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:
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:
> 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.
> it is extremely clear to me that some kind of control of the money supply is necessary, otherwise you get depressions
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.
The business cycle is a natural phenomenon that predates central banks controlling the money supply, and would still occur if there was a fixed monetary base.
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.
First, the money supply and price of money has been manipulated since before central banks existed.
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.
While I don't think I want to delve too into the matter, arguably, the Federal Reserve NOT holding more control over the amount of money flooding into the system through repeated rehypothecation of securities as the roaring 20s saw banks and brokerages happy to loan out more and more money had a lot to do with its occurrence in the first place. Prior to the Securities Act of 1933, and later Regulations T, U, and X (https://en.wikipedia.org/wiki/Regulation_T), brokerages and banks had a lot more leeway in determining their own reserves. Which ultimately, particularly in a booming securities market, means that they were largely unregulated when it came to raising the total amount of money in circulation at least in nominal terms. The aforementioned regulations took great strides in curtailing this excessive power and brought margin rates and reserve requirements under the domain of the Federal Reserve as tools for manipulating the cost and flow of money toward serving their dual mandate.
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.
>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...
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.
I really appreciate the lengthy response. I also didnt want to accuse you of being in the echo chamber, everyone always has that risk, me included. It is just extremely difficult to tell once communication breaks down.
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.
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.