill Black thinks Warren should go to jail.....
"Therefore, the way I see it is the latest Saudi price cuts are revaluing the dollar (along with other currencies with similar policies, which is most all of them) higher. "
ReplyDeleteI agree with this but we should still seek to workout the transaction details that accomplish this within the banking system.... these transactions have to be based on short term self-interest of the parties involved....
May have to do with financed inventories in external currencies that are now decreasing in value... banks have to hedge the drop in collateral values so they bid up the foreign currency the loans are priced in?
????
We need more detailed xaction data on how this:
"price cuts are revaluing the dollar"
is actually occurring.
I think it is a correct theoretical description but at this time it lacks adequate scientific detail....
rsp,
"Gov. controls ... power to issue money
ReplyDelete& credit, thus largely regulating the price structure"
https://fraser.stlouisfed.org/docs/meltzer/ecctes33.pdf
We used to know this stuff. What happened?
Why do grandchildren have to re-learn ... the hard way ... things their grandparents knew, and their parents either forgot ... or never learned?
Was Milton Friedman born in a barn, or in some gangster cartel?