by Theodorex » Tue Feb 14, 2017 5:07 am
by Arkolon » Tue Feb 14, 2017 10:57 am
by Risottia » Tue Feb 14, 2017 11:01 am
Theodorex wrote:we'[who?]ve been told[by whom?] that central banks are independent[from whom?] and can't finance government deficits.
by Sanctissima » Tue Feb 14, 2017 11:13 am
by Risottia » Tue Feb 14, 2017 11:23 am
Sanctissima wrote:In terms of the EU, it's a failure because Germany (and to a lesser degree the Benelux) is pulling all the weight.
by Sanctissima » Tue Feb 14, 2017 12:02 pm
Risottia wrote:Sanctissima wrote:In terms of the EU, it's a failure because Germany (and to a lesser degree the Benelux) is pulling all the weight.
Usual trite bullshit.
https://en.wikipedia.org/wiki/Budget_of ... .282014.29
(data: 2014)
Germany is the top net contributor, followed by France, Netherlands, Italy, UK.
Luxembourg and Belgium are net receivers. Freeloaders, if you prefer.
by Arkolon » Tue Feb 14, 2017 12:33 pm
Sanctissima wrote:Risottia wrote:Usual trite bullshit.
https://en.wikipedia.org/wiki/Budget_of ... .282014.29
(data: 2014)
Germany is the top net contributor, followed by France, Netherlands, Italy, UK.
Luxembourg and Belgium are net receivers. Freeloaders, if you prefer.
"Countries other than Germany are putting in more than they're receiving so their economies must be good."
That's not how that works. The French franc was worth 1/6th the value of the Euro prior to adopting it as their currency. The currency of other countries, particularly Italy's, was worth far less. They benefit a lot more from sharing the same currency as Germany than they do from receiving EU funds. The fact that some of them pay in more than they receive doesn't change that.
by Sanctissima » Tue Feb 14, 2017 12:41 pm
Arkolon wrote:Sanctissima wrote:
"Countries other than Germany are putting in more than they're receiving so their economies must be good."
That's not how that works. The French franc was worth 1/6th the value of the Euro prior to adopting it as their currency. The currency of other countries, particularly Italy's, was worth far less. They benefit a lot more from sharing the same currency as Germany than they do from receiving EU funds. The fact that some of them pay in more than they receive doesn't change that.
Firstly, a single French franc being worth a few euro cents does not say anything about the strength of the French currency: Japan, for instance, reached a value of about 100 yen per dollar in the Summer of 2016, and that was considered a very strong yen which worried markets and the BOJ. What's important when measuring currencies is how they move vis-à-vis other currencies. For a long time the pound traded at an interval between 1.3 and 1.5 dollars: when it reached 1.2 and the yen reached 100, this was considered a very weak pound and a very strong yen.
Secondly, surely you mean Germany benefits from having periphery states lower the value of the single currency. By having other countries bringing the value of the Euro down in relation to the Deutschmark, German goods are more competitive on the global market. Some estimates suggest that the DM today would be valued 40% higher against the euro. Periphery states benefit from easy entry of capital from other member states (Spanish or French firms and factories relocating to Romania or Bulgaria, for instance), but these countries are severely weakened on the global market because the euro is so much more valuable - so much stronger - than their previous currencies.
by Arkolon » Tue Feb 14, 2017 1:41 pm
Sanctissima wrote:Arkolon wrote:Firstly, a single French franc being worth a few euro cents does not say anything about the strength of the French currency: Japan, for instance, reached a value of about 100 yen per dollar in the Summer of 2016, and that was considered a very strong yen which worried markets and the BOJ. What's important when measuring currencies is how they move vis-à-vis other currencies. For a long time the pound traded at an interval between 1.3 and 1.5 dollars: when it reached 1.2 and the yen reached 100, this was considered a very weak pound and a very strong yen.
Secondly, surely you mean Germany benefits from having periphery states lower the value of the single currency. By having other countries bringing the value of the Euro down in relation to the Deutschmark, German goods are more competitive on the global market. Some estimates suggest that the DM today would be valued 40% higher against the euro. Periphery states benefit from easy entry of capital from other member states (Spanish or French firms and factories relocating to Romania or Bulgaria, for instance), but these countries are severely weakened on the global market because the euro is so much more valuable - so much stronger - than their previous currencies.
I agree with your analysis, but not your conclusion.
Germany is actually one of the few countries that doesn't benefit from the Euro. The fact that it's previous currency would be more valuable than the Euro means that Germany could fare much better on its own. Other countries with lesser currencies benefit from having the Euro precisely because it is more valuable than their previous currencies. That's why they joined in the first place.
by Theodorex » Tue Feb 14, 2017 2:07 pm
Sanctissima wrote:I agree with your analysis, but not your conclusion.
Germany is actually one of the few countries that doesn't benefit from the Euro. The fact that it's previous currency would be more valuable than the Euro means that Germany could fare much better on its own. Other countries with lesser currencies benefit from having the Euro precisely because it is more valuable than their previous currencies. That's why they joined in the first place.
Arkolon wrote:Interestingly, ECB operations enforce the need for austerity in Eurozone states.
Slovenia is an interesting example of this giving quirky results: its government did not run excessively large budget deficits, but still had to face austerity. Its private sector floundered following the 2008 financial crisis, leading to lower tax revenues and non-performing loans on bank balance sheets. Slovenia's economy progressed normally after this, in a way neoclassical economics might suggest, until 2012. Why another crisis in 2012 in Slovenia? The ECB was providing liquidity to Slovenian banks in exchange for Slovenian government debt so that the Slovenian banks could use that money to buy more government bonds ... a cycle that is obviously toxic. Slovenian government debt was inevitably downgraded in 2012, bringing the entire banking sector down, dipping the country into another recession and exacerbating the terrible economic conditions of the recovering economy.
Risottia wrote:Do I think the Eurozone needs to be reformed? Absolutely, if not in the form of stabilising payments from North to South, then in the form of full joint-liability Eurobonds.
by Neu Leonstein » Tue Feb 14, 2017 2:31 pm
Theodorex wrote:I am not going to get into it too deep here(reserve demand is inelastic etc) and if some bond guy reads this, it might sound a little funny to him, I am just trying to explain the bolts and nuts.
Now we know how Fed sets the interest rate. How about when government sells securities? It has to be functionally the same as fed draining reserves and selling securities? So interest rates shoot up? No, because fed has announced target interest rate and It intends to keep It. So if the interest rate tries to shoot up because of the reserve drain treasury is doing then fed has to buy securities to maintain the target interest rate. Conducting the opposite operation of what the treasury is doing. Bingo, all the money comes from government money machine, there is no danger of having higher interest rates, government deficit spending doesn't take money away from private sector, these are all lies. Obama said government is out of money, he was lying, government will never run out of money China is not America's banker
by Hydesland » Tue Feb 14, 2017 4:16 pm
Theodorex wrote:
Now we know how Fed sets the interest rate. How about when government sells securities? It has to be functionally the same as fed draining reserves and selling securities? So interest rates shoot up? No, because fed has announced target interest rate and It intends to keep It.
Bingo, all the money comes from government money machine
, there is no danger of having higher interest rates
, government deficit spending doesn't take money away from private sector
by Theodorex » Tue Feb 14, 2017 4:31 pm
Neu Leonstein wrote:I don't know, I don't think he was lying. I mean, firstly (and somewhat facetiously), the government can run out of money in practice because it elects to not use all the tools at his disposal. That's in effect what the debt ceiling/government shutdown was. Basically, the US Treasury just "voluntarily" stops issuing debt.
And secondly, the control of a central bank over rates is not absolute. It extends about as far as the rate on reserves, and because it's a repeated game, to the rate banks charge each other for very short-term loans of those reserves. But beyond that, it's not only the central bank that sets the rate.
But in normal times it wouldn't get that involved, and it certainly wouldn't be intentionally trying to push the rate in a direction advantageous to the Treasury. The Fed is trying to maximise the value of its own portfolio subject to its policy implementation. In normal times, it would want to buy at the highest yield possible. QE muddles things up a bit, but if you're sitting at the SOMA desk for the New York Fed, you're still going to buy stuff at the best rate you can.
The scaremongering from gold bugs about the imminent buyers' strike in USTs and the collapse of the system are obviously silly. And the demand for safe assets has outweighed all other concerns for a decade now (and the Fed did the rest). But yields on US debt can and do increase as well as decrease, including for worries about inflation and the size of future deficits. The Fed can stop that, but only by going completely beyond our current understanding of its mandate.
by Neu Leonstein » Wed Feb 15, 2017 12:50 pm
Theodorex wrote:I am saying that it is not the anticipated inflation itself that moves those rates up (textbook story kind of) but the fed's anticipated reaction to that anticipated inflation.
To me It would be politically preferable if there was no debt at all. All the debt is functionally is time deposits at the fed that pay interest versus demand deposits that don't pay interest (reserve balances).
by Theodorex » Wed Feb 15, 2017 3:54 pm
Neu Leonstein wrote:That can't be true though, if you think about it. Imagine for a second that the nominal rate remains unchanged no matter what. You have a bond with a nominal coupon that is fixed in the contract. It's worth $100, which is the NPV of all the cash flows at a yield equal to the coupon rate. Now expected inflation goes up... it must be that the bond with the same nominal coupons is now worth less to you in real terms. The price goes down, and mathematically, the IRR (aka the yield) goes up. If the government tried to sell you an identical bond, you wouldn't buy it for $100.
And the second is that even in the current world as it is, there are very, very few people in the world who truly understand how repo and global collateral chains allow the system to use central bank reserves to create money that we actually see in real life.
by Theodorex » Wed Feb 15, 2017 4:55 pm
Neu Leonstein wrote:On a blank page, with some sort of unified fiscal-monetary authority, you can write a model in which bonds aren't required. In the real world, things look like this (a word of warning: it's a pretty big image). Government debt is money in that system. And if that system breaks, you get a global financial crisis because your money supply is contracting like there's no tomorrow.
by Theodorex » Thu Feb 16, 2017 1:08 am
by Theodorex » Thu Feb 16, 2017 1:27 am
Hydesland wrote:Theodorex wrote:
Now we know how Fed sets the interest rate. How about when government sells securities? It has to be functionally the same as fed draining reserves and selling securities? So interest rates shoot up? No, because fed has announced target interest rate and It intends to keep It.
The inflation target has primacy over the interest rate target. So if the government starts doing massive deficit spending, yes interest rates may shoot up as the fed starts to anticipate higher inflation.
by Hydesland » Thu Feb 16, 2017 1:31 pm
Theodorex wrote:It is anticipated fed reaction. Just like I said It.
Where does it come from? By all the money it is meant all the money to buy treasury securities. I am offering you the opportunity here to explain where does It come from? Selling treasury securities is a reserve drain in the system, as a simple point of logic you can't do a reserve drain before you haven't one a reserve add.
by Theodorex » Thu Feb 16, 2017 2:59 pm
Hydesland wrote:Theodorex wrote:
It is anticipated fed reaction. Just like I said It.
Point being, the government can't just run an arbitrarily large deficit for an arbitrary amount of time.
Hydesland wrote:Where does it come from? By all the money it is meant all the money to buy treasury securities. I am offering you the opportunity here to explain where does It come from? Selling treasury securities is a reserve drain in the system, as a simple point of logic you can't do a reserve drain before you haven't one a reserve add.
Whether money first comes from the private sector, the fed, or the government, is a complex chicken & egg scenario which is hard to untangle
by Hydesland » Sat Feb 18, 2017 10:20 am
Theodorex wrote:What is arbitrarily large deficit? Very lose term.
There cerainly are no financial constraints.
It is not. Money to pay taxes can only come from government, money to buy treasury securities cannot come from anywhere else either. There is no other place it can come from in such a system.On a personal level It might not appear so but once you go after reserve accounting, it is clear where It comes from. Yes argument can be made that government doesn't have to deficit spent for you to get money to pay taxes, government (fed) can lend it to you but really it doesn't make much sense if you dig deeper into this. That immediately begs a question why tax us at all. What are taxes for? Would you accept my worthless pieces of paper without coercion? Probably not. And another very good reason is inflation.
So all these deficit debates in Congress should be not about whether the government is running out of money or we are living beyond our means but whether the deficit is creating inflation.
I know most of you reading this are monetarists, I can tell by reading you.
Can inflation be controlled by fed setting overnight rate IMO? No.
by Theodorex » Sun Feb 19, 2017 8:14 am
Hydesland wrote:There cerainly are no financial constraints.
There are constraints, even if there is no technical "operational" constraints - pointing out that governments can simply "print" money is trivial, it's not some novel and game changing insight. There are constraints if you consider keeping a stable and reasonable exchange rate important, there are constraints when you consider central bank reaction functions, there are nominal constraints in terms of inflation, and there are real restraints in terms of resource limits.
it's not some novel and game changing insight
A question (to which I don’t have the full answer): why are the interest rates on Italian and Japanese debt so different? As of right now, 10-year Japanese bonds are yielding 1.09%; 10-year Italian bonds 5.76%.
I ask this because in a number of ways the two countries look similar. Both have high debt levels, although Japan’s is higher. Both have awful demography. In other respects, the numbers if anything favor Italy, which has a much smaller current deficit as a percentage of GDP.
First, if you look around the world you see that the big determining factor for interest rates isn’t the level of government debt but whether a government borrows in its own currency. Japan is much more deeply in debt than Italy, but the interest rate on long-term Japanese bonds is only about 1 percent to Italy’s 7 percent. Britain’s fiscal prospects look worse than Spain’s, but Britain can borrow at just a bit over 2 percent, while Spain is paying almost 6 percent.
by Theodorex » Sun Feb 19, 2017 8:46 am
Hydesland wrote:Then there is the claim of timing, i.e. where does money "first" originate. First of all, I'd like to point out that you can't just analyse economies in a time vacuum, the modern economy is simply an evolution of a previous system where gold was money. Governments did not create gold, so they got their income from gold inflows, and later notes backed by gold. It's not like on leaving the gold standard the US or UK completely rebuilt their economy from scratch, the government & fed just stopped promising to convert their scrip to a certain amount of gold, the monetary base was changed from "gold backed" cash/reserves at fed to the same but simply not backed by gold. Now the system is simply a loop, a circular system that includes private banks 'creating money' through credit expansion, the central bank 'creating money' by increasing the monetary base as necessary to keep the banking system stable (and to keep government borrowing rates down) and the government 'creating money' through spending. It's a loop, there is no 'start' on a circle. It's also a simultaneous system, so the 'origin' is irrelevant.
by Theodorex » Sun Feb 19, 2017 9:14 am
Hydesland wrote:Theodorex wrote:
What is arbitrarily large deficit? Very lose term.
As large as you want for as long as you want.
Exchange rate depreciation triggered by money financed deficits can cause significant disruptive imported-inflation effects in both developing and open-developed economies.
In sum, a “park it” zero interest rate policy guarantees an incorrect setting of interest rates, promotes financial instability, and throws away a vital policy instrument in a world where policy makers already confront the challenge of having more targets than instruments.
by Hydesland » Sun Feb 19, 2017 9:24 am
Theodorex wrote:There is no such operation that can be called printing money really.
Central bank reaction funcions? When central bank doesn't serve public purpose you mean?
There are no nominal constraints
, those constraints are real. If you run out of resources you will have demand pull inflation.
That is what I hear all the time."we knew It, you are not offering anything new`" I am offering you some insight on this matter:
Paul Krugman wrote : Italy Versus Japan https://krugman.blogs.nytimes.com/2011/07/16/italy-versus-japan/?_r=0
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