8 Comments

Makes one wonder why we bother writing laws.

Expand full comment

Socialize losses, privatize gains.

Expand full comment

Before the global elites will allow the USD based financial system to "fail", since it's Too Big (for THAT), there must be created some alternatives.

Perhaps like Bitcoin.

Perhaps like the Chinese-Russian BRICS non-USD alt-system of "sanctioned" oil producers and buyers (like India & Hungary).

People, houses, cars, factories, gold bars - all such things exist. Fiat money is, like corporations & nations, a shared human illusion, if not delusion.

The value of any nation's currency is noted by internal PPP (purchasing power parity) and explicit exchange rates. Based on the title, I was wondering which were the most crucial 3 central banks:

US Fed,

Euro Central Bank,

Russia?

China?

and possibly that leader of demographic change, MMT, nat debt of 240% annual GDP, Japan.

Japan is hugely weaker, after decades around 110 JPY - 1 USD, it's now around 136 JPY.

The USD is stronger against the Euro, too. (from 1.35 USD to 1 Euro, now about 1.05).

Russia's capital controlled ruble is much stronger.

Opportunity costs - alternatives - substitutes.

Those OECD countries more dependent on far-distant trade are likely more vulnerable, and the forex markets will be showing this, if they're allowed to show free capital flows.

The elites can't afford to let the Fed fail.

Therefore, it won't fail.

But it should, based on its lousy performance.

How it doesn't fail will be a political-economic hot potato.

Expand full comment

I obviously agree with the jist of this, but given the lender of last resort nature of the Fed, isn't it fair to respond that if the Fed doesn't monetize its operating losses and instead just stolidly trudges into mass financial market bankruptcy, then "the public at large" will also face higher interest rates, higher unemployment, reduced growth" etc?

This kind of argument seems to reduce to some kind of nihilism to me. The best outcome, of course, what not to get into this predicament in the first place. But once faced with it, isn't it probably better to monetize than have a complete 1929 style crash and deflationary spiral?

Expand full comment

As I understand it, the Fed's job is to promote a stable inflation trajectory (optimal deviations from a real income maximizing path would be a better way of putting it) and maximum employment (of all the economy's resources not just labor would be a better way of putting it). It's P&L or balance sheet should be whatever results from achieving its goals.

Expand full comment
founding

The banks just passed a "stress test". I'd bet the test didn't include this liability. The Fed's detractors will jump on this. How will the market react? Many commenters in the past few weeks have made the case that the Fed can't go bankrupt. However, it looks like its owners (the banks) can.

Expand full comment