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Central banks [Federal Reserve/European Central Bank/Bank of Japan/People's Bank of China/Swiss National Bank] are responsible for global capital misallocation.

by jhulla 11y ago

Central banks [Federal Reserve/European Central Bank/Bank of Japan/People's Bank of China/Swiss National Bank] are responsible for global capital misallocation. Due to immense and unrelenting political pressure, central banks the world over have mispriced capital at gargantuan scales. This has led to immense distortions in capital markets. The level of central bank intervention has only grown in the past 30 years. So the resulting economic growth or slowdown is measurably different than before. Anecdotally, look at the following to see one example of capital distortion in action: The Swiss National Bank digitally printed an enormous amount of Swiss Francs and bought Euros in order to peg their currency lower (didn't work). They used this excess of digitally printed capital to buy real capital assets such as global equities. A question to ponder: what is the fair market price of global equities when some buyers can print money? Does it matter? http://www.bloomberg.com/news/articles/2015-05-06/snb-boosts-stake-in-apple-exxon-in-37-5-billion-u-s-portfolio http://www.bloomberg.com/news/articles/2015-05-06/snb-boosts... "The SNB stands out among major central banks for its equity investments. It had 522 billion francs ($572 billion) of foreign exchange reserves at the end of March, acquired due to interventions to defend the currency cap of 1.20 per euro it had in place from 2011 to early 2015." Swiss National Bank's Portfolio 6/30/2015: http://www.nasdaq.com/quotes/institutional-portfolio/swiss-national-bank-913041 http://www.nasdaq.com/quotes/institutional-portfolio/swiss-n...

unoti 11y ago
> what is the fair market price of global equities when some buyers can print money? You raise a good point. "Fair" has long gone out the window when one or more participants has a standing army. Which of course ties in to which participants can print money.
- Zigurd 11y ago
  Certain powers having "standing armies" is a quaint way to describe it. The US is on a permanent war footing in the Global War on Terror and surveils its allies as assiduously as they would a hostile party in a hot war. Not even a small crack in the neoliberal hegemony is allowed. Not even internal doubt. Repatriate your gold? How amusing. We're all in this together. Or else.
joe_the_user 11y ago
A question to ponder: what is the fair market price of global equities when some buyers can print money? Does it matter? Well, I don't know about "fair" but the phenomena you describe has the upshot that equities wind up being worth more money as money itself become less valuable. The situation you describe is a massive inflation in the sense of massively inflating a currency. The main is that by hook and crook, a wage-price inflation has been avoid - first world workers have just sucked-up some of the cost inflation and other parts of the first world cost of living have been kept under control by cheaper good from China and elsewhere. Similarly, other visible manifestations of inflation have been controlled: the price of gold has controlled by simply mining more gold - contrary to gold bugs, there is still quite available in the ground at a high enough price and the world is in little danger of gold being taken as real money again. And you described the inflating of the Swiss franc with other "safe" currencies undoubtedly following. It all still hinges on the average first world workers being willing to work for continually inflating dollars. The process is abetted by cost-of-living measures based on fairy tales - the ability to ignore continually increasing rents around the country is notable here. So a way to look at all this: "Stocks aren't going up, everything else is going down"
forgetsusername 11y ago
>They used this excess of digitally printed capital to buy real capital assets such as global equities. Equities aren't real capital, in the economic sense, either. Real capital is land, plants and equipment; equities are financial capital. >"the Swiss National Bank digitally printed an enormous amount of Swiss Francs and bought Euros in order to peg their currency lower (didn't work) What do you mean it didn't work? They maintained the peg for years. One of the reasons they unpegged the currency was that the Euro was depreciating, thus maintaining the peg was causing the SNB to depreciate against other currencies, like the USD. >what is the fair market price of global equities when some buyers can print money? Does it matter? There's no mystery. Fair market price is the agreed upon price in a transaction. If you think that for some reason all prices are distorted due to central bank printing, then account for that distortion in determining what price you're willing to accept or bid.
- jhulla 11y ago
  Equities represent shares in real assets: factories, patents, etc. A pedantic discussion of where accountants draw the line on the definition of capital does not change the point: central banks have printed trillions and participate in capital markets. The SNB experienced a massive capital loss when abandoned their peg from 2011 in early 2015. They entered and exited their positions due to politics and global capital distortions. http://www.bloomberg.com/news/articles/2015-07-31/snb-posts-first-half-loss-providing-critics-with-more-ammunition http://www.bloomberg.com/news/articles/2015-07-31/snb-posts-... http://www.economist.com/blogs/economist-explains/2015/01/economist-explains-13 http://www.economist.com/blogs/economist-explains/2015/01/ec... It is a tautology to suggest that a market price is by definition fair - after all it was agreed by both buyer and seller. But markets themselves can be unfair - in the most basic sense, by the participation of shills. https://en.wikipedia.org/wiki/Shill https://en.wikipedia.org/wiki/Shill And in our current economic environment: the concept of too big to fail. Politically, we've accepted an asymmetric reward structure for some market participants. This results in market distortion and unfairness to others. https://en.wikipedia.org/wiki/Too_big_to_fail https://en.wikipedia.org/wiki/Too_big_to_fail
  - forgetsusername 11y ago

by jhulla 11y ago

unoti 11y ago

> what is the fair market price of global equities when some buyers can print money? You raise a good point. "Fair" has long gone out the window when one or more participants has a standing army. Which of course ties in to which participants can print money.

Zigurd 11y ago
Certain powers having "standing armies" is a quaint way to describe it. The US is on a permanent war footing in the Global War on Terror and surveils its allies as assiduously as they would a hostile party in a hot war. Not even a small crack in the neoliberal hegemony is allowed. Not even internal doubt. Repatriate your gold? How amusing. We're all in this together. Or else.

joe_the_user 11y ago

A question to ponder: what is the fair market price of global equities when some buyers can print money? Does it matter? Well, I don't know about "fair" but the phenomena you describe has the upshot that equities wind up being worth more money as money itself become less valuable. The situation you describe is a massive inflation in the sense of massively inflating a currency. The main is that by hook and crook, a wage-price inflation has been avoid - first world workers have just sucked-up some of the cost inflation and other parts of the first world cost of living have been kept under control by cheaper good from China and elsewhere. Similarly, other visible manifestations of inflation have been controlled: the price of gold has controlled by simply mining more gold - contrary to gold bugs, there is still quite available in the ground at a high enough price and the world is in little danger of gold being taken as real money again. And you described the inflating of the Swiss franc with other "safe" currencies undoubtedly following. It all still hinges on the average first world workers being willing to work for continually inflating dollars. The process is abetted by cost-of-living measures based on fairy tales - the ability to ignore continually increasing rents around the country is notable here. So a way to look at all this: "Stocks aren't going up, everything else is going down"

forgetsusername 11y ago

>They used this excess of digitally printed capital to buy real capital assets such as global equities. Equities aren't real capital, in the economic sense, either. Real capital is land, plants and equipment; equities are financial capital. >"the Swiss National Bank digitally printed an enormous amount of Swiss Francs and bought Euros in order to peg their currency lower (didn't work) What do you mean it didn't work? They maintained the peg for years. One of the reasons they unpegged the currency was that the Euro was depreciating, thus maintaining the peg was causing the SNB to depreciate against other currencies, like the USD. >what is the fair market price of global equities when some buyers can print money? Does it matter? There's no mystery. Fair market price is the agreed upon price in a transaction. If you think that for some reason all prices are distorted due to central bank printing, then account for that distortion in determining what price you're willing to accept or bid.

jhulla 11y ago
Equities represent shares in real assets: factories, patents, etc. A pedantic discussion of where accountants draw the line on the definition of capital does not change the point: central banks have printed trillions and participate in capital markets. The SNB experienced a massive capital loss when abandoned their peg from 2011 in early 2015. They entered and exited their positions due to politics and global capital distortions. http://www.bloomberg.com/news/articles/2015-07-31/snb-posts-first-half-loss-providing-critics-with-more-ammunition http://www.bloomberg.com/news/articles/2015-07-31/snb-posts-... http://www.economist.com/blogs/economist-explains/2015/01/economist-explains-13 http://www.economist.com/blogs/economist-explains/2015/01/ec... It is a tautology to suggest that a market price is by definition fair - after all it was agreed by both buyer and seller. But markets themselves can be unfair - in the most basic sense, by the participation of shills. https://en.wikipedia.org/wiki/Shill https://en.wikipedia.org/wiki/Shill And in our current economic environment: the concept of too big to fail. Politically, we've accepted an asymmetric reward structure for some market participants. This results in market distortion and unfairness to others. https://en.wikipedia.org/wiki/Too_big_to_fail https://en.wikipedia.org/wiki/Too_big_to_fail
- forgetsusername 11y ago