Central, but still insane

It has long been a personal bugbear of TAFKAS that the government agency that has done the greatest economic damage to Australia is not held to account.  Worse, the media and economic policy intelligentsia listen to their every word and bow.  This agency and its officials seem to be unable to do any wrong, despite continually doing wrong.

These are the people who inflated house and other asset prices by keeping interest rates too low for too long, then saw the problem.  They then told the banks to ease off only to come back and tell them to stop being so stingy.

These are the people who, in an earlier and simpler time, brought Australia the recession they chose to give us and not as then Treasurer Paul Keating said, the recession we had to have.

These people are central bankers, and in Australia’s case, the Reserve Bank of Australia.

With this in mind, consider the following piece of wisdom from the IMF – the International Monetary Fund.

The IMF has just put out an article on How to Make Negative Interest Rates Work.  Negative interest rates yep.  That is when savers PAY borrowers to borrow.  Get this:

Many central banks reduced policy interest rates to zero during the global financial crisis to boost growth. Ten years later, interest rates remain low in most countries. While the global economy has been recovering, future downturns are inevitable. Severe recessions have historically required 3–6 percentage points cut in policy rates. If another crisis happens, few countries would have that kind of room for monetary policy to respond.

The IMF’s advice – forget about living within your national economic means and forget structural economic reform.  Just screw the savers again.

And how do they say to do it?  Get rid of cash.

If only Ken Henry was still in Canberra to advise – Go hard.  Go fast.  Go cashless.  So says the IMF:

In a cashless world, there would be no lower bound on interest rates. A central bank could reduce the policy rate from, say, 2 percent to minus 4 percent to counter a severe recession. The interest rate cut would transmit to bank deposits, loans, and bonds. Without cash, depositors would have to pay the negative interest rate to keep their money with the bank, making consumption and investment more attractive.

Much like the lack of bound on interest rates, there is no bound to the insanity of these people.  But still not satisfied …

This would jolt lending, boost demand, and stimulate the economy.

They don’t even understand what they are talking about.  By making interest rates negative, thus forcing people to take money OUT of the banks to spend, how the hell do they expect the banks to lend money?  They won’t have any money to lend.  Idiots.  Plain idiots.  But taxpayer funded idiots.

It is a recipe for destroying banking, payments systems and economies.  But if the IMF says so ….

And just remember this the next time a government implements another cash/black economy task force (yes you Mr Turnbull, Mr Morrison and Ms O’Dwyer).  In the near term it may be claimed to go after the tax avoiders, but next will come the savers.

Like a cancer …. never satisfied until it and its host is dead.

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69 Responses to Central, but still insane

  1. Delta

    Please may I have a loan for say $1 billion just for starters at an introductory negative interest rate of say -3%. That would net me a modest $30 million a year. Say this idea could take off so I may be back for an even bigger loan in the near future.

  2. Peter Greagg

    To paraphrase George Orwell, there are some ideas that are so dumb, only an intellectual (or economist) would believe it.

    If I was despot for the day, I would have interest rates set by a middle level bureaucrat following the Taylor Rule of John Taylor fame. (https://www.kansascityfed.org/PUBLICAT/RESWKPAP/PDF/rwp10-05.pdf)

    Link fail damn and blast Skynet.

  3. Speedbox

    TAFKAS – Are you sure it wasn’t some kind of spoof IMF website/article that you were seeing?

    If so, gotcha!; if not, OMG.

    What a stupid idea. Where would the money come from to lend? It could only be from Government support because nobody who wasn’t drunk, drugged or insane would leave their money in the bank and actually pay the bank for the privilege. Businesses would scream blue murder. Oh, can you imagine the cash runs on the banks – queues around the block at every bank branch; Government imposed limits on withdrawal amounts per day…..revolutions start on this kind of thing.

    Nope, I think you stumbled onto some anarchist site that is masquerading as the IMF. It can’t possibly be a real suggestion from a ‘responsible global organisation’.

  4. And what is the end game exactly? Destruction, anihilation, revolution, war?

  5. Pyrmonter

    TAFKAS’s memory is betraying him (or is he showing his youth?).

    Australia had negative real interest rates for significant periods in the 1970s, as inflation and inflationary expectations bounced around like tennis balls dropped onto court from a great height; only with the ‘change of regime’ of the Hawke/Keating reforms and finally implementation of formal independence under Howard/Costello have we had consistently lower inflation, and with that, low but positive interest on the rate(s) influenced by the RBA.

    However, the post raises other issues. Such as:

    If the market clearing rate of interst is below zero, what would TAFKAS have the RBA do?

    If the RBA can induce asset price bubbles, can it also determine the level of economic activity? The level of employment? Given conflicting imperatives, which should it choose between product price stability; asset price stability; and full employment? (Indeed, is there a sustained trade-off between those options?)

  6. Percy Popinjay

    Government imposed limits on withdrawal amounts per day

    These have been in place for years.

  7. Infidel Tiger

    Haha!

    As if banks are lending money based on their deposits.

    It’s all an illusion.

  8. .

    Negative interest rates as a policy goal that is so bone headed it is nearly unbelievable.

    Australia has roughly 600 bn of Federal debt and 400 bn of State debt. Our GDP is about 1.9 trillion AUD.

    Is anyone worried yet?

  9. Percy Popinjay

    Negative interest rates as a policy goal is so bone headed it is …

    … inevitable.

  10. Fat Tony

    Speedbox – it’s for a cashless society.
    You won t be able to get your money out of the bank cos no cash.
    So use it or lose it is the intention.

  11. John Bayley

    As if banks are lending money based on their deposits.
    It’s all an illusion.

    Precisely.
    Banks have the legal privilege to be able to create money from thin air, as they see fit. And if they overdo it and get into trouble, never fear – the central bank backstop will bail them out! Of course, the central banks can never ‘run out’ or ‘go bankrupt – such is the ‘beauty’ of our unbacked, unconstrained, fully ‘flexible’ fiat currencies.

    All in all, these kind of idiotic proposals, coupled with the well-known intention of our political betters to outlaw cash, will only be a boon to the crypto-currency space.

    If you don’t have any ‘insurance’ of that kind, perhaps you should consider looking into it.
    And no, this is definitely not ‘investment advice’.

    It is, however, plain common sense given the never-ending drive of the elites to steal ever more from the hapless tax cows.

  12. Ƶĩppʯ (ȊꞪꞨV)

    So the boomers led to rampant inflation and their bust now is deflationary, yet the relation to prices and rates is a still a total mystery. Amazing.

  13. .

    Without cash, depositors would have to pay the negative interest rate to keep their money with the bank, making consumption and investment more attractive.

    It’s like a reverse fallacy of composition. What about intermediation? What about the argument about economies of scale? How many businesses are really going to start with 2k of savings?

    If we all have so much income flow, then there would be no economic calamity to survive, would there?

    Completely illogical.

  14. BoyfromTottenham

    “Without cash, depositors would have to pay the negative interest rate to keep their money with the bank, making consumption and investment more attractive.”

    Or, it would cause rational people to turn to the barter system, and give up using fiat ‘money’.

  15. .

    But, but, but, BitCoin is a total scam and only idiots would question the fiat system, which is the only demonstrable system of value…hence we need to outlaw and harrass these innovators until the banking cartel catches up.

  16. Speedbox

    Infidel Tiger
    #2973435, posted on March 29, 2019 at 10:30 am

    Haha! As if banks are lending money based on their deposits.

    Banks obtain funding from three sources: deposits, wholesale debt and equity and whilst the funding structure of individual banks can differ, there has been a broad-based shift in the funding composition of all Australian banks since the global financial crisis toward funding sources that are considered more stable, such as deposits from retail customers.

    RBA figures at February 2019 show domestic (retail) deposits accounted for about 60% of the funding source. Long term and short term debt (wholesale debt) accounts for about 32% and equity about 8%. Therefore, if those retail funds were suddenly and dramatically reduced (with increasing withdrawal demands), the ability of the banks to lend without correspondingly increasing wholesale or equity balances would dramatically shrink any lending capability.

    Having said that, the RBA/banks do not work in isolation, meaning that the Government would announce withdrawal limitations simultaneously with the negative rate announcement. Bitcoin prices would escalate immediately.

  17. Dr Fred Lenin

    Whoever proposed this must have gone to the same university as the woman who wanted cows wiped out for farting and causing gerbil worming ,when asked where the milk would come from she answered “from the supermarket of course” , deprive these idiots of taxpayers money every cent ,see how they manage in the real world. To destroy socialism take away the taxpayer funding .

  18. Terry

    “From each according to their savings, to each according to their consumption”…

    …what could possibly go wrong.

    A populace just begging for the yoke.

  19. RobK

    …..until the banking cartel catches up.
    An advertorial.
    https://www.openaccessgovernment.org/hedpay-adoption-crypto-banking/61662/

    CEO of HEdpAY explains how the creation of alliances in various sectors of business can provide financial services solution within the crypto banking ecosystem

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    First tests and business adoptions start by using HEdpAY systems to overcome these challenges and bring crypto use to the mass market, starting with SMEs, funding them and financing their projects with HEdpAY.

    One of the major alliances and partners to start the HEdpAY Future Banking Solution is “LIKER” Liker world Ltd in the education sector. Education is the power of modern society and builds the future generations, therefore, HEdpAY with Liker has created a possibility to study anywhere and anytime you want.

    Liker is an educational blockchain-based content platform. Users not only get access to all educational materials and activities but also get rewarded as they study. With the help of the HEdpAY LIKER application, users can learn, get rewards, and grant their funds to educational projects for their future within the network.

    HEdpAY signed an alliance partnership agreement with LIKERWORLD, as e-banking solution company based in London, the home of Fintech, and completed a $500,000 mutual investment. With the 2020 Tokyo Olympics in sight, Alliances plan to utilise the e-banking system, a superior blockchain of Hedpay Ltd, to support real-time transactions through POS, ATM devices and crypto prepaid cards.

    To this end, Solomon Capital Japan, which obtained permission to transfer money from Japan’s Financial Services Administration, joined the Alliance Group. The company is already in business with a company that has acquired BitLicense in New York, leveraging Hedpay Ltd. technology in the UK, Japan, New York, Asia, Russia and European markets.

    It’s ok. They know what they’re doing.
    There’s more, lots. RTWT. It seems too good to be true.

  20. John A

    Flaws in the Taylor rule:
    a) define “trend” rate of economic growth and who says it is the trend, anyway?
    b) how is inflation measured? (Asset prices, consumer prices, industrial commodities, land, gold?)

    Flaws in the logic (aka un-common sense):
    If I borrow at a negative interest rate, what incentive is there for me to pay it back?
    Can it be interest-only?
    Am I allowed to borrow more (as my “business” expands)?

    If I am a saver (perish the thought):
    What incentive do I have to increase my savings?
    Why would I pay someone to take my savings away? Whether a bank or another borrower?
    Why would I want to get them back?

    As the old joke about wills says:
    “Being of sound mind and competent in arithmetic, I blew the lot!”

    This is such a ridiculous idea, it needs to be thoroughly and very publicly ridiculed – IPA please note. Is there a financial cartoon equivalent to Dilbert anywhere?

  21. Terry

    “All in all, these kind of idiotic proposals, coupled with the well-known intention of our political betters to outlaw cash, will only be a boon to the crypto-currency space.”

    Hence the need to control the internet as well.

    Don’t worry. Anything short of complete, total, utter and absolute control of your life is unacceptable (whoever said slavery has been outlawed – it has simply morphed)

    We require and demand power over you so that you might do ‘correct things’. It’s what the community expects don’t you know.

    Living in Orwell-land is terrifying. Not so much ‘Big Brother’ but all of the denizens cheering him on.

  22. Ingot we trust

    Speedbox i think you have misunderstood the point made by Infidel Tiger

    Punter 1 borrows a trillion from Bank
    Punter 1 writes cheque for a trillion dollars.
    Punter 1 gives cheque to Punter 2.
    Punter 2 deposits in bank.
    The Bank shows a loan for a trillion and a deposit for a trillion.
    So the bank by making a loan has created its own deposit.

  23. Pyrmonter

    @ John A

    (Not defending the Taylor Rule, which strikes me as another Phillips Curve, but …)

    – the advantage to saving is to even out, between periods, your consumption. Why do you expect to be remunerated for it? Indeed, _why shouldn’t_ you have to pay to move your consumption from period to period?

    – banks (or other investments) provide a form of security of return to readily available from other assets. Contemplate how you’d have gone placing your savings in bitcoin at the top of the market; or gold; or housing; or Old Masters

  24. .

    Future banking operators like HEdpAY are building a platform that connects crypto with fiat currencies and supports decentralised control.

    Or you can buy BTC on an open market.

  25. Pyrmonter

    (Follow up from the comment further up thread – neat graphs showing real interest rates in the past)

    https://www.rba.gov.au/speeches/1991/sp-gov-031091.html

  26. Speedbox

    If I borrow at a negative interest rate, what incentive is there for me to pay it back?

    Except borrowings would be at positive rates even if those rates were low. The funding source (primarily retail depositors) would bear the brunt of the scheme as they would receive a negative rate on that deposit.

    This is such a ridiculous idea….

    Yep. In fact, it’s so ridiculous it’s actually funny.

  27. RobK

    Pyr,
    Why do you expect to be remunerated for it? 
    Because they use it for gain. I rent it out as they do.
    If i were to hire a security vault, i would expect to pay.

  28. Pyrmonter

    @ RobK

    That’s conventional. But then, when the Phillips Curve was first formulated, a return to something like the original price level was also conventional. In such a world, the PC might have held (it sort of did in the original paper in Economica); in a world in which ‘policy makers’ sought to harness the supposed trade-off though, the convention of ‘restoring value to the pound’ broke down, and people learnt (as they had in the days when the currency would be debasement of the coinage) to adjust to inflatoin. And the supposed trade off disappeared.

    Let’s remember that savers gain from saving. They have the chance to defer consumption from the current period to a future period when, presumably, their ability to fund consumption from current period income is lower. Supposing they want to maximise the value to them of consumption over time, it isn’t automatic that they should also be rewarded for doing so.

  29. Tel

    When you look at banking fees, losses to inflation, and the pathetic nominal interest on your “savings” account we are already in a negative real interest rates for most people.

    Let’s remember that savers gain from saving. They have the chance to defer consumption from the current period to a future period when, presumably, their ability to fund consumption from current period income is lower.

    People are nervous to buy real-estate or shares right now because there’s the whiff of a recession coming. Whether it makes a “gain” to have a small loss holding cash instead of a larger loss walking into a bunch of “falling knives” is kind of a relative thing I suppose.

  30. John Barr

    Banks lend to people they know can’t or won’t be able to finalize the loan. They then buy up the Property for a low price, leaving the owner liable for the remainder of the loan. Then they sell the property again, for a much higher Price. It works both ways for them.

  31. Banks lend to people they know can’t or won’t be able to finalize the loan.

    Who knows better about the ability to service the loan? The lender or the lendee? Who provides the information to assess the loan? The lender or the lendee?

    Don’t like the terms. Don’t borrow.

  32. Enoch Root

    They don’t even understand what they are talking about. By making interest rates negative, thus forcing people to take money OUT of the banks to spend, how the hell do they expect the banks to lend money? They won’t have any money to lend. Idiots. Plain idiots. But taxpayer funded idiots.

    Sorry. But it is a mistake to assume people would massively take money out of the banks. The depoaits with a negative interest would be shrinking, for sure, but it depends on the rate of shrinking out of the banks. If inflation surpasses negative interest, keep money in the bank would be better.

    Also, banks create money. They can never be pennyless, unless RBA decides so. That’s what happened to Lehman Brothers, Fed decided they would take the fall. That’s what didn’t happen with Fannie Mae and Freddy Mac, Fed decided they couldn’t fall.

    Yes, I know about differeny structures, capital, etc. Nevertheless, in a fiat currency world, central authorities decide who fall and who stand.

    So, yes. In this delirious world created by central banks, negative interest rates make sense. Math, in the other hand, doesn’t.

  33. Cynic of Ayr

    The bit I spotted was that without cash, the money had to be in a bank, and was freely accessible by anyone the government said it was accessible by. This by design!
    What an insidious idea. Even the head Communist in the USA, Ocas Cortex (whatever) didn’t think of it.
    If the borrower was paid to have a loan, then the depositor – where the money came from – would be charged for having money in the bank.
    And these people are paid to come up with the drivel? And the people who put them in that position – government – do nothing about it. I suspect that there is a lot more corruption in Government than we could possibly imagine. We should get investigative reporters to look into it. OK, sorry, silly thought.
    I’ve long wondered at the electronic trail we all leave when shopping with a card.
    Consider, present the card at Woolies, every single item you bought is attached to that card! I dunno if it’s accessible, but it sure as hell could be!
    On the low level of misdemeanor, the local Council says you have a dog, and must pay dog fees.
    “I ain’t got no dog!”
    “Well on the such and such days at the such and such times you bought dog food.”
    What are you gunna say? “I eat it myself.” (Not all the unlikely, considering the cost of tucker these days, but anyway…)
    Friends of mine pay cash for everything! They go out of their way to pay cash.
    I’m gunna join them.

  34. RobK

    That’s conventional. 
    Does tbat make it wrong?
    Let’s remember that savers gain from saving. They have the chance to defer consumption from the current period to a future period when, presumably, their ability to fund consumption from current period income is lower.
    So savers arent saving to make an investment in capital.
    I have a problem getting my head around this. Its as if bankers feel they are the word in capitalism. We might be getting near to understanding why it takes so many shiny-bums to run the show. It really shouldn’t be that difficult. For the most part I think the problem is they pretend to have control over a stochastic system and they demand sufficient power to protect their own interests.

  35. flyingduk

    guns, gold n bitcoin…

  36. John Bayley

    @Terry, 12:09 pm:

    Absolutely. For a nice example, look at China’s ‘Social Credit’.

    @dot, 12:24 pm:

    Or you can buy BTC on an open market.

    Better still, you can use a fully decentralised platform like bisq.io
    Don’t you just love the innovation a true free market can come up with when not constrained by government bureaucracies?

  37. Dr Fred Lenin

    The mention of tax evaders raises the question ,have the government tax task forces looked at the fortunes of politicians? Have they gone in to overseas bank accounts held by Australian politicians. Past and present? With particulas emphasis on the Cayman Islands and Switzerland ( where money from dodgy fire insurance payouts goes ).

  38. RobK

    Let’s remember that savers gain from saving. 
    Lets remember bankers charge fees to depositors and borrowers as well as having a take on the interest difference.

  39. John Bayley

    @ Pyrmonter, 12:22 pm:

    I would have thought that the time value of money was rather well-founded and accepted.
    Also nobody ‘saves’ and instead all output is consumed at the time of production, how do you ever fund long-term projects? The stupidity of the likes of MMT notwithstanding.

    Your other point, with respect, does not make sense. There is NO risk-free investment. Banks have gone belly-up on numerous occasions in the past and will do so again in the future. The same applies to pretty much everything else.
    Leaving aside the ‘smart contracts’ features of tokens like Ethereum, Bitcoin and its likes are not ‘investments’ any more than gold or holding dollar notes is.
    Besides, speaking of gold, I would say that as a store of value it has been vastly superior to any fiat currency, so again I struggle to see why you think it would have been a ‘bad’ thing to have hold it.

  40. Bruce

    Anonandon:

    “And what is the end game exactly? Destruction, annihilation, revolution, war?”

    ALL OF THE ABOVE if they can get away with it.

    The “cashless” caper is specifically so that the peasants’ activities and “interests” can be tracked, quantified and exploited. Essentially, “your money” will not really be yours to do with as you wish.

    The further fact that, with a few keystrokes “dissenters” can be rendered terminally bankrupt in an instant will be an incentive to “be silent, consume and die”.

    Under such a regime, for “regime” it will be, barter will be a capital offence.

    “Interesting times”; Ahoy!!

  41. John Bayley

    @TAFKAS, 1.16 PM:

    Don’t like the terms. Don’t borrow.

    You’re so old-fashioned.
    These days, you borrow regardless of the terms and affordability, and then go to the lawyers while seeking sympathy on TV.

  42. RobK

    There is NO risk-free investment. 
    I agree with that. There isnt even any risk free production, or anything else for that matter.

  43. RobK

    Just to go around full circle, is there some truth in the following claim:
    Taxation and corporations legislation has a big impact on commercial loans.

  44. Pyrmonter

    @ JohnB, @ RobK

    I’m with you that bank deposits aren’t risk free, though we haven’t had a bank failure in Australia for almost a century (building societies, friendly societies, debenture trust schemes are a different story, but our modern history (ie post banking Act 1959) has seen two failing private banks bought by others (Bank of Adelaide in 1979; BankWest in 2009); and government bailouts for the State Banks in SA, Vic, WA etc. The risk with bank deposits has tended to be erosion of the principal balance by inflation. Not an enormous concern since 1991, but one I fear (as an old inflation hawke) is returning across the advanced economies.

    Interestingly, in the days when banks did fail (in the 19C), the tended ultimately to repay a substantial part o the depositors’ funds eventually; they were often, in the modern terms, ‘illiquid but not insolvent’.

  45. RobK

    Defraying risk has costs and can only work if profit is made in the first place. There’s a conundrum.

  46. Speedbox

    But it is a mistake to assume people would massively take money out of the banks. The depoaits with a negative interest would be shrinking, for sure, but it depends on the rate of shrinking out of the banks. If inflation surpasses negative interest, keep money in the bank would be better.

    Oh sure. So, imagine the scenario where the Government tells the people “Don’t take out your money. Inflation is higher so you’ll be worse off”. FMD – there would be runs on the banks the likes of which we have never seen. Your proposition ignores human reaction. In Venezuela, which has an entirely different problem, retail deposit rates of 22% (offset by ~1,000,000%+ inflation) coupled with mass withdrawals has reduced the total of all retail deposits in every bank in the country to a collective $40m. That’s it, $40m.

    My point is that people flocked to withdraw their money. Currency controls and withdrawal limits were imposed but the people lined up, all day if necessary, to remove what little cash they had. Some exchanged it for gold, others $US, others bought what food they could (particularly flour and similar long life food stuffs). I get what you’re saying, but human response will never play ball. As I said previously, this is how revolutions start.

    banks create money

    In a normal scenario, they can use their equity to ‘create money’ (or establish creditworthiness to borrow from a bank which has itself created money) but there are limits imposed by Government (via APRA in Australia) which are in turn ‘guided’ by assorted international agreements on how banks must operate and their capital adequacy.

    Of course, in the nightmare scenario of negative interest rates (potentially high inflation; probable credit squeeze) and the ensuing panic, only God knows what would happen to the rules/laws.

  47. Pyrmonter

    @ TAFKAS

    Such commonsense. The idea that a borrower might guard her own interest, and the lender hers! A pity then to look at this relic of the Abbott era …

    https://download.asic.gov.au/media/2243019/rg209-published-5-november-2014.pdf

    (For good measure, the Nats have pushed this stuff as a means of transferring rural losses to lenders, and with the Hayne Report, can claim some ‘success’. Whether the long term effects are what their voters actually want is a different question).

  48. Bruce of Newcastle

    Negative interest rates just mean that there is no ROI for any investment.
    You have to wonder about that. Why can’t people with money find anything that is worth investing in?

    In short government has so increased the risk of investing and so increased the tax on those investments that it isn’t worth doing any more. No one can afford to start a business with a capital investment since it will be eaten alive by the government.

    Meanwhile if the uninvested cash just sits in a bank account the government starts circling it like a hungry shark, so the owner needs to find somewhere less obvious to put it.

    That’s what negative interest rates mean.

    The RBA isn’t the real problem. They are just the witchdoctors trying to treat the disease. The disease is caused by the people in Parliament House in Canberra, and in the state equivalents.

  49. Ingot we trust

    Oh, and the banks can create Equity for themselves as well.

    Just lend money to people to buy their share issues. And they do!
    Lend 100, Punter buys 100 in equity. Bank can lend another 900 (assume 10% equity requirement).

    Way back ‘in the day’ there was SRDs (Stat Reserve Deposits) that really worked to stop the balance sheet (death) spiral.

    The current system achieves nothing.

    And finally, we have already seen negative loans (mortgages) in Denmark.

  50. John Bayley

    Interestingly, in the days when banks did fail (in the 19C), the tended ultimately to repay a substantial part o the depositors’ funds eventually; they were often, in the modern terms, ‘illiquid but not insolvent’.

    That’s a function of the fact that under the gold standard, banks that had overextended themselves with their fractional loans, and still had solid assets as security, many of those assets may not have been liquid enough to satisfy a bank run.

    The introduction of central banking and fiat currencies has had a two-fold effect, neither of which is a positive over the longer run:

    1) It removed any upper limit to fractional reserve lending (apart from the legislatively imposed one, and that one has been progressively more lax), so the banks could blow credit sky-high.

    2) The central banks have been able to prop up the commercial banks by simply printing money in unlimited quantities and handing it over in return for ‘assets’, the quality of which has been in steady decline. That has saved the banks from bankruptcy, but at the cost of the bubble and the number of ‘zombie’ banks growing ever larger.
    Have a look at the ECB and the southern Europe area for a great example of this.

    Alas, there has also been a third effect to this, and this is that debt has gone out of control wherever one cares to look. Hence the drive to ever-lower interest rates, and now that we have hit the bottom (the zero-bound), we get total lunacy that is MMT and/or negative interest rates.

    The system has to blow up sooner or later, because ultimately the ‘free lunch’ of the Keynesians does not exist.
    It’s just the timing that’s uncertain.

  51. Pyrmonter

    @ JohnB

    1 – In the traditional arithmetic of the monetary multiplier, the amount of $ created is not unlimited. It is (1+c)/(c+r)*M, where c is the money in the till and in circulation, and r the reserve requirement, and M the supply of base money. That’s obviously a multiple of M, but it isn’t infinity.

    2 The usual complaint about the ECB is that its monetary policy has been too tight, not recklessly risky. Inflation in the period 1999 – 2008 across the Eurozone was, as a whole, fairly well controlled. I’m skeptical about the claims that the periphery problems have ‘monetary’ sources.

  52. Bruce

    Ingot we trust:

    In the US, it is quite common to see signs about “no credit” being the house rule in many small establishments.

    The best one I’ve seen read:

    “In God we trust.

    All others pay CASH”

  53. Enoch Root

    @Speedbox

    You do understand that your example of Venezuela (deposits paying 22% offset by 1,000,000% inflaton) just confirms what I said, rather than refutes it. People got money out of banks because having it at hand ( to buy goods, dolars, bitcoin or whatever) was better. In a negative interest rate relatively high inflation world (not hyperinflation as Venezuela), it would pay off leaving your money in the bank, despite shrinking value.

    Let’s not forget that negative interest rate (of sorts) was how banking begun… people paid to leave their gold in possession of bankers in exchange for bank notes. Safekeeping that gold was a paid service, akin to a negative interest rate on deposits… so nothing new here. Of course, fiat money is not gold… that is another story.

    And banks do create money ex-nihilo. Just manipulating their assets and holding other people’s debit. Limits for this by central authorities (such as Basilea limits) are so low that effectively 1 dolar deposited in a highly cartelized banking system (Australia”s big 4 holds 80% of money deposits) can create 1000s dolars in lending without any fancy accounting magic. The only effective limit is people’s necessity to borrow and ability to pay back. I’ve seen this first hand: banks offering to lend money and people not wanting to borrow.

  54. J.H.

    The pricks have made our money worthless….. Here we have this huge demand for money, Governments just can’t get enough of the stuff….. But we savers can’t benefit from that demand? Interest rates are deliberately kept low.

    If it were fugin’ potatoes and a chip market, we’d be rollin’ in it. Huge demand for chips and we got all th’ spuds.

    Perhaps I’m just thick?

  55. RobK

    people paid to leave their gold in possession of bankers in exchange for bank notes. Safekeeping that gold was a paid service, akin to a negative interest rate on deposits… so nothing new here. 
    Nah. Paying for safe keeping is one thing. Fungible bank notes is another, whilst leveraged bank lending is what makes bankers wealthy. As it turns out bankers still charge plenty.

  56. John Bayley

    @ Pyrmonter

    You are looking at this from the perspective of an economist.

    I look at it from the perspective of an investment analyst.

    The banks in southern Europe have by and large been insolvent since the GFC. They have been allowed to ‘relax’ their reporting standards so non-performing loans are not being called in, and hence – bingo – they are still ‘performing’. These are zombies walking.

    The European regulators have assigned zero risk rate to government bonds; even those of bankrupt countries like Italy or Spain. The banks loaded up on these securities by buying them from their bankrupt government and then onsold them to the ECB as part of QT for cash, which the ECB created from thin air.

    If this is not monetary financing, then I don’t know what is.

    Inflation and its definition, we can discuss till the cows come home. As I have said in another thread, by the classical definition it has been far from ‘subdued’.

    I also do not believe that the ECB monetary policy has been ‘too tight’. Ever lower interest rates are ultimately self-defeating, as I pointed out above. All they achieve in the long run is pulling demand forward at the cost of ever growing debt, plus more speculation and capital misallocation as opposed to productive investment.

    The whole concept of ‘monetary policy’ is an oxymoron and not compatible with the free market.

    But that’s a discussion for another day.

  57. Speedbox

    You do understand that your example of Venezuela (deposits paying 22% offset by 1,000,000% inflaton) just confirms what I said, rather than refutes it.

    Of course I understand that, evidenced by my comment: I get what you’re saying, but human response will never play ball.

    I used Venezuela as an example of a different scenario saying: In Venezuela, which has an entirely different problem,….

    I also said: My point is that people flocked to withdraw their money.

  58. Squirrel

    The policies advocated by the IMF and their domestic groupies are theft in slow motion. We’ve always had that in Australia, but the ever lower rates of interest have made the racket increasingly transparent.

    Interestingly, the econocrats, and others who are living high on the hog (typically in very safe jobs) never quite find a reason to advocate stimulation of demand by transfer of wealth from their high public incomes to people with a higher propensity to consume.

  59. Diogenes

    Speedbox – it’s for a cashless society.
    You won t be able to get your money out of the bank cos no cash.
    So use it or lose it is the intention.

    My comment must have gone to the great bit bucket in the sky, not sure what the naughty word was so will paraphrase…

    All that will happen is no money will be left in banks and people will buy things to barter or something that use as a currency such as cigarettes & mobile phones in a prison or toilet paper

  60. Speedbox

    I don’t doubt for one minute that paper money would be either impossible to obtain or would be effectively worthless. Yes, at the first opportunity it should be exchanged for something that is a ‘store of value’ such as gold, US dollars, heating oil, toilet paper….

    In my various comments above, I was thinking about the early days of the crisis. (Should have made that clear as the weeks/months ahead would be catastrophic).

  61. faceache

    Not only is this not right, its not even wrong.

  62. John Constantine

    Australia has bought decades worth of natural demand forwards by artificially crushloading our cities with mass imported population growth of millions of the worlds poorest people.

    Debt funded through a floating fiat currency.

    Everything floats up as the debt bubble inflates, but what the fuck is Plan B?.

    Shorten importing millions of high medical needs pensioner grandparents from poverty sinks to crushload his NDIS and vote commo?.

    Comrades?.

  63. John Constantine

    Banks?.
    Here is the future of banking in their shortreich.

    The initiative, funded in part by a Bank Australia customer grant, is billed as Road to Refuge’s “most concerted effort to date”, and aims to teach people from refugee backgrounds the essential skills they need to not just tell their stories, but potentially kick-start their own careers in the media, too. “The program helps to catalyse this process by equipping participants with the skills and opportunities they need to tell their stories on their terms and in their own words,” adds Jeanine.

    Running from early April through to May, the program will take participants through a series of workshops covering a range of essential topics centred around what it means to be a storyteller in 2019. As well as covering the written word, the program – which is completely free – will also take into account other mediums, such as filmmaking, photography and podcasts. It’ll include advice on how to navigate the media landscape, how to build a personal brand, how to pitch stories to magazines or journals, and even how to go about fundraising to help get a project off the ground.

    For Jeanine, now is the time to start changing the narrative for refugees in Australia. “Given everything that’s happening at a Federal level, the upcoming election will be really, really hard for refugees and our communities,” she says. “…we want to really broaden people’s perspective of what a refugee story is instead of the single boat-people narrative that currently exists.”

    ‘In My Own Words’ will be facilitated by range of experts – including working journalists, filmmakers, writers, artists, photographers and more, and offer participants the chance to develop their own project throughout its course. “We want to encourage diverse methods of storytelling such as photography, written word, film, and all other art forms and storytelling techniques,” says Jeanine. “From this aspect, this program is the first of its kind.”

    https://bankaust.com.au/about-us/news/people2/are-the-days-of-the-media-dominating-refugee-discourse-over

  64. Crossie

    And they wonder why millenials don’t save but spend even the money they don’t have. If you are going to be ripped off anyway might as well have a ball beforehand.

  65. Crossie

    Don’t worry. Anything short of complete, total, utter and absolute control of your life is unacceptable (whoever said slavery has been outlawed – it has simply morphed)

    I bet every one of these central planners is atheist yet they seek the powers of God.

  66. Crossie

    Essentially, “your money” will not really be yours to do with as you wish.

    Our money is not ours now. Just look at super, any two bit politician can change the law with the help of other brain dead MPs and senators which lets them raid your account for as much as they want.

    Labor politicians thought you should be made to save for your retirement and then they saw the amounts and decided you had too much. Coalition used to be opposed to such robbery but the Dawn of Malcolm showed us that ScoMo and that gormless twit O’Dwyer had no problem with taking your hard-earned, salary sacrificed and even proceeds of sale of real estate that some deposited into their super account.

    Death taxes are the next step. No wonder so many retirees are off on cruises and expensive holidays. Not only can you not take it with you but you can’t leave it to you kids.

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