Our monetary system is insane

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I'd like to take a moment to present a different perspective on the fed and banking system.
The fed was created at a time when bankers held shit tons of money. Real money in the form of gold. That was at a time when gold and silver were circulating as the currency in the US. There was a limited supply and the Government couldn't just print gold and silver. In order to fund wars they had to borrow from the bankers.
Let's fast forward to today. Money is no longer in circulation except by those of us on the fringe who understand what real money is. Instead we have a fiat currency which is nothing more than Monopoly money Although I have to be honest and say I have never seen a 500 dollar bill. But to my point. Why do we need to borrow currency and pay interest on it? The government clearly has the power to print all it wants without restrictions. There is no limited supply of currency as was the case with gold and silver, thus, no real reason for the federal reserve or taxation anymore.
 
Cigarlover said:
... Why do we need to borrow currency and pay interest on it? The government clearly has the power to print all it wants without restrictions. There is no limited supply of currency as was the case with gold and silver, thus, no real reason for the federal reserve or taxation anymore.
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There is a practical market based limit on the Fed's money printing. The dollar wouldn't be a global reserve currency if the Treasuries market didn't exist.
 
pmbug said:
reason.com

How the Fed broke Silicon Valley Bank

The Fed's anti-inflation measures had to hurt someone.
reason.com reason.com

"working as designed" - at a software company. The term is used when a client/user reports an issue that is not really a bug but is an issue that was not accounted for in the original programming
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The Fed broke SVB?

The existence of a Central Bank, sure did. A Central Bank that is manipulating fiat money and dictating interests, based on political expediencies of the moment.

When whim replaces economic principles, trends, demands of the marketplace, people are going to guess wrong. And often connected players who guess wrong, get made whole - even if there's a massive reversal in policy, leading to even MOAR chaos and MOAR failures of the politically-unimportant small actors.
 
Buck said:
do you have any idea what that number might be?
...
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42?

It's obviously not a hard number. Just some fuzzy logic graph region where markets lose confidence and/or seek alternatives.
 
Cigarlover said:
I'm ok with that.
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I'd be REAL okay with the dollar losing that status.

Think of ALL the EVIL that would stop. Everything from paid executions (Rundeathisnear and ventilators) at your local hospital, to the Jab Follies, to You Crane and the exciting promise of Nuclear War for Fun and Profit. To the funding of the Untied Nations and their misanthropic programs. To the weaponizing of Vulture Capital firms to buy housing up from under the Middle Class and pauperizing all of us.

We NEED a Hard Reset - just not the kind Klaus and his klowns fantasize about.
 
The FED controls monetary policy and the Congress controls fiscal policy. Both sides are supposed to balance and check each other, but both sides are corrupt.

It's disgraceful and completely unnecessary. Just think if we were in an all on hot war, the apocalyptic asteroid was coming straight at us or the aliens were coming back and there was a world wide emergency?

Civilization would collapse.
 
Money Troubles

“As for the evil: It lurks in the interstices of our bureaucratic institutions, which, as they have grown in size and complexity since the nineteenth century, behave in ways that are increasingly impossible to understand and contrary to human flourishing.” — Eugyppius on Substack

Money is all theoretical… until it’s not. Paper money is bad enough, as France learned under the tutelage of the rascal John Law in the early 1700s. The nation was broke, exhausted by foolish wars, and heaped under unbearable debt. Monsieur Law, a Scottish genius-wizard (the Jerry Lewis of political economy), landed in Paris, cast a spell on the regent Duc d’Orléans, set up a magic credit engine fueled by dreams of untold riches-to-come burgeoning out of the vast, new-found lands called Louisiana up the Mississippi River, and modern finance was born!

 
www.cnbc.com

U.S. lawmakers to examine merits of higher FDIC bank deposit insurance cap

Four U.S. lawmakers said on Sunday they would consider whether a higher federal insurance limit on bank deposits was needed to stem a financial crisis.
www.cnbc.com www.cnbc.com

This clown show monetary system is showing it's ass lately. Congress should consider making the FDIC insurance limit (and bank fees that fund it) a floating number that is a function of the money supply/inflation. Fed brrrts, FDIC limits expand with the monetary balloon.
 
FDIC: Insurance caps? We don't need no stinking insurance caps.

... Bloomberg reported that "US officials are studying ways they might temporarily expand Federal Deposit Insurance Corp. coverage to all deposits, a move sought by a coalition of banks arguing that it’s needed to head off a potential financial crisis." ...
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US Studies How To Guarantee All $18 Trillion In US Bank Deposits | ZeroHedge

ZeroHedge - On a long enough timeline, the survival rate for everyone drops to zero
www.zerohedge.com www.zerohedge.com
 
With the world beguiled by the predicament of the Federal Reserve — whether to raise interest rates to fight inflation or lower them to ease the banking crisis — this is a moment to reprise why Congress created the central bank in the first place. Monetary sage Edwin Vieira, Jr., reminds us that the Fed was formed at the acme of the Progressive Era to rationalize finance and prevent banking crises. Just like the one we have today.
...
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More:

www.nysun.com

The Federal Reserve: A Prophet Arises From Louisiana

Freed from its responsibility to maintain the dollar’s fixed value in specie, the central bank has veered far from its legislated purpose.
www.nysun.com www.nysun.com
 
The most striking development in respect of the Fed this week isn't todays quarter-point interest rate hike, but the awakening in Congress to the possibility that the Fed itself is at the root of today's crises. ...

We don't want to overstate the level of support for efforts to reform America's central bank -- or understate the scale of the work that will be required to restore an honest dollar after our half-century experiment with fiat currency. Yet it’s encouraging to see Politico report that "anti-Fed sentiment" has returned to the halls of Congress after "a rare period of political insulation" during the last several years.
...
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www.nysun.com

The Federal Reserve: Mike Lee’s Moment

The senior senator of Utah is in the van of burgeoning Congressional scrutiny of the Fed itself as the root of today’s economic crises.
www.nysun.com www.nysun.com

h/t: https://gata.org/node/22511
 
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...
From the mid‐1980s through to the mid‐2000s, Fed policy was generally considered to be good. Academics and Fed officials alike credited good monetary policy with keeping the economy stable during this period (often called the “Great Moderation”). In my working paper, I show that the Fed was much more likely to follow a rules‐based approach during this period as compared to after the financial crisis. In fact, every successive Fed chair since Paul Volcker has deviated further from the rules‐based policymaking that helped the Fed be successful in the first place. Just one fact from the paper: the correlation between the good policy rule of the Fed and their actual policy fell from 75% under Bernanke, to 17% under Yellen, to -2% under Powell.
...
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tenor.gif
 
Nothing really new here, but it's nice to see folks say it out loud once in a while:

With all eyes on the Federal Reserve and whether it will be forced to hike one more time this year due to high inflation numbers, Lyn Alden, Founder of Lyn Alden Investment Strategy, points to the opaque process of setting monetary policy and the 12 unelected individuals calling all the shots.

The Fed has a tremendous impact domestically and globally, but its policy is far from transparent or accountable, Alden told Michelle Makori, Lead Anchor and Editor-in-Chief at Kitco News, on the sidelines of the Pacific Bitcoin Festival.

"Interest rates and balance sheet size affect the price of money," Alden said. "And if you look in most markets, price controls are not historically effective. But in this current era, we have price controls for the price of money, or specifically the price of credit."

Instead of letting the market determine an appropriate price of credit, the central bank is in charge, Alden pointed out.

"Various parts of the interest rate pricing mechanism are heavily set by the centralized group. And it's literally 12 people that decide. It's seven members of the board of governors, and then it's a revolving set of other central bank heads," she said.

And none of them are elected, Alden added. "It's almost like a council of elders deciding this is the price of money today. And then, they divine the tea leaves, and every six weeks, everybody tunes in to see what color smoke's going to come out of the group of 12 people sitting around the table to decide."

The Federal Reserve also has a massive influence globally since it's the ledger that almost every country ties into by owning U.S. reserves as assets, according to Alden. "[We have] hundreds of millions of people domestically, billions of people globally, and there are 12 people that can decide, should interest rates be 2%, 3%, 5%, 7%, should we expand or decrease the base layer of money?"

Alden described the Fed as the fourth branch of the U.S. government, which often ends up putting out fires that it itself started. ...
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Is high debt constraining monetary policy?​

...
Does higher debt make it more difficult to contain inflation? In principle, various mechanisms through which this could be the case are conceivable. For example, monetary policymakers may be (seen as) hesitant to raise interest rates as much as needed to reduce inflation because this boosts borrowing costs for governments. Central banks may also worry about the impact of rising rates on their own net income if they pay banks interest on excess reserves. Moreover, bonds previously bought by central banks drop in value when interest rates rise, which means that central banks may avoid raising rates and thereby losses. In extreme cases, people may even believe that the central bank could try to inflate away part of the debt or "print money" to pay for future deficits.
...
The paper finds that debt surprises raise long-term inflation expectations in emerging market economies in a persistent way, but not in advanced economies. The effects are stronger when initial debt levels are already high, when inflation levels are initially elevated, and when sovereign debt is denominated to a significant extent in dollars. By contrast, debt surprises have only modest effects in countries with inflation targeting regimes. ...
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www.bis.org

Is high debt constraining monetary policy? Evidence from inflation expectations

This paper examines whether high public debt levels pose a challenge to containing inflation. It does so by assessing the impact of public debt surprises on inflation expectations advanced- and Emerging Market Economies.
www.bis.org www.bis.org

Their methodology (as far as I understood it) doesn't really test the hypothesis at extremes. Would the Fed still be raising rates to crush inflation instead of trying to walk a tightrope if they were not cognizant of the debt issues?
 
The monetarists are trying to control inflation, WHILE continuing to print.

That doesn't work. It's fighting a fire with incendiaries.

Raising interest rates chokes off debt-based demand - and various productive uses of debt, such as business expansion or capital investment. Basically, it chokes off the economy, and thus demand, WHILE debasing the currency.

What is left is more money chasing fewer goods, but also less buyers looking to buy, thus controlling price pressure.

That works around the edges - evaporating demand means of course, prices cannot rise. But when demand falls to where the goods won't sell at the cost of producing them...the goods DISAPPEAR. That is literally a contracting economy.

While the value of the currency continues to erode. Ergo, Stagflation.

What we have, is a government headed by economic illiterates; and with their lieutenants afraid to utter the truth to the fools in power.
 
Of course, our entire banking and money system is a fraud. The US Constitution defines what a dollar is, a specified weight of silver: 371.25 grains.

Silver coins forced honest banking because anyone could walk into a bank and demand actual silver for their paper "note."

If the banks could not produce silver coin in exchange for paper dollars, the fraud that paper "money" is no good would be exposed.

The paper Federal Reserve Notes that we use today are bullshit. They represent a dollar, but are not backed by anything tangible.
Bankers claim that these "notes" are backed by the full faith and credit of the United States government and it's power to tax. So, what happens when people don't trust the government any more? (What does a Zimbabwe dollar buy these days?)
 
Bold emphasis is mine:
Klaas Knot - President of the Netherlands Bank said:
...
To date, this 'quantitative tightening' has been smooth and well-absorbed by financial markets. This is similar to what we see from our international peers, who – in fact – are reducing their balance sheet at a relatively faster pace.

That brings me to the challenge. While, clearly, the current balance sheet has to shrink, our future balance sheet size may need to be larger than it was before the Global Financial crisis. The reason is that structural changes in financial markets, including a higher demand for liquidity, will call for a larger central bank reserves in the future. ...
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www.bis.org

Klaas Knot: Challenges for monetary policy that make us think

Speech by Mr Klaas Knot, President of the Netherlands Bank, at the 26th Annual DNB Research Conference "Challenges for monetary policy that make us think", Amsterdam, 2 November 2023.
www.bis.org www.bis.org
 
Another episode in the "centrally planned fiat monetary system is awesome" series:
... Monetary policy design has traditionally taken aggregate productivity as given. In the workhorse model of monetary policy – the New Keynesian model – the central bank faces a trade-off between stabilising inflation and reducing the short-term deviations of output from its potential level. If monetary policy can affect misallocation and TFP, the central bank should also ponder how its decisions will impact the supply side of the economy in the medium term. Such considerations may be of relevance in phases of very active monetary policy, such as in the current inflationary environment.

This paper seeks to shed light on the interaction between monetary policy and capital misallocation and its implications for optimal monetary policy. ...

Our model predicts that an expansionary monetary policy shock improves capital allocation and thus raises TFP. We call this effect "the capital misallocation channel of monetary policy". We present empirical evidence supporting this prediction: expansionary policy induces high-productivity firms to increase their investment more than it does for low-productivity firms. The central bank has an incentive to exploit the capital misallocation channel, by engineering a temporary economic expansion to increase TFP at the cost of some inflation. ...
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www.bis.org

Firm heterogeneity, capital misallocation and optimal monetary policy

This paper analyzes the link between monetary policy and capital misallocation in a New Keynesian model with heterogeneous firms and financial frictions. In the model, firms with a high return to capital increase their investment more strongly in response to a monetary policy expansion, thus...
www.bis.org www.bis.org

TFP = total factor productivity

117 page PDF paper at the link above if you suffer from insomnia
 
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pmbug said:
More:

mishtalk.com

Biden Pressures the Allegedly Independent Fed to Stop Rate Hikes

It’s a “living hell” for the Fed says a respected analyst that I follow.
mishtalk.com mishtalk.com
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Sad.

That these alleged "leaders" cannot see the pain is that of ending and deleveraging mal-investment from zero-cost Fake Money. And that more pain is here, and coming, from weaning off an unsustainable Credit Bubble boom.

The Fed interest rate should be determined by MARKET determinants of the cost of borrowed money. And when the supply of money/credit is constantly inflated, the cost - to lenders, to get a return over the inflation/debasement rate, will be quite high.

Biden, never having worked for a dollar (graft doesn't count) in his whole life, cannot be expected to suddenly understand that as a senile, brain-damaged old man.
 
pmbug said:
Another episode in the "centrally planned fiat monetary system is awesome" series:

www.bis.org

Firm heterogeneity, capital misallocation and optimal monetary policy

This paper analyzes the link between monetary policy and capital misallocation in a New Keynesian model with heterogeneous firms and financial frictions. In the model, firms with a high return to capital increase their investment more strongly in response to a monetary policy expansion, thus...
www.bis.org www.bis.org

TFP = total factor productivity

117 page PDF paper at the link above if you suffer from insomnia
Click to expand...
I do suffer from insomnia but no need to add toture to that. :)
 
pmbug said:
There is a practical market based limit on the Fed's money printing. The dollar wouldn't be a global reserve currency if the Treasuries market didn't exist.
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Accurate statement.
I guess that leads to the questions. Are we happy being the reserve currency? Do we want to be? Does the world need a reserve currency?
 


Inflation is baked in to the fiat money cake. The Fed is playing Shoot the Moon and it's getting harder and harder to keep the ball rolling inside the rails.
 
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