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Do central banks’ mounting losses actually matter?

99 points by CompactNotice 4y ago

lotharcable 4y ago
They don't go bankrupt in the conventional sense. When they go bankrupt economists like to use the term "Hyper Inflation". This means that the currency they produce becomes worthless.
- downrightmike 4y ago
  Yup, BlackRock specializes in closing failed banks. That's why the US gov't gave them all the bad banks from 2007 and also why they are a huge company. They'll only get larger at this point.
  - arcticbull 4y ago
    Do you have a citation for this? My understanding is small community banks sold by the FDIC to larger banks or their depositors paid out directly. [0] Larger banks - WaMu for instance - were put under the purview of the Office of Thrift Supervision (OTS) and their customers assets and certain liabilities sold. In WaMu's case it was to JPMorgan. [1] [0] https://www.fdic.gov/consumers/banking/facts/payment.html https://www.fdic.gov/consumers/banking/facts/payment.html [1] https://en.wikipedia.org/wiki/Office_of_Thrift_Supervision https://en.wikipedia.org/wiki/Office_of_Thrift_Supervision
    - downrightmike 4y ago
      https://thestrategystory.com/2020/09/18/blackrock-shadow-bank/ https://thestrategystory.com/2020/09/18/blackrock-shadow-ban...
- luckylion 4y ago
  Maybe you can explain it to me like I'm five. I've been occasionally watching the Turkish Lira this past year. The rates against the USD are still sinking. Against the EUR it's pretty stable. Yet allegedly they have something like 80-150% inflation in Turkey, while the EUR-zone has 10%. How does this work, why isn't the Lira becoming "worthless" with that amount of inflation?
  - incrudible 4y ago
    One year ago, the Lira was worth twice as much in US dollars, which is in line with a 100% annual inflation rate.
  - dragonwriter 4y ago
    Inflation in a particular country is about prices of consumer good innthqt country (usually measured in the official local currency.) Foreign exchange is about trading different currencies for each other. Because of shipping, transaction costs, import/export restrictions, and other deviations from the abstract ideal of a single frictionless global market, there is no necessary fixed relationship between consumer prices in Country X, the X:Y currency exchange rate, and consumer prices in Country Y.
  - smegsicle 4y ago
    the expectation is that if people assume that kind of inflation will continue, they would convert their wealth to another currency/form of wealth, and vendors would also prefer these other currencies, which would drive the inflation even further, right? so i also wonder what they're doing to curb the spiral
    - miohtama 4y ago
      Here is a BBC article what has been done in the past to stop hyperinflation: https://www.bbc.com/news/business-45523636 https://www.bbc.com/news/business-45523636 The problem is that Erdogan is not doing any of this. His controversial politics are taking Turkey further down in the pit. Because Turkey’s political system is somehow broken, it is not clear if any election can replace Erdogan.
      - revolutukr 4y ago
  - armchairhacker 4y ago
    ELI5 is that governments can produce money out of thin air (paper), but can’t produce resources. So when they produce more money, each “dollar” of their currency becomes worth less - inflation. When governments produce a lot of money, their dollar becomes substantially less. This causes them to need to produce even more money (because money which used to be enough is no longer), creating a cycle and a desperate attempt to produce something out of nothing, where eventually what used to cost one dollar literally costs trillions of dollars - hyperinflation. Banks manage a lot of money, so if they go bankrupt the government needs to bail them out by printing a lot of money, causing massive inflation. And if the government needs to pay off foreign creditors (they do), and tries to address the resulting poverty caused by the inflation, it leads to printing more money and hyperinflation. EDIT: Relating to the Turkish Lira and why that isn’t hyperinflating: I don’t know where exactly the line is where “high inflation” triggers the cycle and becomes hyperinflation. I suppose they still have resources, so their currency still has some worth. Just, either they don’t have as many resources as before, or the government is printing money which it spends on itself in order to drain money from the average person without explicit taxation.
- unyttigfjelltol 4y ago
  In the context of a past generation of government sponsored entities, the answer was 'yes', they could go bankrupt but the political branches will bail them out. The issue here is that the political branches are in the middle of being bailed out themselves by the central banks, and it's been going on for a decade or two, so conceptually there is a serious problem with politicians bailing the bailer. The fact that headlines like this are being written, regardless of the answer, should put everyone on alert for the possibility the can no longer can be kicked further down the road the way it has until now.
  - Ma8ee 4y ago
    Which political branches are bailed out by the central banks, and how?
    - coryrc 4y ago
      The US Fed "owns" 8 and a half Trillion dollars of US debt, money that was spent by Congress (voters like that) without raising taxes (voters don't like that). (In addition to treasuries, the money is spent subsidizing home loan interest rates below market).
  - miohtama 4y ago
    When the can meets the end of the road the ways out include - Hyperinflation - Great reset Likely effects may include - Revolution - War - Famine Here is a nice BBC article how hyperinflation has been solved in the past https://www.bbc.com/news/business-45523636 https://www.bbc.com/news/business-45523636 Usually there is a period, or permanent, “dollarisation” of the economy https://en.wikipedia.org/wiki/Hyperinflation#Aftermath https://en.wikipedia.org/wiki/Hyperinflation#Aftermath but not sure if this is an option for the something of the scale of the UK or the EU.
    - markdown 4y ago
      What's "great reset"? Is that economics jargon?
- rr888 4y ago
  There is literally one definition of bankrupt, and hyper inflation has nothing to do with it. Plus, in general hyper inflation means people in debt get relief, its the lenders who lose the purchasing power of the money they lent.
  - dragonwriter 4y ago
    > There is literally one definition of bankrupt There are at least two, the legal definition of “under administration under bankruptcy laws“, and the less formal but still common “insolvent”. With a representational commodity currency (e.g., silver certificates) rather than fiat currency, insolvency (the inability of the issuer to redeem outstanding currency at face value) is at least reasonably connected to the risk of hyperinflation. OTOH, neither definition even applies to fiat currency issuers, who literally cannot be insolvent in their own currency, and usually aren’t subject to bankruptcy law.
    - thaumasiotes 4y ago
      > OTOH, neither definition even applies to fiat currency issuers, who literally cannot be insolvent in their own currency, and usually aren’t subject to bankruptcy law. They can find that they are unable to use their own currency to do anything. This is practically equivalent to being insolvent, even if you give it a different name.
- arcticbull 4y ago
  > When they go bankrupt economists like to use the term "Hyper Inflation". That's not what hyperinflation means. Hyperinflation is not the same thing as inflation, it's not just a monetary phenomenon. It happens when a population rejects a currency. It has historically always involved at least one of: losing a war, regime change or foreign-denominated debt - some kind of exogenous event. [1] Hyperinflation is the collapse of an economic system in which one of the symptoms is dramatic decrease in purchasing power. [1] https://www.pragcap.com/hyperinflation-its-more-than-just-a-monetary-phenomenon/ https://www.pragcap.com/hyperinflation-its-more-than-just-a-...
picsao 4y ago
arberx 4y ago
Hard not to bring up the usefulness of crypto in times like these...
- outside1234 4y ago
  Aren't we all losing enough money already?
- Retric 4y ago
  Nothing?
- fshbbdssbbgdd 4y ago
  All of the currencies I know of that suffered hyperinflation this year were cryptos.
- cuteboy19 4y ago
  It's kind of like how tether prints billions of usdt out of thin air
neonate 4y ago
https://archive.ph/MHY9F https://archive.ph/MHY9F
chatterhead 4y ago
Don't be fooled, the central in "Central Banking" is about decision making power and profit. The losses are all distributed.
- qaq 4y ago
  Was there ever a year when FED actually lost money?
- melenaboija 4y ago
  And how is the profit distributed? If you live in Europe, and specially US, you are already part of the shareholders and will profit from it (on average). More or less than other actors in the country, but definitely more than those ones not being under these central banks policies.
  - pragmar 4y ago
    Cantillon effect says it's just a matter of how "close to money" you are. So living under a central bank is good, but borrowing directly from one is best.
    - imtringued 4y ago
      Has anyone created an alternative banking system that is only using central bank money and skips over commercial banks completely? I swear people have no clue how banking works.
      - cuteboy19 4y ago
        China is on the way to doing exactly this. There are plans for an Indian equivalent but it's less likely to happen
  - chatterhead 4y ago
    No, you won't profit from it. The people who profit are the member banks. Federal Reserve is an organization made up of member banks. Those banks make money off of interest and investments. The losses are distributed among the masses through dilution of our currency through the necessary expansion of it to absorb the losses. No amount of annual profit returned to the Treasury has ever outweighed the negative effect of Fed induced business cycles and bailouts.
simmerup 4y ago
As always, ‘Any headline that ends in a question mark can be answered by the word no‘
- miohtama 4y ago
  Correct, but in this case it has a twist: “No, but bad things will happen.”
  - smt88 4y ago
    In macroeconomics, "bad things will happen" is so certainly true and so vague that it's meaningless. Central banks don't/can't prevent economic problems, and we all know that. Their purpose is to "flatten the curve" so that we have a more predictable economy that doesn't scare people away from investing. The big question right now is whether central banks can soften the blow from so many shocks happening at the same time.
- nathanaldensr 4y ago
  My first thought. https://en.wikipedia.org/wiki/Betteridge%27s_law_of_headlines https://en.wikipedia.org/wiki/Betteridge%27s_law_of_headline...
superb-owl 4y ago
Full title: > Are central banks going bankrupt? > No, but there are some interesting issues surrounding their QE P&L Love seeing Betteridge validated so quickly.
- bsima 4y ago
  Who is Betteridge?
  - brutusborn 4y ago
    https://en.wikipedia.org/wiki/Betteridge%27s_law_of_headlines https://en.wikipedia.org/wiki/Betteridge%27s_law_of_headline...
riskneutral 4y ago
This feels like being a passenger in a speeding car while the driver appears to be starting to lose control.
- gdy 4y ago
  In Russia it feels like being a passenger in a hijacked plane flying towards tall buildings.
  - karamanolev 4y ago
    Does it, within Russia? Are you saying that as a person within Russia or an external observer? I feel like externally, the west feels like Russia is headed to certain doom, but a majority of Russians feels like they'll be fine and they're sticking it to the colonial west.
    - timeon 4y ago
      > colonial west Russian war in Ukraine is about regaining control of former colony. They lost lot of them in eastern Europe but still have some in Asia.
      - gdy 4y ago
        It's a bit more complicated than that. Half of Novorossiya (New Russia) was taken from Turkey and Crimean Khanate by Russian soldiers and later that almost unpopulated land was settled by many ethnicities, but mostly by Ukrainians and Russians. [0] When Russian Empire collapsed in 1917 this territory became Ukrainian on the basis of predominantly Ukrainian population even though the city population was mostly Russian and Jewish. [1] [0] https://en.wikipedia.org/wiki/Novorossiya https://en.wikipedia.org/wiki/Novorossiya [1] https://en.wikipedia.org/wiki/Third_Universal_of_the_Ukrainian_Central_Council https://en.wikipedia.org/wiki/Third_Universal_of_the_Ukraini...
      - altfredd 4y ago
        > regaining control of former colony This is an oversimplification... How many countries have built nuclear power plants and missile assembly lines in their colonies?
themitigating 4y ago
Can we please change this insanely misleading headline to include the remainder?
- yladiz 4y ago
  What’s the remainder? I don’t subscribe to FT so maybe it has more but I only see the current title there.
  - acdanger 4y ago
    "No, but there are some interesting issues surrounding their QE P&L"
- Bakary 4y ago
  You don't need the remainder. You just need Betteridge's law
civilized 4y ago
Personally, if I had the authority of the government to print money, I would find it easy not to go bankrupt.
- daveslash 4y ago
  That's not how money works. In fact, that's a good way to accelerate a trajectory towards bankruptcy.
  - lxgr 4y ago
    No, it's just a trajectory towards inflation (all other things being equal; it can be the right choice in certain economic environments). A central bank (that issues a sovereign fiat currency) can definitionally not go bankrupt, since its liability is the issued currency itself.
    - unyttigfjelltol 4y ago
      A central bank operates within a framework of rules that, among other things, allow it to operate as a central bank. If those rules require it to raise capital before continuing to operate, and the capital cannot be raised, it is effectively bankrupt.
      - orangepurple 4y ago
        Central banks can freely create capital if necessary. They can generate anything they want because they are sovereign. The people are de-facto forced to utilize currency the central bank issues to pay taxes in that same currency. Without this system state run currencies would fail.
    - kodyo 4y ago
      It can go bankrupt if people stop trusting the currency.
      - orangepurple 4y ago
photochemsyn 4y ago
“Control the coinage and the courts. Let the rabble have the rest.” - Frank Herbert, Dune Anyone wanting to have even a hope of understanding central banking globally should read Nomi Prins "Collusion". It's pretty dense, but it explains things like inter-central bank currency swaps, which might be relevant today: > "The following day, on June 24 [2016], just after the Brexit results were tallied, the Fed said that it stood ready to provide dollars to other central banks via the swap lines set up during the 2008 financial crisis to reduce financial market turbulence. This was ostensibly to counter the instability the vote results initiated and concerns about shortages of dollar liquidity in many places, especially Japan." > "But it also signaled something else: that central banks would use their money-conjuring tools whenever there was a shock to the system - even if that shock appeared to be a political one - to assuage any market or currency moves that might result." p169
- mjburgess 4y ago
  > that central banks would use their money-conjuring tools whenever there was a shock to the system of course, that's why we have central banks and fiat currency. Without that, there'd be a currency crisis every other minute; as there was on gold. You can't "spin up the gold mines" during a pandemic.
  - _Algernon_ 4y ago
    What's the difference between inflating away the buying power of the people, versus taxing away the buying power of the people? Mathematically there should be no difference. But I guess the transparency of the latter and the unpopularity for the politicians involved is too scary, so that's why we print monopoly money instead.
    - mjburgess 4y ago
      Right, but deflation has been the largest risk during that era of "printing". Inflation is only now a risk due to global supply-side problems, and changes in demand characteristics, and the cost of energy. But even if we say the amount of money creation during the pandemic is a principle cause of inflation today -- isnt that great? In the sense that we survived a global shut down of the economy *only at the price* of 10% inflation for a few years. People who decry central banks managing the supply of money seem only to have one, bad argument, "intuitively, money is a commodity and printing dilutes its value" -- well money *is not* a commodity. Money is a ledger of promises whose values is proportionate to future economic activity. There is no "intuition" here. The actions of central banks have not created "monopoly money", since I can still spend mine now on basically what i've always been able to.
SevenNation 4y ago
> On the other hand, central banks are constructs of sovereign states and can literally create money out of thin air, which makes the whole bankruptcy question take on a different dimension. This is not true, at least in the US. The Treasury issues currency. What the Federal Reserve can do (and has done under QE) is perform an asset swap. An asset held by a bank (such as a treasury bond) is purchased by the Fed and held on its balance sheet. In exchange, the Fed credits the bank with a reserve asset. This reserve asset can not be spent in the real economy. It is locked in the banking system and can only be used within it. Reserve assets are not money. They're much more like a utility token. Therefore, the US Federal Reserve does not print money under QE. But there's the fact and then there's perception. Many are either unaware of how QE actually works, or think the distinction between currency and reserve assets doesn't matter. So they behave accordingly.
- isthisthingon99 4y ago
  Why isn't there a simple freaking flowchart somewhere.
  - danielmarkbruce 4y ago
    Because it's so simple it doesn't need one: Bank A sends the central bank a real asset worth $1 million (say, a 10 year government bond). The central bank says "you have a balance with us of $1 million now", and updates their SQL database. "Everyone" agrees the balance with the central bank has real value. Everyone = creditors of the bank, regulators of the bank, accounting standards bodies, auditors, the SEC, trade partners, and probably 10 other groups I can't think of.
    - isthisthingon99 4y ago
      OK but what can they do with this balance
      - danielmarkbruce 4y ago
        Settle payments with other banks is the obvious one - when you send money from Wells Fargo to Chase for example, they settle it behind the scenes by asking the fed to increase Wells balance and decrease Chase's. They can also use it to buy securities from the Fed, to buy securities from other banks, to settle derivatives contracts and margin calls around them.
legitster 4y ago
The two examples were the UK and the USA. I would argue that two points do not make a straight line: - For the US central bank, it seems like the story is just as described. They are taking lumps now as interest rates rise, but the dollar has only grown in strength (relatively) and losses will more than likely be offset (arguably have been already by decades of profitability). - I would assume the UK case is entirely different. They are finally seeing the other shoe drop on Brexit. The last foreign Pounds have all been cashed out as a result of the war and there is no demand for them. So all their assets have permanently been devalued.
anm89 4y ago
No. That was easy For the record, Im about as far from being a central bank apologist as it is possible to be.
hristov 4y ago
This is a little alarmist. At least for the US, there don't seem to be any losses because the FED just lets the assets roll off. I.e., it does not sell the treasuries on its balance sheet, it lets them mature and gets paid the principle back by the government. If you do that and you have not purchased treasuries at negative yields (which the fed has not), and the government does not default (thankfully it hasn't) then you do not record losses. There is a scary graph in the article but this is just for mark to market gains/losses but the fed does not mark to market.
- cm2187 4y ago
  You can still lose money on the interest rate you pay to the massive reserves banks have to hold at the central bank when you jack up rates but hold fixed rate bonds. Also in theory, if they really do unwind QE (which I think they will never do), they also hold all sort of long term treasuries and ABS that they would have to sell on the open market, ie too long dated to hold to maturity. And my guess is that those are where most of the losses are (most sensitive to interest rate).
  - deleted 4y ago
    [deleted]
  - hristov 4y ago
    The FED does pay an interest rate on bank reserves, but the FED sets that rate themselves (this is the IORB rate). One hopes, with all the economists they have on staff, they would not set that rate to such a value that would lead them to insolvency. Regarding long term treasuries and ABS ... it will be much more convenient for the FED if the FED just held them to maturity, and this is probably what they would do. So I agree with you I very much doubt that they would unwind QE completely.
    - doubleunplussed 4y ago
      I would hope they set that rate to what they think is optimal for the economy, regardless of their solvency. I only skimmed the article, but I don't see where it gives reasons why solvency matters, although it hints it might. I was under the impression it doesn't really matter if the fed is solvent, since I can't think of any concrete consequences.
centralscam 4y ago
Central banking is the central planning of the availability and price of credit. Central planning of food production has created famines with no equal in history. Central planning of housing created those lovely soviet style "housing" block developments while the beautiful inner cities of eastern europe rotted away. Central planning of car production gave you cars like the Trabant which you literally had to queue 18 years for. I am sure there is nothing that could go wrong with central planning the money supply but just in case economic live feels harder than it ought to maybe it's because of certain institutions continuously inflating away the value of your currency.
- throwaway384769 4y ago
  Yeah and it's a pretty obvious vector for corruption, it gets a little too obviously lucrative to have orwellian constant waves of fabricated crises
- barbariangrunge 4y ago
  Decentralized feudal lords caused the sen goku period in Japan and the warring states period in China. Decentralized attempts to tackle climate change have resulted in run away global warming. Decentralized negotiations led to companies exploiting workers, often to death, on a massive-scale during the industrial revolution and even today in many places. That doesn’t say anything about whether centralization or decentralization will lead somewhere in general. There’s a lot of good and bad in both, it isn’t black and white
  - deleted 4y ago
    [deleted]
  - centralscam 4y ago
    Centralization of power into the capitals of nation-states brought us the meat grinder of WW1 and then the horror show of WW2. The centralization of power in Washington, Moscow and Beijing brought us to the brink of global nuclear war. WW2 was already hard to escape but no place on this planet will be safe when the Ukraine thing goes sideways. Yeah exactly. We "need" global communism to fight Climate change, right? I'll pass. If there is a solution it's going to be a bottom up technological innovation. There was no time and place except under mostly decentralized capitalism when workers where not exploited. Whatever that word even means to you. Normal socialists seem think every transaction is "exploitation". It's pretty black and white. Centralization only allows for one solution and smothers all others. If the central plan fails, like central banking does right now, it fails for everyone all at once and there is no escape.
doubleunplussed 4y ago
This thread shows a phenomenon that I've noticed a lot of lately: that many smart people turn absolutely loopy when it comes to the topic of central banking. There's nothing quite like it, and I'm not sure how to explain it. The topic seems to make conspiracy theorists out of otherwise very reasonable people. Good to see the highest voted comments are sane, but the sanity ratio is pretty low compared to other topics.
- spinchange 4y ago
  A million times, this. You see extremely smart, rational, people start to attribute all kinds of personalized and emotional motives to things that are literally systemic, technical finance.
- cf141q5325 4y ago
  Could you give an example? Without this reads a lot like just calling people who dont share your narrative irrational conspiracy theorists. edit: On second read this sounded confrontational. I only ask because its really dangerous to make such broad non-refutable statements, especially when the conspiracy theorist label is used to no longer engage with people who dont share your narrative. Differently put, where exactly did you exit the conversation? Because thats really important information to realize if you are in an echo chamber.
  - dereg 4y ago
    I agree with parent. There are so many. Here's a recent example where almost every comment in the thread is so off the mark as to be unrecognizable for the comments section of your local TV news station. https://news.ycombinator.com/item?id=33028673 https://news.ycombinator.com/item?id=33028673
    - christophilus 4y ago
      The top comments seem pretty reasonable there. Did you have a specific one in mind?
SilverBirch 4y ago
I don't understand this... like... at all. At least for the BoE situation. So BoE has a load of bonds on it's balance sheet. These bonds are going down in value, so the bank is making a loss. This presumably goes on the UK deficit? If that's the case we're in trouble right? Because the UK is already at 143% Debt:GDP, interest rates are only now starting to go up, and the government's entire plan is to deficit spend to grow the economy. So it sounds like this increase in interest rates is likely to eat away massively at our budget and force us into more austerity?
- Pennycade 4y ago
  The BoE is independent (in theory) from the government. If the bonds that BoE own go to zero, their entries are effectively just deleted from the database. In the same way that an increase in the number of £ in the database doesn't increase the government's deficit. It's a very simple concept but can have psychological hurdle to overcome, given the simplicity of it and implications once internalised. Analogy .. BoE has root admin access to the database of £. Government does not, has read only access.
  - SilverBirch 4y ago
    So does this just mean it's inflationary? You borrow money, that means more money in the world (inflation) but it's debt, so it'll be paid back, so in the long run you haven't permanently inflated the currency. But then if you don't pay it back that turns into realized inflation and hurts your currency?
    - amrocha 4y ago
      Any spending is inflationary, regardless of how you finance it. If the spending is financed via taxation it can still cause inflation if it doesn't produce any real resources. Taxation does create room for non-inflationary spending. That being said, if a government used QE to finance spending that was productive in real resource terms then it would not be inflationary.
- orwin 4y ago
LatteLazy 4y ago
So as far as I can tell there are 2 types of losses: losses on paper (the market price of the bond I own fell but I have not sold yet) and cash losses (the government defaulted and didn't pay). Losses on paper are irrelevant because they don't effect the position of the bank or the amount of cash in circulation. The same applies for gains on paper. The bank just holds the bond until it expires at parity. Defaults or selling the bond for less than the real value is much more serious. This is because it leaves money in circulation. So if the central bank prints 100USD/Euro etc, holds the bond and then get's it's 100 back and burns it, then no currency has been created over all (just for a while between printing and burning). So there is no inflationary effect etc. If the price of the bond goes up or down, that's irrelevant as long as the bank never sells and just collects the 100 back. But if the bank prints 100 and buys a bond. Then sells it for 70. Then it can only burn the 70 it has, and then other 30 remains in circulation and there is a lasting increase is the money supply. Similarly if they sold the bond for 130 and burnt that, they would be actively reducing the supply to less than it was before (deflation) I don't think any central bank is SELLING bonds (other than at face value) right? So there is no issue here. Also, as the bonds come closer to their maturity date, their price will tend towards the face value. So this "issue" will disappear on paper too...
daniel-cussen 4y ago
tanseydavid 4y ago
Ask someone in the banking business (who is over perhaps age 50) what is their opinion of negative interest rates.

99 points by CompactNotice 4y ago

They don't go bankrupt in the conventional sense. When they go bankrupt economists like to use the term "Hyper Inflation". This means that the currency they produce becomes worthless.

downrightmike 4y ago
Yup, BlackRock specializes in closing failed banks. That's why the US gov't gave them all the bad banks from 2007 and also why they are a huge company. They'll only get larger at this point.
- arcticbull 4y ago
  Do you have a citation for this? My understanding is small community banks sold by the FDIC to larger banks or their depositors paid out directly. [0] Larger banks - WaMu for instance - were put under the purview of the Office of Thrift Supervision (OTS) and their customers assets and certain liabilities sold. In WaMu's case it was to JPMorgan. [1] [0] https://www.fdic.gov/consumers/banking/facts/payment.html https://www.fdic.gov/consumers/banking/facts/payment.html [1] https://en.wikipedia.org/wiki/Office_of_Thrift_Supervision https://en.wikipedia.org/wiki/Office_of_Thrift_Supervision
  - downrightmike 4y ago
    https://thestrategystory.com/2020/09/18/blackrock-shadow-bank/ https://thestrategystory.com/2020/09/18/blackrock-shadow-ban...
luckylion 4y ago
Maybe you can explain it to me like I'm five. I've been occasionally watching the Turkish Lira this past year. The rates against the USD are still sinking. Against the EUR it's pretty stable. Yet allegedly they have something like 80-150% inflation in Turkey, while the EUR-zone has 10%. How does this work, why isn't the Lira becoming "worthless" with that amount of inflation?
- incrudible 4y ago
  One year ago, the Lira was worth twice as much in US dollars, which is in line with a 100% annual inflation rate.
- dragonwriter 4y ago
  Inflation in a particular country is about prices of consumer good innthqt country (usually measured in the official local currency.) Foreign exchange is about trading different currencies for each other. Because of shipping, transaction costs, import/export restrictions, and other deviations from the abstract ideal of a single frictionless global market, there is no necessary fixed relationship between consumer prices in Country X, the X:Y currency exchange rate, and consumer prices in Country Y.
- smegsicle 4y ago
  the expectation is that if people assume that kind of inflation will continue, they would convert their wealth to another currency/form of wealth, and vendors would also prefer these other currencies, which would drive the inflation even further, right? so i also wonder what they're doing to curb the spiral
  - miohtama 4y ago
    Here is a BBC article what has been done in the past to stop hyperinflation: https://www.bbc.com/news/business-45523636 https://www.bbc.com/news/business-45523636 The problem is that Erdogan is not doing any of this. His controversial politics are taking Turkey further down in the pit. Because Turkey’s political system is somehow broken, it is not clear if any election can replace Erdogan.
    - revolutukr 4y ago
- armchairhacker 4y ago
  ELI5 is that governments can produce money out of thin air (paper), but can’t produce resources. So when they produce more money, each “dollar” of their currency becomes worth less - inflation. When governments produce a lot of money, their dollar becomes substantially less. This causes them to need to produce even more money (because money which used to be enough is no longer), creating a cycle and a desperate attempt to produce something out of nothing, where eventually what used to cost one dollar literally costs trillions of dollars - hyperinflation. Banks manage a lot of money, so if they go bankrupt the government needs to bail them out by printing a lot of money, causing massive inflation. And if the government needs to pay off foreign creditors (they do), and tries to address the resulting poverty caused by the inflation, it leads to printing more money and hyperinflation. EDIT: Relating to the Turkish Lira and why that isn’t hyperinflating: I don’t know where exactly the line is where “high inflation” triggers the cycle and becomes hyperinflation. I suppose they still have resources, so their currency still has some worth. Just, either they don’t have as many resources as before, or the government is printing money which it spends on itself in order to drain money from the average person without explicit taxation.
unyttigfjelltol 4y ago
In the context of a past generation of government sponsored entities, the answer was 'yes', they could go bankrupt but the political branches will bail them out. The issue here is that the political branches are in the middle of being bailed out themselves by the central banks, and it's been going on for a decade or two, so conceptually there is a serious problem with politicians bailing the bailer. The fact that headlines like this are being written, regardless of the answer, should put everyone on alert for the possibility the can no longer can be kicked further down the road the way it has until now.
- Ma8ee 4y ago
  Which political branches are bailed out by the central banks, and how?
  - coryrc 4y ago
    The US Fed "owns" 8 and a half Trillion dollars of US debt, money that was spent by Congress (voters like that) without raising taxes (voters don't like that). (In addition to treasuries, the money is spent subsidizing home loan interest rates below market).
- miohtama 4y ago
  When the can meets the end of the road the ways out include - Hyperinflation - Great reset Likely effects may include - Revolution - War - Famine Here is a nice BBC article how hyperinflation has been solved in the past https://www.bbc.com/news/business-45523636 https://www.bbc.com/news/business-45523636 Usually there is a period, or permanent, “dollarisation” of the economy https://en.wikipedia.org/wiki/Hyperinflation#Aftermath https://en.wikipedia.org/wiki/Hyperinflation#Aftermath but not sure if this is an option for the something of the scale of the UK or the EU.
  - markdown 4y ago
    What's "great reset"? Is that economics jargon?
rr888 4y ago
There is literally one definition of bankrupt, and hyper inflation has nothing to do with it. Plus, in general hyper inflation means people in debt get relief, its the lenders who lose the purchasing power of the money they lent.
- dragonwriter 4y ago
  > There is literally one definition of bankrupt There are at least two, the legal definition of “under administration under bankruptcy laws“, and the less formal but still common “insolvent”. With a representational commodity currency (e.g., silver certificates) rather than fiat currency, insolvency (the inability of the issuer to redeem outstanding currency at face value) is at least reasonably connected to the risk of hyperinflation. OTOH, neither definition even applies to fiat currency issuers, who literally cannot be insolvent in their own currency, and usually aren’t subject to bankruptcy law.
  - thaumasiotes 4y ago
    > OTOH, neither definition even applies to fiat currency issuers, who literally cannot be insolvent in their own currency, and usually aren’t subject to bankruptcy law. They can find that they are unable to use their own currency to do anything. This is practically equivalent to being insolvent, even if you give it a different name.
arcticbull 4y ago
> When they go bankrupt economists like to use the term "Hyper Inflation". That's not what hyperinflation means. Hyperinflation is not the same thing as inflation, it's not just a monetary phenomenon. It happens when a population rejects a currency. It has historically always involved at least one of: losing a war, regime change or foreign-denominated debt - some kind of exogenous event. [1] Hyperinflation is the collapse of an economic system in which one of the symptoms is dramatic decrease in purchasing power. [1] https://www.pragcap.com/hyperinflation-its-more-than-just-a-monetary-phenomenon/ https://www.pragcap.com/hyperinflation-its-more-than-just-a-...

picsao 4y ago

arberx 4y ago

Hard not to bring up the usefulness of crypto in times like these...

outside1234 4y ago
Aren't we all losing enough money already?
Retric 4y ago
Nothing?
fshbbdssbbgdd 4y ago
All of the currencies I know of that suffered hyperinflation this year were cryptos.
cuteboy19 4y ago
It's kind of like how tether prints billions of usdt out of thin air

neonate 4y ago

https://archive.ph/MHY9F https://archive.ph/MHY9F

chatterhead 4y ago

Don't be fooled, the central in "Central Banking" is about decision making power and profit. The losses are all distributed.

qaq 4y ago
Was there ever a year when FED actually lost money?
melenaboija 4y ago
And how is the profit distributed? If you live in Europe, and specially US, you are already part of the shareholders and will profit from it (on average). More or less than other actors in the country, but definitely more than those ones not being under these central banks policies.
- pragmar 4y ago
  Cantillon effect says it's just a matter of how "close to money" you are. So living under a central bank is good, but borrowing directly from one is best.
  - imtringued 4y ago
    Has anyone created an alternative banking system that is only using central bank money and skips over commercial banks completely? I swear people have no clue how banking works.
    - cuteboy19 4y ago
      China is on the way to doing exactly this. There are plans for an Indian equivalent but it's less likely to happen
- chatterhead 4y ago
  No, you won't profit from it. The people who profit are the member banks. Federal Reserve is an organization made up of member banks. Those banks make money off of interest and investments. The losses are distributed among the masses through dilution of our currency through the necessary expansion of it to absorb the losses. No amount of annual profit returned to the Treasury has ever outweighed the negative effect of Fed induced business cycles and bailouts.

simmerup 4y ago

As always, ‘Any headline that ends in a question mark can be answered by the word no‘

miohtama 4y ago
Correct, but in this case it has a twist: “No, but bad things will happen.”
- smt88 4y ago
  In macroeconomics, "bad things will happen" is so certainly true and so vague that it's meaningless. Central banks don't/can't prevent economic problems, and we all know that. Their purpose is to "flatten the curve" so that we have a more predictable economy that doesn't scare people away from investing. The big question right now is whether central banks can soften the blow from so many shocks happening at the same time.
nathanaldensr 4y ago
My first thought. https://en.wikipedia.org/wiki/Betteridge%27s_law_of_headlines https://en.wikipedia.org/wiki/Betteridge%27s_law_of_headline...

superb-owl 4y ago

Full title: > Are central banks going bankrupt? > No, but there are some interesting issues surrounding their QE P&L Love seeing Betteridge validated so quickly.

bsima 4y ago
Who is Betteridge?
- brutusborn 4y ago
  https://en.wikipedia.org/wiki/Betteridge%27s_law_of_headlines https://en.wikipedia.org/wiki/Betteridge%27s_law_of_headline...

riskneutral 4y ago

This feels like being a passenger in a speeding car while the driver appears to be starting to lose control.

gdy 4y ago
In Russia it feels like being a passenger in a hijacked plane flying towards tall buildings.
- karamanolev 4y ago
  Does it, within Russia? Are you saying that as a person within Russia or an external observer? I feel like externally, the west feels like Russia is headed to certain doom, but a majority of Russians feels like they'll be fine and they're sticking it to the colonial west.
  - timeon 4y ago
    > colonial west Russian war in Ukraine is about regaining control of former colony. They lost lot of them in eastern Europe but still have some in Asia.
    - gdy 4y ago
      It's a bit more complicated than that. Half of Novorossiya (New Russia) was taken from Turkey and Crimean Khanate by Russian soldiers and later that almost unpopulated land was settled by many ethnicities, but mostly by Ukrainians and Russians. [0] When Russian Empire collapsed in 1917 this territory became Ukrainian on the basis of predominantly Ukrainian population even though the city population was mostly Russian and Jewish. [1] [0] https://en.wikipedia.org/wiki/Novorossiya https://en.wikipedia.org/wiki/Novorossiya [1] https://en.wikipedia.org/wiki/Third_Universal_of_the_Ukrainian_Central_Council https://en.wikipedia.org/wiki/Third_Universal_of_the_Ukraini...
    - altfredd 4y ago
      > regaining control of former colony This is an oversimplification... How many countries have built nuclear power plants and missile assembly lines in their colonies?

themitigating 4y ago

Can we please change this insanely misleading headline to include the remainder?

yladiz 4y ago
What’s the remainder? I don’t subscribe to FT so maybe it has more but I only see the current title there.
- acdanger 4y ago
  "No, but there are some interesting issues surrounding their QE P&L"
Bakary 4y ago
You don't need the remainder. You just need Betteridge's law

civilized 4y ago

Personally, if I had the authority of the government to print money, I would find it easy not to go bankrupt.

daveslash 4y ago
That's not how money works. In fact, that's a good way to accelerate a trajectory towards bankruptcy.
- lxgr 4y ago
  No, it's just a trajectory towards inflation (all other things being equal; it can be the right choice in certain economic environments). A central bank (that issues a sovereign fiat currency) can definitionally not go bankrupt, since its liability is the issued currency itself.
  - unyttigfjelltol 4y ago
    A central bank operates within a framework of rules that, among other things, allow it to operate as a central bank. If those rules require it to raise capital before continuing to operate, and the capital cannot be raised, it is effectively bankrupt.
    - orangepurple 4y ago
      Central banks can freely create capital if necessary. They can generate anything they want because they are sovereign. The people are de-facto forced to utilize currency the central bank issues to pay taxes in that same currency. Without this system state run currencies would fail.
  - kodyo 4y ago
    It can go bankrupt if people stop trusting the currency.
    - orangepurple 4y ago

photochemsyn 4y ago

“Control the coinage and the courts. Let the rabble have the rest.” - Frank Herbert, Dune Anyone wanting to have even a hope of understanding central banking globally should read Nomi Prins "Collusion". It's pretty dense, but it explains things like inter-central bank currency swaps, which might be relevant today: > "The following day, on June 24 [2016], just after the Brexit results were tallied, the Fed said that it stood ready to provide dollars to other central banks via the swap lines set up during the 2008 financial crisis to reduce financial market turbulence. This was ostensibly to counter the instability the vote results initiated and concerns about shortages of dollar liquidity in many places, especially Japan." > "But it also signaled something else: that central banks would use their money-conjuring tools whenever there was a shock to the system - even if that shock appeared to be a political one - to assuage any market or currency moves that might result." p169

mjburgess 4y ago
> that central banks would use their money-conjuring tools whenever there was a shock to the system of course, that's why we have central banks and fiat currency. Without that, there'd be a currency crisis every other minute; as there was on gold. You can't "spin up the gold mines" during a pandemic.
- _Algernon_ 4y ago
  What's the difference between inflating away the buying power of the people, versus taxing away the buying power of the people? Mathematically there should be no difference. But I guess the transparency of the latter and the unpopularity for the politicians involved is too scary, so that's why we print monopoly money instead.
  - mjburgess 4y ago
    Right, but deflation has been the largest risk during that era of "printing". Inflation is only now a risk due to global supply-side problems, and changes in demand characteristics, and the cost of energy. But even if we say the amount of money creation during the pandemic is a principle cause of inflation today -- isnt that great? In the sense that we survived a global shut down of the economy *only at the price* of 10% inflation for a few years. People who decry central banks managing the supply of money seem only to have one, bad argument, "intuitively, money is a commodity and printing dilutes its value" -- well money *is not* a commodity. Money is a ledger of promises whose values is proportionate to future economic activity. There is no "intuition" here. The actions of central banks have not created "monopoly money", since I can still spend mine now on basically what i've always been able to.

SevenNation 4y ago

> On the other hand, central banks are constructs of sovereign states and can literally create money out of thin air, which makes the whole bankruptcy question take on a different dimension. This is not true, at least in the US. The Treasury issues currency. What the Federal Reserve can do (and has done under QE) is perform an asset swap. An asset held by a bank (such as a treasury bond) is purchased by the Fed and held on its balance sheet. In exchange, the Fed credits the bank with a reserve asset. This reserve asset can not be spent in the real economy. It is locked in the banking system and can only be used within it. Reserve assets are not money. They're much more like a utility token. Therefore, the US Federal Reserve does not print money under QE. But there's the fact and then there's perception. Many are either unaware of how QE actually works, or think the distinction between currency and reserve assets doesn't matter. So they behave accordingly.

isthisthingon99 4y ago
Why isn't there a simple freaking flowchart somewhere.
- danielmarkbruce 4y ago
  Because it's so simple it doesn't need one: Bank A sends the central bank a real asset worth $1 million (say, a 10 year government bond). The central bank says "you have a balance with us of $1 million now", and updates their SQL database. "Everyone" agrees the balance with the central bank has real value. Everyone = creditors of the bank, regulators of the bank, accounting standards bodies, auditors, the SEC, trade partners, and probably 10 other groups I can't think of.
  - isthisthingon99 4y ago
    OK but what can they do with this balance
    - danielmarkbruce 4y ago
      Settle payments with other banks is the obvious one - when you send money from Wells Fargo to Chase for example, they settle it behind the scenes by asking the fed to increase Wells balance and decrease Chase's. They can also use it to buy securities from the Fed, to buy securities from other banks, to settle derivatives contracts and margin calls around them.

legitster 4y ago

The two examples were the UK and the USA. I would argue that two points do not make a straight line: - For the US central bank, it seems like the story is just as described. They are taking lumps now as interest rates rise, but the dollar has only grown in strength (relatively) and losses will more than likely be offset (arguably have been already by decades of profitability). - I would assume the UK case is entirely different. They are finally seeing the other shoe drop on Brexit. The last foreign Pounds have all been cashed out as a result of the war and there is no demand for them. So all their assets have permanently been devalued.

anm89 4y ago

No. That was easy For the record, Im about as far from being a central bank apologist as it is possible to be.

hristov 4y ago

This is a little alarmist. At least for the US, there don't seem to be any losses because the FED just lets the assets roll off. I.e., it does not sell the treasuries on its balance sheet, it lets them mature and gets paid the principle back by the government. If you do that and you have not purchased treasuries at negative yields (which the fed has not), and the government does not default (thankfully it hasn't) then you do not record losses. There is a scary graph in the article but this is just for mark to market gains/losses but the fed does not mark to market.

cm2187 4y ago
You can still lose money on the interest rate you pay to the massive reserves banks have to hold at the central bank when you jack up rates but hold fixed rate bonds. Also in theory, if they really do unwind QE (which I think they will never do), they also hold all sort of long term treasuries and ABS that they would have to sell on the open market, ie too long dated to hold to maturity. And my guess is that those are where most of the losses are (most sensitive to interest rate).
- deleted 4y ago
  [deleted]
- hristov 4y ago
  The FED does pay an interest rate on bank reserves, but the FED sets that rate themselves (this is the IORB rate). One hopes, with all the economists they have on staff, they would not set that rate to such a value that would lead them to insolvency. Regarding long term treasuries and ABS ... it will be much more convenient for the FED if the FED just held them to maturity, and this is probably what they would do. So I agree with you I very much doubt that they would unwind QE completely.
  - doubleunplussed 4y ago
    I would hope they set that rate to what they think is optimal for the economy, regardless of their solvency. I only skimmed the article, but I don't see where it gives reasons why solvency matters, although it hints it might. I was under the impression it doesn't really matter if the fed is solvent, since I can't think of any concrete consequences.

centralscam 4y ago

Central banking is the central planning of the availability and price of credit. Central planning of food production has created famines with no equal in history. Central planning of housing created those lovely soviet style "housing" block developments while the beautiful inner cities of eastern europe rotted away. Central planning of car production gave you cars like the Trabant which you literally had to queue 18 years for. I am sure there is nothing that could go wrong with central planning the money supply but just in case economic live feels harder than it ought to maybe it's because of certain institutions continuously inflating away the value of your currency.

throwaway384769 4y ago
Yeah and it's a pretty obvious vector for corruption, it gets a little too obviously lucrative to have orwellian constant waves of fabricated crises
barbariangrunge 4y ago
Decentralized feudal lords caused the sen goku period in Japan and the warring states period in China. Decentralized attempts to tackle climate change have resulted in run away global warming. Decentralized negotiations led to companies exploiting workers, often to death, on a massive-scale during the industrial revolution and even today in many places. That doesn’t say anything about whether centralization or decentralization will lead somewhere in general. There’s a lot of good and bad in both, it isn’t black and white
- deleted 4y ago
  [deleted]
- centralscam 4y ago
  Centralization of power into the capitals of nation-states brought us the meat grinder of WW1 and then the horror show of WW2. The centralization of power in Washington, Moscow and Beijing brought us to the brink of global nuclear war. WW2 was already hard to escape but no place on this planet will be safe when the Ukraine thing goes sideways. Yeah exactly. We "need" global communism to fight Climate change, right? I'll pass. If there is a solution it's going to be a bottom up technological innovation. There was no time and place except under mostly decentralized capitalism when workers where not exploited. Whatever that word even means to you. Normal socialists seem think every transaction is "exploitation". It's pretty black and white. Centralization only allows for one solution and smothers all others. If the central plan fails, like central banking does right now, it fails for everyone all at once and there is no escape.

doubleunplussed 4y ago

This thread shows a phenomenon that I've noticed a lot of lately: that many smart people turn absolutely loopy when it comes to the topic of central banking. There's nothing quite like it, and I'm not sure how to explain it. The topic seems to make conspiracy theorists out of otherwise very reasonable people. Good to see the highest voted comments are sane, but the sanity ratio is pretty low compared to other topics.

spinchange 4y ago
A million times, this. You see extremely smart, rational, people start to attribute all kinds of personalized and emotional motives to things that are literally systemic, technical finance.
cf141q5325 4y ago
Could you give an example? Without this reads a lot like just calling people who dont share your narrative irrational conspiracy theorists. edit: On second read this sounded confrontational. I only ask because its really dangerous to make such broad non-refutable statements, especially when the conspiracy theorist label is used to no longer engage with people who dont share your narrative. Differently put, where exactly did you exit the conversation? Because thats really important information to realize if you are in an echo chamber.
- dereg 4y ago
  I agree with parent. There are so many. Here's a recent example where almost every comment in the thread is so off the mark as to be unrecognizable for the comments section of your local TV news station. https://news.ycombinator.com/item?id=33028673 https://news.ycombinator.com/item?id=33028673
  - christophilus 4y ago
    The top comments seem pretty reasonable there. Did you have a specific one in mind?

SilverBirch 4y ago

I don't understand this... like... at all. At least for the BoE situation. So BoE has a load of bonds on it's balance sheet. These bonds are going down in value, so the bank is making a loss. This presumably goes on the UK deficit? If that's the case we're in trouble right? Because the UK is already at 143% Debt:GDP, interest rates are only now starting to go up, and the government's entire plan is to deficit spend to grow the economy. So it sounds like this increase in interest rates is likely to eat away massively at our budget and force us into more austerity?

Pennycade 4y ago
The BoE is independent (in theory) from the government. If the bonds that BoE own go to zero, their entries are effectively just deleted from the database. In the same way that an increase in the number of £ in the database doesn't increase the government's deficit. It's a very simple concept but can have psychological hurdle to overcome, given the simplicity of it and implications once internalised. Analogy .. BoE has root admin access to the database of £. Government does not, has read only access.
- SilverBirch 4y ago
  So does this just mean it's inflationary? You borrow money, that means more money in the world (inflation) but it's debt, so it'll be paid back, so in the long run you haven't permanently inflated the currency. But then if you don't pay it back that turns into realized inflation and hurts your currency?
  - amrocha 4y ago
    Any spending is inflationary, regardless of how you finance it. If the spending is financed via taxation it can still cause inflation if it doesn't produce any real resources. Taxation does create room for non-inflationary spending. That being said, if a government used QE to finance spending that was productive in real resource terms then it would not be inflationary.
orwin 4y ago

LatteLazy 4y ago

So as far as I can tell there are 2 types of losses: losses on paper (the market price of the bond I own fell but I have not sold yet) and cash losses (the government defaulted and didn't pay). Losses on paper are irrelevant because they don't effect the position of the bank or the amount of cash in circulation. The same applies for gains on paper. The bank just holds the bond until it expires at parity. Defaults or selling the bond for less than the real value is much more serious. This is because it leaves money in circulation. So if the central bank prints 100USD/Euro etc, holds the bond and then get's it's 100 back and burns it, then no currency has been created over all (just for a while between printing and burning). So there is no inflationary effect etc. If the price of the bond goes up or down, that's irrelevant as long as the bank never sells and just collects the 100 back. But if the bank prints 100 and buys a bond. Then sells it for 70. Then it can only burn the 70 it has, and then other 30 remains in circulation and there is a lasting increase is the money supply. Similarly if they sold the bond for 130 and burnt that, they would be actively reducing the supply to less than it was before (deflation) I don't think any central bank is SELLING bonds (other than at face value) right? So there is no issue here. Also, as the bonds come closer to their maturity date, their price will tend towards the face value. So this "issue" will disappear on paper too...

daniel-cussen 4y ago

tanseydavid 4y ago

Ask someone in the banking business (who is over perhaps age 50) what is their opinion of negative interest rates.