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Old 20th December 2017, 09:46 AM   #401
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Originally Posted by lupus_in_fabula View Post
In a great twist of irony, I might actually have been the muddler after all.

Pledging collateral does not necessarily change the accounting. So yeah, the private bank gains an asset (reserves) and its liabilities also rise (the loan). It's only when the private bank cannot pay back in reserves when the pledged collateral must be lost to the central bank.
That saves me from pointing out that you were describing a straight sale.

Originally Posted by lupus_in_fabula View Post
But then, again, looking at the private banking sector as a whole, it seems no reserves can be borrowed unless a prior transaction in Treasury bonds (or some other eligible asset) has taken place.
What is different about a central bank loan to a bank loan? The central bank simply accepts the bank's promissory note (backed up by collateral or not) in exchange for newly created reserves.
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Old 20th December 2017, 11:38 AM   #402
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Originally Posted by psionl0 View Post
What is different about a central bank loan to a bank loan? The central bank simply accepts the bank's promissory note (backed up by collateral or not) in exchange for newly created reserves.
Well, the CB grants a loan when there's a pre-existing asset offered as collateral. That's not necessarily the case with a bank loan, where the underlying asset bought with the proceeds from a loan might function as collateral (e.g., a mortgage).
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Old 20th December 2017, 07:35 PM   #403
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Originally Posted by lupus_in_fabula View Post
Well, the CB grants a loan when there's a pre-existing asset offered as collateral.
That's the same muddled thinking as before. The CB does not exchange reserves for collateral. It exchanges them for the bank's IOU. On the Fed Balance Sheet it is recorded on the asset side of the sheet as "Lending to depository institutions" (currently < $500M).

Yes, assets exist and CBs create the bulk of base money by purchasing securities directly but that is a separate issue.

Originally Posted by lupus_in_fabula View Post
That's not necessarily the case with a bank loan, where the underlying asset bought with the proceeds from a loan might function as collateral (e.g., a mortgage).
Again, not a necessary consequence. A credit card could be blown on hookers.
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Old 20th December 2017, 08:11 PM   #404
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Originally Posted by psionl0 View Post
The words "bank" and "banking" do not appear once in the constitution and certainly not in section 8. Then there is this matter of the 10th Amendment.
So then how did the Congress create the Federal Reserve Act in 1913? Is delegating complete control of the public's money to an unaccountable private organization constitutional?
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Old 20th December 2017, 08:17 PM   #405
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Originally Posted by JJM 777 View Post
During the pre-Snowden era, it might have made sense to wish transferring duties from private sector to government "because private sector is opaque and unaccountable, lacking transparency". Now we know that the US government agencies are among the most opaque of all institutions anywhere on the planet.
Do you understand that we're talking about perhaps the most important power of all, the power to issue money? Look, I am a red blooded American capitalist, and I despise communism. A lot of your posts seem to imply that you advocate communism, or some form of collectivism. But the argument for central bank "independence" is the most ridiculous and contrived argument that I've ever heard, and frankly it mystifies me that this could still be a thing in 2017, soon to be 2018. If there is nothing that should ever, ever be privatized, in even the smallest way, it is the control over a fiat money supply. I despise the corrupt and bloated US government, and generally all governments. But there is absolutely no doubt in my mind that IF we are going to accept the evil of fiat money, then it *must* be under the exclusive control of government, subject to 100% oversight, and accountability. Why this isn't obvious to everyone is puzzling to me.
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Old 20th December 2017, 11:39 PM   #406
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Originally Posted by psionl0
That's the same muddled thinking as before. The CB does not exchange reserves for collateral. It exchanges them for the bank's IOU. On the Fed Balance Sheet it is recorded on the asset side of the sheet as "Lending to depository institutions" (currently < $500M).

Yes, assets exist and CBs create the bulk of base money by purchasing securities directly but that is a separate issue.
Sure, because reserves are IOUs—so it's still an exchange of IOUs for IOUs (asset vs asset). That's also the case with a bank loan or credit card blown on hookers. The difference between a normal bank loan and a CB loan pertains to the criteria that must be fulfilled in order to get the loan in the first place. The former does not require a pre-exiting financial asset whereas the latter does.

It's on the latter point where sovereign borrowing (government IOUs for central bank IOUs) becomes essential in the current system. Government securities and reserves, even though they are IOUs issued by distinct entities, are still "joined at the hip".

Hence my question: What's the difference between paying interest on Treasury bonds vs. paying interest on reserves? I'm mostly interested in the economic difference, as in economic consequences, between the two.
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Old 21st December 2017, 12:16 AM   #407
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Originally Posted by Tippit View Post
So then how did the Congress create the Federal Reserve Act in 1913? Is delegating complete control of the public's money to an unaccountable private organization constitutional?
You are asking a constitutional non-expert to explain the random workings of judges' minds. You might as well ask me how a tossed coin chooses which side to land on. (Has the FR Act ever been challenged in the SC)?

AFAIK nothing in the constitution prevents congress from doing business with private business interests. The secret meeting at Jekyll Island evidently worked out how the FR Act could avoid being ruled unconstitutional while still getting a central bank that had some government control and interest.
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Old 21st December 2017, 12:23 AM   #408
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Originally Posted by lupus_in_fabula View Post
Hence my question: What's the difference between paying interest on Treasury bonds vs. paying interest on reserves? I'm mostly interested in the economic difference, as in economic consequences, between the two.
This is going around in circles. You absolutely refuse to distinguish between purchasing assets and creating reserves ex-nihilo and lending them to banks (the CB doesn't get the return on the collateral that it may hold).

The answer is the direction in which the interest flows: When bonds are sold, interest goes from the Treasury (government) to the holder. When reserves are loaned out, interest goes from the (private) banks to the central bank (government).
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Old 21st December 2017, 12:44 AM   #409
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Originally Posted by psionl0 View Post
You are asking a constitutional non-expert to explain the random workings of judges' minds. You might as well ask me how a tossed coin chooses which side to land on. (Has the FR Act ever been challenged in the SC)?
You claimed that "Congress has no constitutional authority to make laws regarding banks and banking and the Fed is a compromise" in response to the idea of the US Treasury simply printing money to pay its bills, which has little to do with banks or banking. The Fed also happens to be a bank which was passed in a 1913 act of congress. It's not a compromise but rather a contradiction to what you claimed.

It doesn't make logical sense to defend the Fed by claiming that congress doesn't have the authority to regulate banks, when clearly the Fed is a bank, and it was created by an act of congress! If congress passed the Federal Reserve Act, then congress can repeal it. Do you think it makes sense for even a quasi-private organization to be involved with the creation of money? Is the argument for "Fed independence" not nonsensical to you?

Quote:

AFAIK nothing in the constitution prevents congress from having an "arrangement" with private business interests. The secret meeting at Jekyll Island evidently worked out how the FR Act could avoid being ruled unconstitutional while still getting a central bank that had some government control and interest.
Evidently. Not only did they succeed in demonetizing gold and silver in favor of fiat money, but they were able to privatize the creation of fiat money by an unaccountable institution. Seems like an obvious conspiracy to me, but I've been called a nut for bringing this up.
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Old 21st December 2017, 02:15 AM   #410
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Originally Posted by psionl0
This is going around in circles. You absolutely refuse to distinguish between purchasing assets and creating reserves ex-nihilo and lending them to banks (the CB doesn't get the return on the collateral that it may hold).
Well, since CB lending is collateralized, the distinction between collateralized loans and repurchase agreements (repo) is unclear.

For example:
Originally Posted by NY Fed
Open market operations, or OMOs, are the Federal Reserve's most flexible and frequently used means of implementing U.S. monetary policy.

The Federal Reserve has at its disposal several different types of OMOs, though the most commonly used are triparty repos and securities purchases.
And further:
Originally Posted by NY Fed
While the mechanics of a repo involve buying and then reselling securities at a set price and a set time, at its financial essence, a repo is a collateralized loan.

So what kind of central bank lending which is collateralized but not essentially a repo are you referring to? Because when we talk about central bank liquidity maintenance in general, when the private banking system as a whole needs reserves, the major tool pertains to open market operations, and these operations are essentially repo/reverse-repo operations in character (unless we talk about straight up purchases).

Same thing for the ECB system: the main refinancing operations (MROs/LTROs) are essentially repo transactions.
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Old 21st December 2017, 07:13 PM   #411
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Originally Posted by lupus_in_fabula View Post
Same thing for the ECB system: the main refinancing operations (MROs/LTROs) are essentially repo transactions.
What does "repo transactions" have to do with simple overnight loans of reserves?
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Old 21st December 2017, 07:20 PM   #412
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Originally Posted by Tippit View Post
You claimed that "Congress has no constitutional authority to make laws regarding banks and banking and the Fed is a compromise" in response to the idea of the US Treasury simply printing money to pay its bills, which has little to do with banks or banking.

This was the fuller discussion:
Originally Posted by Tippit View Post
Originally Posted by psionl0 View Post
Originally Posted by Tippit View Post
What's the benefit of having a quasi-private cartel of counterfeiters called a central bank, versus private commercial bank counterfeiters?
1. The profits and seigniorage go to the government.
2. We can stop money being pumped exclusively into property.
Why don't we just allow Treasury to monetize the government's expenses then, instead of having a quasi-private central bank for private benefactors?
Obviously the Treasury can print "greenbacks" but they can't say, "We are the central bank and you must do our bidding".
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Old 21st December 2017, 07:53 PM   #413
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Originally Posted by psionl0 View Post
Obviously the Treasury can print "greenbacks" but they can't say, "We are the central bank and you must do our bidding".
You lost me. Are you saying the US Treasury would/should have less power than the quasi-private Federal Reserve?
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Old 21st December 2017, 08:52 PM   #414
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Originally Posted by Tippit View Post
You lost me. Are you saying the US Treasury would/should have less power than the quasi-private Federal Reserve?
Remember? Constitution?
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Old 22nd December 2017, 12:16 AM   #415
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Originally Posted by psionl0 View Post
What does "repo transactions" have to do with simple overnight loans of reserves?
Both are factors supplying reserve balances. The difference is, of course, that overnight loans only constitute a negligible supply of reserves to the private banking sector, whereas the overwhelming majority of the supply is structured around purchases and re-purchases of pre-existing assets.

I'm now assuming you're referring to discount window borrowing (primary, secondary and seasonal credit) which hardly registers on a chart when looking at all factors supplying reserves to the private banking sector. Obviously the years 2007-2009 are different due to the Fed's crisis response and all kinds of ad hoc facilities being created for that purpose alone.

CB lending differs from private bank lending with regards to the requirement of pledging pre-existing financial assets for obtaining funds. Moreover, when looking at borrowers individually, the CB only accepts collateral in the form of IOUs issued by some other party than the borrower itself. Whereas a private bank might simply look at your (potential) income stream and grant you a loan based on that information alone.
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Old 25th December 2017, 03:52 AM   #416
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Originally Posted by Tippit View Post
I am a red blooded American capitalist, and I despise communism.
Your slight compassion for the poor is center-left.

Originally Posted by Tippit View Post
A lot of your posts seem to imply that you advocate communism, or some form of collectivism.
Without going to endless details, let us acknowledge this, as ugly as it may seem without going to endless details.

Originally Posted by Tippit View Post
But there is absolutely no doubt in my mind that IF we are going to accept the evil of fiat money, then it *must* be under the exclusive control of government, subject to 100% oversight, and accountability. Why this isn't obvious to everyone is puzzling to me.
I share your dream that US should join the rest of civilization by having a state-owned and government-controlled central bank. As for 100% oversight and accountability, your assumption that government control in USA has anything to do with these is cruelly amusing.
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Old 27th December 2017, 01:39 PM   #417
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Originally Posted by JJM 777 View Post
Your slight compassion for the poor is center-left.
I would abolish most of government and strictly limit it by the constitution, including social and especially corporate welfare. I doubt you can find anyone who would think I'm a leftist by this measure.

Quote:

I share your dream that US should join the rest of civilization by having a state-owned and government-controlled central bank. As for 100% oversight and accountability, your assumption that government control in USA has anything to do with these is cruelly amusing.
I don't have that dream, at all. I don't want any central bank AT ALL. I'm merely trying (and apparently failing) to make the point that if we as a society are going to allow the abomination of fiat money, then it makes sense to keep it 100% under public control. If the government isn't capable of 100% oversight and accountability, then what makes you think a quasi-private central bank operating for its own benefit is?
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Old 27th December 2017, 07:46 PM   #418
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Originally Posted by Tippit View Post
if we as a society are going to allow the abomination of fiat money, then it makes sense to keep it 100% under public control
But 'public control' means handing it over to an irrational group of private individuals (ie. the voters). I can understand why someone might want to create a 'quasi-private' operation that is insulated from the whims of the ignorant public (in particular those who believe that 'most of government should be abolished'.)
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Old 27th December 2017, 09:14 PM   #419
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Originally Posted by Roger Ramjets View Post
But 'public control' means handing it over to an irrational group of private individuals (ie. the voters). I can understand why someone might want to create a 'quasi-private' operation that is insulated from the whims of the ignorant public (in particular those who believe that 'most of government should be abolished'.)
This is the logic of the insane. If you think voters are irrational, then you can't possibly believe we live in a pluralistic, democratic world (which we don't, for other reasons), and you're probably a totalitarian. If this is the case, then it doesn't matter who has control over the issuance of money, because the absolute worst people in the world will get it anyway (which they already have, incidentally).
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Old 5th January 2018, 02:27 AM   #420
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Originally Posted by Tippit View Post
I would abolish most of government and strictly limit it by the constitution
Everyone must believe in something, I guess. Evangelicals quote the Bible, you quote the Constitution. For me, both of these are outdated and imperfect products of the time when written, in urgent need of a heavy revision and modernization.

Originally Posted by Tippit View Post
If the government isn't capable of 100% oversight and accountability
Capability of the government is not the concern, it is omniscient and omnipotent. Lack of omniscience and omnipotence of everyone else than the government is a problem. In pecking order, private sector is at least subject to the omniscience and omnipotency of the government.

No, I don't like private sector either, just wanted to point out that first we need a transparent and accountable government, which doesn't seem to be happening any time soon, and then we can trust it with important tasks.
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Old 5th January 2018, 05:47 AM   #421
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Originally Posted by JJM 777 View Post
Everyone must believe in something, I guess. Evangelicals quote the Bible, you quote the Constitution. For me, both of these are outdated and imperfect products of the time when written, in urgent need of a heavy revision and modernization.
Something Stalin, Hitler, and any other totalitarian might say.

Quote:

Capability of the government is not the concern, it is omniscient and omnipotent. Lack of omniscience and omnipotence of everyone else than the government is a problem. In pecking order, private sector is at least subject to the omniscience and omnipotency of the government.

No, I don't like private sector either, just wanted to point out that first we need a transparent and accountable government, which doesn't seem to be happening any time soon, and then we can trust it with important tasks.
If government is neither accountable nor transparent, which it isn't, then why do you claim to want it to wield so much power and influence, including operating a central bank?
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Old 23rd January 2018, 12:49 AM   #422
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Originally Posted by Tippit View Post
Something Stalin, Hitler, and any other totalitarian might say.
A nice attempt to avoid entering critical discussion about something that you would rather prefer to keep sacrosanct and above criticism.


Originally Posted by Tippit View Post
If government is neither accountable nor transparent, which it isn't, then why do you claim to want it to wield so much power and influence, including operating a central bank?
Step 1: Create an accountable and transparent government.

Step 2: Give it the said powers.
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Old 23rd January 2018, 09:53 AM   #423
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Originally Posted by JJM 777 View Post
A nice attempt to avoid entering critical discussion about something that you would rather prefer to keep sacrosanct and above criticism.
The Bill of Rights and Constitution were designed to enumerate pre-existing rights, and to prevent tyrants, who are subject to timeless and immutable human nature, from infringing on those rights. By that measure, the documents don't need modernization, which is just a thinly veiled excuse by would-be tyrants to acquire more power over people, and deny them their liberties.

Quote:


Step 1: Create an accountable and transparent government.
Democratic accountability is mostly an illusion, except perhaps at the local level. The bigger a government gets, and more importantly, the more it can take from you in taxes to purportedly benefit you or some nebulous idea of "society", the less accountable (or transparent) it gets. That's why I want to strictly limit government.

Quote:
Step 2: Give it the said powers.
The only powers I would grant the Federal government are those expressly authorized in our founding documents, and no more. Everything else should be left to states and localities. Obviously those documents have failed to prevent the type of government that the founders feared, and perhaps for that reason only they should be amended (or offending amendments rolled back).
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