Good to see the highest voted comments are sane, but the sanity ratio is pretty low compared to other topics.
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.
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
This one:
https://news.ycombinator.com/item?id=33156617
No, the fed having negative equity doesn't stop them controlling the money supply. Unless like, they've literally sold all their assets and there's still too much money left in the system, but that's so far away from being a possibility that it's not worth considering. And even if it did happen, there would be options.
Here we've got fed negative equity apparently resulting in revolutions, wars, and famines:
https://news.ycombinator.com/item?id=33156855
Here we've got "don't be fooled, they just want profit and power":
https://news.ycombinator.com/item?id=33156394
Here's a conspiratorially-toned objection to the whole concept of central banking, likening it to centrally-planned economies and implying it will be equally disastrous:
https://news.ycombinator.com/item?id=33160065
> Differently put, where exactly did you exit the conversation?
I'm still early on in my journey learning about economics (I'm a physicist turned software engineer), but after only learning a little bit it is pretty easy to spot the people who've learned almost nothing but confidently assert it's all a scam or whatever, and pretty much dismiss them.
But walking away from them doesn't mean entering an echo chamber. There are plenty of legitimate objections to how central banking is done. For example, whenever central banks monetise government debt, they buy it via private investors who therefore get to skim a bit off the top. It doesn't really feel fair for these middlemen to make bank off the central bank deciding to fund the government's deficits, an interaction that need not involve them. On the other hand, keeping the central bank and the government at arm's length from each other is an excellent idea. So how best to balance this?
It's starting to look like fiscal policy can be more powerful than monetary policy. How can we leverage this to stabilise the economy without handing the government too much power it might misuse?
Should the target inflation rate be higher? Should we target a different metric, like, nominal GDP? Should the target be symmetric? Should it be level targeting or rate targeting? Can interest rates be negative? Is the zero lower bound an actual problem, or is more QE a fine and sensible response and we're just a little too scared of it? Should the Fed pay interest on excess reserves? Is a corridor system better than a floor system for rate targeting? How can we best deal with moral hazard?
Even though I've got plenty yet to learn, it is extremely clear to me that some kind of control of the money supply is necessary, otherwise you get depressions. So I am not expecting to encounter much serious argument for getting rid of central banks entirely, unless someone invents a distributed way of achieving the same goal, or has a feasible plan for the government taking on the role instead of a central bank. If someone's got a serious argument, I'll hear it, but if it's from the "it's all a scam, we should never have left gold" crowd, I'm not expecting much. It's not a scam, it's a legitimate attempt to make a system that works, and it would be much worse if we were still on gold. Yet there seems to be something about the topic that draws otherwise smart people into dismissing the whole thing.
I disagree, and I will attempt to explain myself clearly.
Artificially modifying the money supply or interest rates (cost of money) breaks the market’s ability to self-regulate. Artificially low interest rates and money creation leads to an artificial boom period. This pushes investment into areas where it would otherwise not be directed (consumer goods vs producer goods / generally bad investments i.e. subprime mortgages, risky tech, etc..). This eventually results in a bust period as the system realizes its mistakes.
The real problem is the creation of an artificial boom, the bust is just a natural reaction to that boom.
The market is artificial. For an example it it operates (largely) within constraints that are external - laws.
Modifying the money supply is a lever that can be used to achieve goals - such as a desired inflation rate.
Whether its a good idea or when and how is the appropriate way to use it is another question. Implying it is bad because it is "artificial" begs the question of what's "natural". The market is clearly not natural.
OP probably meant "more free-market / laissez faire" vs "less free-market / centrally planned".
As banks loaned more and less, and people spent faster and slower through the business cycle, the total amount of bank money and the velocity it was spent at would grow and contract. Prices would therefore be unstable, because prices follow changes in the money supply and the velocity of money. Money would become scarce, and thus interest rates high, right when central banks would be cutting rates. The business cycle is self-reinforcing, there's no natural equilibrium to it at all, and if not smoothed by a government or central bank, can result in tragedies like the great depression.
And in a world where economies are still growing, without growth in the monetary base we would in the long run have deflation, which most economists think is worse than small positive inflation.
I don’t exactly understand your thesis, because, of course the federal reserve existing more than a decade before the Great Depression and is a primary driver for the credit expansion that caused the Great Depression to be so large and long lasting. Artificial manipulation, as I described above, is what causes the natural movements of an economy to be so extreme.
If there is a particular institution that is exacerbating the peaks and troughs of the business cycle, it is credit itself. Going back a few centuries, in Europe anyway, the usury laws used to forbid (Christians anyway) from lending money at interest, being seen as effectively a form of theft (think of laws limiting loan sharks now). The business cycle is tied right back to the credit cycle (to the extent that the words are used almost interchangeably), and if you remove the existence of credit, you remove much of the boom and bust cycle that goes with it. This said, it's worth determining if this is REALLY what you want, as prior to the availability of credit, the ability to start businesses and innovate was significantly reduced, and generally, only available to the particularly wealthy.
Central banking was just a means of trying to bring some order to the chaos that all of this credit flowing around was having. Sometimes it seems to work well; other times, it feels like the cure may be worse than the disease. Either way, it's worth knowing about the beast its there to attempt to cage.
So, you have no idea what you are talking about but you FEEL like you do? Bitcoin (now called Bitcoin Cash) has been working as cash perfectly for over 10 years with no central control necessary.
Wrong.
Bitcoin Cash (BCH) is a fork of Bitcoin (BTC). Bitcoin Cash is a spin-off or altcoin that was created in 2017.
I think much of it has less to do with people being stupid but topics being complex. And the attempts to make sensible complexity reduction. With a complexity ceiling being very real. At a certain point there are too many perspective with too much knowledge assumed on peoples part, which might not all be relevant. Which is why i personally tend to stay from discussions with big words like capitalism. Making sure everyone is talking about the same thing is just far from trivial.
I think the scam part might be one of those stupid things that might entail more then it first seems. Unfortunately "the economy" isnt as easy to model as physical systems. Because in the end its nothing but the behavior of market participants. And while its possible to set incentives, through interests rates and the like, we arent as rational as we would like to think. What people believe plays a big part in determining their behavior and as such, changing that is just as much a means of influencing the economy as interest rate cuts. Or differently put, inflation being inflation expectation.
It of course doesnt mean that the problems of a store of value based currency disappear, but its also important to keep in mind on the topic. Especially since the complexity ceiling might be exploited to shape beliefs which in turn influence the economy.
I however dont have an answer to how communication on topics at the complexity ceiling could work. But i think its important to at least understand where communication breaks down for what reason.
In a way, it's like climate change. Extremely complex and hard to model, which invariably attracts conspiracy thinkers ready to whip it down into digestible quotes and ideas.
"experts": This matter is too complex and jargon-filled for you to take part in the debate.
"lay people": Explain again why we have an institution that alternates between handouts to asset owners and crashing the economy? I think prices going up exponentially with time might be bad for my welfare!
"experts": Those crazy conspiracy theorists! At it again. They can't even using the word inflation the way we defined it.
...
There are complex things involved here, but a lot of it is pretty obviously bankers being confused at the idea that there are options other than taxpayers backstopping their obviously bad gambles.
It looks like this round it might turn out pension fund style entities are the ones backing the whole show, I have my popcorn at hand if so and my pitchfork if it happens to be me. I don't want to pay for stuff that I never supported to start with. I don't want my taxes spent on foreign military expeditions either, I think that is actually bad for the economy.
So much confusion is caused by the inability to distinguish between "gift" and "loan".
The problem with allowing banks to hard-fail is that imposes real, huge costs on customers even if the deposits are 100% covered, because the failover is not instant and you end up with money locked up for a period and are unable to make your own payments.
> prices going up exponentially with time might be bad for my welfare!
And prices going down exponentially is bad for investment, and precisely keeping prices the same forever is impossible; that's why the target is 0-2% and central banks have been extraordinarily successful at meeting that target through interest rate adjustment.
> pension fund style entities are the ones backing the whole show
Pension funds are more or less obliged to buy the safest assets they can?
QE4 was the better part of a trillion dollars. That much money moves through a system that is too complex and jargon filled for the layman to understand, and you want them to believe that there is nothing to see here?
1. The people on the other side of the bad loan, who aren't expected to pay back the money, are making bank by taking on silly levels of risk and then benefiting from the bailouts.
2. These loans aren't available to ordinary people or businesses because the terms would obviously put any individual far too far ahead. We can tell they are unfair just from that.
3. There isn't any reason to believe the loans are being paid back. Every time it looks like debts might get called in on aggregate, people claim financial crisis and there is another big round of lending.
> The problem with allowing banks to hard-fail is that imposes real, huge costs on customers even if the deposits are 100% covered
Yeah. People can't funnel their savings to incompetents and expect a good outcome. They should be very picky and reserved in deciding who to trust with their money, and there should not be coordinated giving of massive funds to a small pool of institutions who are regularly discovered to be wasting the resources they are entrusted with. This is one of the reasons we put up with the economy, it is supposed to keep power away from those sort of fools.
They need to be sent broke when they screw up badly. And people shouldn't be punished for saying "they're all untrustworthy, so I'm keeping money under my mattress".
> And prices going down exponentially is bad for investment, and precisely keeping prices the same forever is impossible
You've missed a bunch of options here though, namely the infinite number of functions that aren't exponential. Prices could be a random walk around an average, for example.
> Pension funds are more or less obliged to buy the safest assets they can?
I'm not following the story too closely, but the word I heard was the UK pension funds were getting margin called on their safe assets.
Which people? Which loans? Please please be specific.
> These loans aren't available to ordinary people or businesses because the terms would obviously put any individual far too far ahead
Again, which loans? What are the collateralization rules for them? What are the interest rates? Do you think an individual and a bank have the same credit score?
You cannot expect to be taken seriously if you just allege "crime" without specifics.
> There isn't any reason to believe the loans are being paid back
Please distinguish between "default" and "rollover". There is nothing wrong with rollover unless the risk has changed?
> Every time it looks like debts might get called in on aggregate
This can't really happen in a world of pension funds, because that's what the other side of the balance sheet is: the increasing number and amount of money owed to future pensioners. That's why the US "social security balance sheet" (which is accounted separately for some reason specific to the US) keeps increasing.
> coordinated giving of massive funds
lending?
> wasting the resources they are entrusted with
Example of "wasting"?
> Prices could be a random walk around an average, for example.
That's "inflation targeting at 0%"; it's both politically and practically achievable, but you do have to convince people that the locally-deflationary effects aren't a problem. And you can't avoid external shocks: if you embargo Russian gas, prices are going to go up, and that's inflation regardless of money supply issues.
> the UK pension funds were getting margin called on their safe assets
Yes - UK govenment bonds (gilts), which suddenly look a lot more risky in the presence of stupid policy decisions. Quite hard to find a safer asset, though.
So when you think a random walk around 0, you think of an ever-increasing positive trend? Because that isn't what a random walk looks like.
> And you can't avoid external shocks: if you embargo Russian gas, prices are going to go up, and that's inflation regardless of money supply issues.
Later on it would go down. It is a commodity market, and trade will normalise.
The issue here isn't that prices rise and fall, it is that the people who make prices rise continuously are forcing everyone to use their system. They shouldn't do that. And if there were any choices, it'd be a rare bird indeed who voluntarily signs up for a system where prices always trend up.
> Quite hard to find a safer asset, though.
I mean, maybe I've badly misunderstood what a "margin call" means, but my feeling on this one is it suggests margin is involved. It is not a conservative financial decision if they involve buying safe assets for someone's retirement on margin, because they aren't safe assets any more.
Bond prices go down and I'm at no risk whatsoever of being sent bankrupt by that, because I'm not stupid enough to start using debt in my retirement savings. To claim they're buying "safe assets" while simultaneously they are in need of assistance due to playing around in the gilt market derivatives is an impressive take.
> Which people? Which loans? Please please be specific.
When someone (A) lends money to another person (B), that person becomes a counterparty. So if B goes bankrupt, A loses money. If B is about to go bankrupt, gets big loans from a central bank then pays back A, A has effectively gotten a handout. What should happen is A loses money for taking on a risky gamble.
> Again, which loans? What are the collateralization rules for them? What are the interest rates? Do you think an individual and a bank have the same credit score?
Yeah, good point, that part doesn't actually make any sense. I was thinking about QE1 when I wrote that, but the issue there wasn't really any deals getting done as much as the general money printing.
> Please distinguish between "default" and "rollover". There is nothing wrong with rollover unless the risk has changed?
There absolutely is something wrong with rollover. If entities can perpetually roll over their debt, and the entity issuing the debt is a government entity or bankrolled by a government entity - ie, risk insensitive and unable to go bankrupt because of policy - then all the usual economic controls to make sure the money is well spent are removed.
> Example of "wasting"?
If a banking entity goes bankrupt due to enormous losses it has effectively wasted all the money it was given. Which is fine, happens from time to time, but the people responsible shouldn't get a chance to try again because the regulators like them.
> ...if you just allege "crime"...
Sorry, I missed a step here. What crime are you talking about? I don't think anything criminal is happening.
IMHO QE in the US went too far, but it was absolutely a necessary programme that stabilised the US economy at critical moments. The increased reserve requirements on banks, while dragging on bank profits since, were prudent and seem to be working well, especially compared to Europe.
From the FDIC's Deposit Insurance FAQ (<https://www.fdic.gov/resources/deposit-insurance/faq/index.h...>):
> Q: What happens when a bank fails?
> ... First, as the insurer of the bank's deposits, the FDIC pays insurance to depositors up to the insurance limit. Historically, the FDIC pays insurance within a few days after a bank closing, usually the next business day, by either 1) providing each depositor with a new account at another insured bank in an amount equal to the insured balance of their account at the failed bank, or 2) issuing a check to each depositor for the insured balance of their account at the failed bank.
Honestly, I'd expect just about any judge in the country to be _very_, _VERY_ angry at a creditor that was unwilling to -free of charge- delay receipt of money owed by (typically) one or (sometimes) a few business days because the Federal Government needed that time to take over a failed bank's obligations.
This reason you've provided is just plain bogus.
What the difference between a gift and a loan that costs nothing?
The Federal Reserve can be thought of as there to balance out the cost of this arrangement (unending inflation) with the benefits it provides (expanded access to capital by those who would otherwise perhaps never be able to raise the funds -- hard to run a business when you don't have the "machinery" that makes it go).
It turns out, this is really hard. At the end of the day though, if they weren't there "picking winners" as it sometimes appears they're doing, we'd still have winners being picked, as we did under the old gold backed currencies in the past, but we'd also get to contend with the effects of banks going bust from failing to adequately navigate the markets, which would be further made turbulent by a lack of coordination between their interest rates being haphazardly determined. Presumably, those with the most money and clarity would be the only ones left after an epic game of Monopoly, and we'd be left with...a central bank, much like we have today.
Most of us here have been on both sides of that coin. There are no easy answers. We’ve all seen up close supposed experts in our respective fields that were incompetent or corrupt.
In economics, the argument seems to almost literally be "lol, we have your money hostage, if we don't start the money printers you'll go bankrupt. Yeah, we have policies that will wipe out your savings if you don't put it up as a hostage. This is in your own best interests. No your doubts aren't legitimate you're just not being reasonable and/or we don't want to engage with you in common English. All the evidence was established in 1930 and the debate is settled, we don't really need to provide it now, trust us we're right and you don't understand it anyway".
I say almost because the "lol" is not included in the serious version.
1) The world economy is too complex to be understood fully, so its best to be hands-off and let markets regulate it. Also:
2) The market is no good at regulating the world economy so we have to set up central banks, staff them with personnel from the finance industry, and give them extraordinary powers to create and destroy money and other government-backed securities. We also HAVE to let them do whatever they want with those powers, free from political pressure, since only then can they freely apply their perfect scientific knowledge of economics (which involves math now, so laypeople can't understand it without taking off their shoes) to the task of selflessly minimizing unemployment (or maybe keeping inflation down, they get to pick which) and therefore making everyone richer.
They don't explain who is going to be paying in advance. Usually it is a surprise. The approach is to wait for the crisis to come to a head then make a snap decision if it is the government that needs to settle things.
There are literal trillions of dollars floating about. Someone is fronting up real resources, somewhere. Who? What? These are important questions. I'm assuming taxpayers until proven otherwise. If people wanted to know they could design a simple system, but it is obfuscated - probably with intent but maybe not malice. Every time people figure out who is paying another add another layer of indirection gets built up to confuse the situation.
> Central bankers have no power to levy taxes
I get what you mean in context, but this is false. I pay a lot of capital gains on my gold because of them. Now I'm no aurumologist, but I'm pretty sure my lucky 10g of gold hasn't doubled in size to 20g. And yet I'm paying taxes as though it has.
Now, arguably maybe supply and demand has shifted and my shiny rock has doubled in value. But that is pretty patent bullshit, I bought it thing because there is obvious asset price inflation happening long term. And I'm being taxed as though it is growing.
Ultimately, does this mean the taxpayer is getting a higher and higher national debt? Sure. But if it's never something being paid off, then the cost of this arrangement ultimately falls to those faced with an ever larger growing money supply, which, again, is the population of Earth. Though, a curious thing happened this year, when Russia was kicked off of SWIFT, and an alliance of those willing to do business with them outside of the dollar markets started to emerge, which does threaten to throw quite a bit of turbulence if suddenly the percentage of the globe we're spreading out the cost of inflation to shrinks drastically. We've fought wars to protect the dollar's reserve status before (just ask Gaddhafi), and it does seem that sooner or later there'll come a breaking point -- but this is hard to say for sure, as we are ultimately in uncharted territory.
Basically, like it or not, most of the rest of the world is wrapped up enough in this that the taxpayers can hardly be said to be alone, except for those who seem to be in the process of crafting lifeboats for themselves. Whether that's a consolation to anyone is a question I leave up to you to decide for yourself.
They're reminded of the power of The Fed. True, they might get the exact details wrong, but they have a solid enough grip on who. They also see others (i.e., 1%) doing better and better.
"I'm struggling to pay my bills" is all they need to understand. Because the people don't understand the nitty gritty doesn't make The Fed any less accountable.
MMT is practically pseudoscience, makes unclear claims, claims a foundation in mainstream economics but makes completely wild logical leaps when it comes to policy recommendations, and it's promoted by politicians more than real economists.
What does it actually advocate that has been discredited? I get the impression MMTers want to erase the distinction between central banks and the government, and basically run everything with fiscal policy, letting the government decide how big its deficits are instead of effectively the fed deciding. Is that right?
I mean, that would work in principle, right? It would just be a bad idea because the decision is best made by an independent entity rather than the government, which has short-term incentives that may lead it to make bad decisions about spending (usually: too much).
And maybe it would be a bad idea because interest rates are a more reliable lever for controlling the money supply than tax and expenditure rates? I mean, if that's the case, it's not super obvious.
And since these things haven't been tried, I don't suppose it's those things that have been discredited.
From what I see, people are saying MMT has been discredited because large government deficits have led to high inflation recently. But this seems off to me - MMT doesn't say infinite deficits are possible, they're saying the deficits are limited by inflation. Which is true and we're now seeing the consequences of exceeding that limit.
At the end of the day, the premise that infinitely growing debt isn't the end of the world is probably sound, provided that its rate of growth is kept in check. Avoiding a situation where the money supply goes exponential is crucial. Unfortunately... https://fred.stlouisfed.org/series/M2SL looks a lot like some charts I remember from 8th grade algebra. That we likely just need to fix the trajectory rather than actually bring down the money supply should offer some solace, but those used to the sugar high of the last decade or so are likely in for a rude awakening over the next few years -- and whether that awakening is enough to rip apart civil society may ultimately be something that remains to be seen.
You do know mainstream economics isn't science right? Because it's completely unable to prove anything it predicts
DSGE is bunk, so is the Phillips curve, so is the EMH (more finance than economics), so is a whole bunch of stuff. I subscribe to complexity economics, not the standard model. But MMT is even worse than the mainstream stuff. Even central bankers think it makes no sense (https://publications.banque-france.fr/en/meaning-mmt).
So many economic theories are built on wild assumptions, like assuming everyone is rational as a basis.
Economics is closer to politics than any hard sciences imo. So on a high level like CBs it's all about narrative.
This topic seems to make intellectually-uncurious status seekers out of otherwise hacker-mentality people.
The drive to appear intelligent and to distance yourself from the crowd is never as strong as it is in those discussions. The combination of money and power plus their physical manifestation in the form of a central bank or measure you can point to acts as a lightning rod for anxiety.
1. Economic uncertainty causes stress. The economic system is complex beyond comprehension so folks reify their anxiety onto the physical manifestation of the economy - money. Thus the money supply, and by extension the Fed, become a synecdoche of a much larger system.
2. The Fed is a scapegoat for fiscal policy. Politicians and special interests peddle Fed conspiracies because it distracts from Congress’ dereliction of duty to make fiscal policy. Taxing and spending are powerful levers that many politicians are loathe to use. This is why the Fed Chair doesn’t even have to be an economist anymore. They are just a whipping boy for the public
1. It's communism, for money. We live in a society in which prices for nearly everything: food, housing, laptops, etc, are all set my supply/demand equilibrium. The market finds a clearing price, and we pay it. We accept it, and we use a bit of regulation to handle edge cases in which market forces cause externalities and distortions. It works. But for some reason, we've decided that the price of money itself should be decided by a small Politburo. Why?
2. They're always wrong. Not only does the Politburo set the price of money independent of market forces, but they are incompetent. Dot plots one year off are consistently, and embarrassingly, wrong. Comments about "froth" during an obvious housing market collapse, or "transitory" to describe persistent, and growing inflation. These are 140 IQ people who have access to the best, and most timely economic data on the planet, but they are still dumber than the 94 IQ purchasing manager of a small feed supply company who knows within 5 seconds of glancing at corn harvest and transportation KPIs that there won't be anything even remotely "transitory" about inflation.
It's bad enough having a Politburo dictate prices to us, but it's a whole other matter when the mantle adopted by these tinpot Philosopher Kings turns out to be nothing more than gross, and consistent, incompetence.
My primary objection to central banking is that their existence is an affront to freedom, and that they are catastrophically bad at their jobs.
You don't need New World Order conspiracies hatched in the woods wearing gargoyle masks and conducting Satanic rituals to know that this is a terrible idea.
And indeed, this is a place for tech people and devs who cant be experts in economy and banking.
I worked in banks as well as dev, the banks are doing dirty things under a legal umbrella, dont think of them as saints, all the wealth they have came from somewhere.
Now, a central bank, I am fine with that, it is important to keep the economy stable. They cannot always please everyone and they need to be politically independent, or not influenced. The politians understand that, most of the voter s do not. Imagine if every john doe had a say on a central banks SOPs
Guilds and banks have been the center of conspiracy theories since their invention in the late dark ages.
People are distrustful of money, especially of the people who seemingly create money out of nothingness.
To someone who doesn't understand monetary instruments, it's all conspiracy theories to explain why those people have lots of money, while I myself do not.
Like, what book(s) or curriculum do I need to study?
Genuine question.
Alternatively, you could frame it less harshly with people who have very little economic background prefer loopy theories to actually engaging with the complexity of monetary theory.