Welcome to European Tribune. It's gone a bit quiet around here these days, but it's still going.
Display:
Thank you and Santiago for explanations. Still confusing, those smooth phrases: what is the sense of earning a profit on government securities and returning it to taxpayers? What kind of debt is that? What is exactly monetized? What can the big bankers like Rothschilds say to the Fed?

Isn't it amazing how many ways or levels of understanding of the monetary system are there for "aha" grabs, vaguely suggested by various sources. How many are supposed to know that in all respects? Can't the public be informed better and more uniformly?

by das monde on Fri Oct 15th, 2010 at 06:11:13 AM EST
[ Parent ]
what is the sense of earning a profit on government securities and returning it to taxpayers?

It's a vestigial structure left over from the evolution of modern reserve banking. Back in the bad old days before modern central banks, private banks would band together on an ad hoc basis to guarantee liquidity and thereby prevent bank runs. Back in those days, the reserve banks (plural) were private institutions with their own balance sheets and membership criteria. Of course that didn't quite work, and after a couple of nasty banking panics with associated general industrial depressions, the sovereign clamped down and nationalised the reserve banks, creating the modern central bank system.

The institutions were never really streamlined, in no small part because obfuscation of the fact that the central bank is a part of the public sector makes regulatory capture easier for the people the central bank is supposed to regulate.

What kind of debt is that?

One that is operationally meaningless but politically useful for certain parties.

What is exactly monetized?

"Monetising sovereign debt" is just bankerspeak for issuing money directly in the form of legal tender, as opposed to issuing money in the form of sovereign bonds.

It's another vestigial term, from back in the bad old days of the gold standard, where governments had to borrow to fund deficit spending. When they borrowed from their central bank, they were said to monetise their debts.

What can the big bankers like Rothschilds say to the Fed?

In principle, nothing. In the real world, "when you retire from the Fed, we may have a lucrative consultancy for you that will not unduly strain your mental capacity. Assuming we can still afford to pay for lucrative sinecures when you leave office <wink, wink; nudge, nudge>."

How many are supposed to know that in all respects?

One might expect central bankers to understand modern central banking. One would be wrong, though - central banks the world over are stuck in the conventional wisdom of the gold standard. Economists are supposed to understand central banking too, but of course most of the people who style themselves economists prefer to model a magic Ricardian pony world that contains neither money nor banks.

Can't the public be informed better and more uniformly?

Historical experience suggests that the answer to that question is "no."

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Oct 15th, 2010 at 07:38:45 AM EST
[ Parent ]
At this point I would be very interested in seeing the UK's full accounts, and discovering who has a claim on all of the alleged borrowing that we're supposed to dutifully pay down with the Worst Cuts Evah™.
by ThatBritGuy (thatbritguy (at) googlemail.com) on Fri Oct 15th, 2010 at 08:01:56 AM EST
[ Parent ]
Perhaps it is a composition comparable to the one provided by Guido Fawkes, for Anglo-Irish Bank, courtesy of Coleman.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sat Oct 16th, 2010 at 03:02:06 PM EST
[ Parent ]
Diary

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan
by Migeru (migeru at eurotrib dot com) on Fri Oct 15th, 2010 at 08:49:13 AM EST
[ Parent ]
after a couple of nasty banking panics with associated general industrial depressions, the sovereign clamped down and nationalised the reserve banks, creating the modern central bank system.

It should be noted that this led directly to the first great "financialization" of the US economy, which crashed in '29, was reformed in '33 only to see those reforms dismantled in the '80s and '90s. It should also be noted that the Era of Private Banks came about because of the success of Andrew Jackson in preventing the renewal of the charter of the Second Bank of the United States, which was a glorified private bank. Jackson's constituents largely were and saw themselves as the victims of developing "financialization" which was operating to the benefit of the private owners of the Second Bank. We never really have devised a long term solution to provide a safe, socially beneficial banking system in the USA.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Oct 15th, 2010 at 01:39:49 PM EST
[ Parent ]
Historical experience suggests that the answer to that question is "no."

Is there historic evidence of a serious educational attempt? Or wouldn't the knowledge be too valueable to be shared with everyone?  

by das monde on Mon Oct 18th, 2010 at 03:55:12 AM EST
[ Parent ]
It's hard enough to get people to understand the fairly straightforward concept of countercyclical spending (something that works even under a gold standard, and even under most of the less crazy marginalist models). People seem to believe that when the sovereign takes in a lot of money, it can afford to spend a lot of money, and when the sovereign takes in little money, it cannot afford to spend a lot of money... irrespective of the fact that these states are more often than not correlated to a bubble in the private sector and a significant underutilisation of economic capacity, respectively.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Oct 18th, 2010 at 05:27:11 AM EST
[ Parent ]
I would not be surprised if there has been (and still there is) more aggregate effort to obscure these issues than explain. The Foxnews heads just have more explanatory authority than us.

Even when it come to education in general, forceful regression is almost non-controversial.

by das monde on Mon Oct 18th, 2010 at 06:05:02 AM EST
[ Parent ]
... is that the Fed buys and sells Treasury securities on the secondary market to inject or drain reserves from the system and regulate the cash rate (cost of funds to banks), and the interest is what makes the private market for the Treasury securities.

The interest is handed back when the Treasury securities are in the hands of Fed. That is called "monetising" the debt because when when the Fed acquires additional Treasury securities, that is accounted as an asset, and the FRB can increase its liabilities by an equal amount, which is the creation of new Federal Reserves. So the debt basically goes back inside the fourth, oddly organized, branch of government and is replaced by high power money that can circulate as cash or be leveraged by commercial banks into ten to twenty times as much bank account money.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Fri Oct 15th, 2010 at 10:34:18 AM EST
[ Parent ]

Display:

Top Diaries

Occasional Series