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Prude

Central Bank Limitations

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I don't know a great deal about all of this, so can I ask a basic question or 2..

When Central banks announce that they are making $Xbillion available to inject into the market, are they limited by anything?

Can they just create as much money as they like and give it away as freely as they want?

Will they themselves ever come under liquidity/asset pressure after bailing out too many of these ridiculously imprudent financial institutions?

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Guest Steve Cook
I don't know a great deal about all of this, so can I ask a basic question or 2..

When Central banks announce that they are making $Xbillion available to inject into the market, are they limited by anything?

Can they just create as much money as they like and give it away as freely as they want?

Will they themselves ever come under liquidity/asset pressure after bailing out too many of these ridiculously imprudent financial institutions?

Very good question indeed, and one that I need to clear up in my own mind as well.

Steve

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no, look at Zimbabwe and Germany after the first world war (and the 1970s?) for the effects of printing of large amounts of money, the more you print the less the currency is trusted/believed in its a balance.

Edited by moosetea

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I don't know a great deal about all of this, so can I ask a basic question or 2..

When Central banks announce that they are making $Xbillion available to inject into the market, are they limited by anything?

Can they just create as much money as they like and give it away as freely as they want?

Will they themselves ever come under liquidity/asset pressure after bailing out too many of these ridiculously imprudent financial institutions?

My understanding is that they can create as much as they want. However, it is best if they raise it by sustainable levels of government borrowing. If their borrowing looks unsustainable, or if they just create the money, then their currency will tank, their oil prices will soar, their people will demand higher wages, the cost of their government debt will rise, unemployment will rise, their politicians will find themselves out of a job.

So they are caught - print the money and save the banks, but lose the next election, or not print the money, lose the banks, lose the next election. Given the fact that both extreme actions see them losing the next election, the most likely route is, borrow some money, print some money, muddle along, wreck the economy for a decade, still probably lose the election.

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Guest Steve Cook
My understanding is that they can create as much as they want. However, it is best if they raise it by sustainable levels of government borrowing. If their borrowing looks unsustainable, or if they just create the money, then their currency will tank, their oil prices will soar, their people will demand higher wages, the cost of their government debt will rise, unemployment will rise, their politicians will find themselves out of a job.

So they are caught - print the money and save the banks, but lose the next election, or not print the money, lose the banks, lose the next election. Given the fact that both extreme actions see them losing the next election, the most likely route is, borrow some money, print some money, muddle along, wreck the economy for a decade, still probably lose the election.

:lol:

Hilarious...

No honestly..... :blink:

We're stuffed

Edited by Steve Cook

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This entry from the Sudden Debt blog may help.

The Fed as Bank

Very interesting read - there are limits on the Fed then - and if this post is accurate they it will reach them pretty soon if carries on the way it is doing.

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My understanding is that they can create as much as they want. However, it is best if they raise it by sustainable levels of government borrowing. If their borrowing looks unsustainable, or if they just create the money, then their currency will tank, their oil prices will soar, their people will demand higher wages, the cost of their government debt will rise, unemployment will rise, their politicians will find themselves out of a job.

So they are caught - print the money and save the banks, but lose the next election, or not print the money, lose the banks, lose the next election. Given the fact that both extreme actions see them losing the next election, the most likely route is, borrow some money, print some money, muddle along, wreck the economy for a decade, still probably lose the election.

Very good analysis imo.

It's all about saving the system, as CG says.

If they can't do that, a good plan B for them is to secure as much valuable stuff as they can before the inevitable crash. This is what makes owning gold and silver and other such stuff the nightmarish rollercoaster that it is. (And is also why I won't go near any PM, taxable real estate and so on...anything can and probably will happen.)

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What I still find very confusing is that nobody can decide whether the Fed is deflating or inflating. You'd think it was pretty obvious which course they were taking but it isn't. Will those $500 trillion in toxic derivatives have to vanish or devalue? Both courses are bad but depending on your circumstances one is much worse than the other...

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I've been trying to find an answer for this question as well.

I think I read some where that the bank can't simply over inflate the money supply because the bond market wouldn't allow it, but couldn't really say why.

Could anyone shed some more light on where the bond market comes into things?

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What I still find very confusing is that nobody can decide whether the Fed is deflating or inflating. You'd think it was pretty obvious which course they were taking but it isn't. Will those $500 trillion in toxic derivatives have to vanish or devalue? Both courses are bad but depending on your circumstances one is much worse than the other...

I think the issue is that most of the money is created by lending. When people ask for it back it just disappears. So money disappears as people pay back, but the FED is creating more. Which is going on faster? Hard to estimate given that the FED have only been playing the game for a few weeks, and because all these things are interelated we won't know for a couple of years.

Seems to me that roughly equal numbers subscribe to inflation as deflation and that is why the stock-markets haven't tumbled too far, or gone shooting up too far. Either that, or most people believe the FED will get it just perfect, and there won't be any deflation or inflation - nah, hard to believe that.

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Very good analysis imo.

It's all about saving the system, as CG says.

If they can't do that, a good plan B for them is to secure as much valuable stuff as they can before the inevitable crash. This is what makes owning gold and silver and other such stuff the nightmarish rollercoaster that it is. (And is also why I won't go near any PM, taxable real estate and so on...anything can and probably will happen.)

You're right. Plan B is the tricky part. Is all the clever money getting out of the stock-market? Or is it all out already? Don't they say about poker that if you can't spot the sucker, then it is you! In this game it is the hedge funds and the traders who have all the information, the small guys can do well for a while, but then when it all goes t*ts up, then the hedge fund guy are left sipping their drinks in Barbados with all their cash in swiss property and gold, while the UK people get the winter of discontent.

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What I still find very confusing is that nobody can decide whether the Fed is deflating or inflating. You'd think it was pretty obvious which course they were taking but it isn't. Will those $500 trillion in toxic derivatives have to vanish or devalue? Both courses are bad but depending on your circumstances one is much worse than the other...

I would say that there is both inflation and deflation. They are trying to inflate/prop up large credit items like real estate assets. So we have asset deflation while we higher rates of inflation in just about everything else. They are trying to stop deflation by printing money, which is causing inflation.

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What I still find very confusing is that nobody can decide whether the Fed is deflating or inflating. You'd think it was pretty obvious which course they were taking but it isn't. Will those $500 trillion in toxic derivatives have to vanish or devalue? Both courses are bad but depending on your circumstances one is much worse than the other...

It's inflationary.

I have promised 400 motorbikes that do not exist yet to many people by pretending that the 20 or so motorbikes I do have are actually 400.

When challenged to produce 400 motorbikes I only produce 50 or so, by quickly building 30 new ones but I run out of time.

The total amount of real motorbikes has more than doubled, taking more than half of the value away from the motorcycles due to supply and demand effects. At the same time, lots of people don't get the motorbike they thought they were going to get. If you believed me when I said I had 400 motorbikes you think that 350 motornikes have been destroyed. Lies don't count in reality though.

Inflation is set by the rate of actual money actually floating around in the real world. Nothing else.

Edited by Injin

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  • 295 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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