Posts tagged central banks
Posts tagged central banks
Florida congressman Alan Grayson laughs in Ben Bernanke’s face!
I don’t really know who can believe this guy. I really like this Grayson guy, might look into him.
Honestly . . . would you consider even buying a used car from Ben Bernanke? Or as they say now, ‘a pre-owned vehicle?’ Everything gets whitewashed in our glorious New Age.
This does not bode well for the global economic climate. When economies are stable interest is paid, not charged, on money loaned. Our times are out of whack and getting ever worse. European countries have elected to save the banks and the banking system and let the citizenry and investors go to hell. Unfortunately the system will still eventually fall apart one way or another.
Published on Jan 9, 2012 by Euronews
Germany is the latest country that investors are paying to lend it money.
As it sold 3.9 billion euros worth of short term government bonds, Berlin paid a negative return for the first time.
Investors are so worried about other countries defaulting and not repaying what they have borrowed that they are prepared to accept not getting any interest in return for their money being in a safe place.
JANUARY 4, 2012
Beware the Coming Bailouts of Europe
Tuesday, December 20, 2011 – by Ron Paul
The economic establishment in this country has come to the conclusion that it is not a matter of “if” the United States must intervene in the bailout of the euro, but simply a question of “when” and “how.” Newspaper articles and editorials are full of assertions that the breakup of the euro would result in a worldwide depression, and that economic assistance to Europe is the only way to stave off this calamity. These assertions are yet again more scare-mongering, just as we witnessed during the depths of the 2008 financial crisis. After just a decade of the euro, people have forgotten that Europe functioned for centuries without a common currency.
The real cause of economic depression is loose monetary policy: the creation of money and credit out of thin air and the monetization of government debt by a central bank. This inflationary monetary policy is the cause of every boom and bust, yet it is precisely what political and economic elites both in Europe and the United States are prescribing as a resolution for the present crisis. The drastic next step being discussed is a multi-trillion dollar bailout of Europe by the European Central Bank, aided by the IMF and the Federal Reserve.
The euro was built on an unstable foundation. Its creators attempted to establish a dollar-like currency for Europe, while forgetting that it took nearly two centuries for the dollar to devolve from a defined unit of silver to a completely unbacked fiat currency note. The euro had no such history and from the outset was a purely fiat system, thus it is not surprising to followers of Austrian economics that it barely survived a decade and is now completely collapsing. Europe’s economic depression is the result of the euro’s very structure, a fiat money system that allowed member governments to spend themselves into oblivion and expect that someone else would pick up the tab.
A bailout of European banks by the European Central Bank and the Federal Reserve will exacerbate the crisis rather than alleviate it. What is needed is for bad debts to be liquidated. Banks that invested in sovereign debt need to take their losses rather than socializing those losses and prolonging the process of adjusting their balance sheets to reflect reality. If this was done, the correction would be painful, but quick, like tearing off a large band-aid, but this is necessary to get back on solid economic footing. Until the correction takes place there can be no recovery. Bailing out profligate European governments will only ensure that no correction will take place.
A multi-trillion dollar European aid package cannot be undertaken by Europe alone, and will require IMF and Federal Reserve involvement. The Federal Reserve already has pumped trillions of dollars into the US economy with nothing to show for it. Just considering Fed involvement in Europe is ludicrous. The US economy is in horrible shape precisely because of too much government debt and too much money creation and the European economy is destined to flounder for the same reasons. We have an unsustainable amount of debt here at home; it is hardly fair to US taxpayers to take on Europe’s debt as well. That will only ensure an accelerated erosion of the dollar and a lower standard of living for all Americans.
by Andy Hecht December 12, 2011
True Value of Paper Money Exposed
The value of a fiat currency – money that gets its value from government laws or regulations; i.e. money without intrinsic value – depends on the full faith and credit of the country that prints it.
Today, given the enormous levels of debt, the US and the European Union are printing more and more paper currency. The process of adding liquidity to the system has created a farce.
By any conventional accounting standards, these countries are so indebted that their paper currencies are worth only the value of the paper they are printed on – which is why gold has moved higher for a decade and why it will continue to appreciate.
It is not that the intrinsic value of gold has gone up – it is the intrinsic value of currency that has been unmasked.
Governments Now Realize the Value of Gold
Central banks no longer sell in the gold market. If there is any government out there that wishes to follow Gordon Brown’s example, there are scores of buyers that will gladly take the gold off their hands.
In fact in 2011, central banks and governments around the world purchased a staggering 450 tons of the yellow metal.
Indeed, 18% of all of the gold mined in 2011 found its way into central bank vaults. Central banks now realize that owning gold as a reserve asset beats low-yielding US dollars or debt-riddled euros any day.
The central bank of Korea, the world’s eighth largest holder of foreign reserves, bought 15 tons of gold in November after snapping up 25 tons in June and July.
And, Korea is not alone. In 2011, China, Russia, Kazakhstan, Colombia, Belarus and Mexico, among others, have all added to their gold reserves and have plenty of room to add more.
Demand is still growing
The pace with which central banks and government are buying is not slowing down.
Swiss banking and financial giant UBS two weeks ago noted: “Purchases of as much as 450 tons in 2011 may be repeated next year as Asian nations and emerging economies diversify their reserves.”
That’s at least 450 reasons why the price of gold will continue to climb.
The demand for gold from individuals and investors is also rising.
Chinese jewelry demand alone is around 13% higher year-on-year at some 131 tons.
China’s growing appetite for gold as a means of investment saw demand for gold bars and coins expand by 24% from year earlier levels to 60.2 tons. And, all this as the price of gold rose to new highs.
The Bottom Line
The demand for the shiny yellow metal continues unabated in the current global economic environment.
The bottom line is this: Gold is in demand and that promises to continue through the coming months and years – primarily because it remains the most stable asset and currency in the world.
Gold is the closest asset to a sure thing that exists today, and its price is nowhere near the top.
Milton Friedman, Modern Macroeconomics: Its Origins, Development and Current State (2005)
Mises Daily: Wednesday, December 07, 2011 by David Howden
Collateral debt is in almost all cases collateralized by some asset. A mortgage is backed by the value of the house that it is borrowed against. Student loans are backed against the future earnings ability of the student (or their parents’ income and assets if cosigned). In almost all cases debt is collateralized by the asset that it is used to purchase.
Sovereign debt is slightly different, as no clear asset stands ready to serve as collateral. Instead, borrowing is backed by the future taxing capacity of the state. When investors purchase sovereign debt, they do so knowing that if their plans turn out wrong they will not be receiving some portion of that state’s assets as the consolation prize. They purchase the bond knowing that the ability to repay is conditioned by the future economic health of the country, and also by its future taxing power. As there is a general negative relationship between tax rates and economic health there is an upper bound on how much tax revenue can be raised in the future to pay off debts incurred today.
When we say that sovereign debt is “risk free,” we mean that there is no credit risk. A state is forever able to pay off its nominal liabilities in one of two ways: either it increases its taxes to raise more revenue (through direct taxes), or it monetizes its debt by increasing the money supply (an inflation tax).
Central banks are, by and large, granted some degree of operational independence in order to avoid the second circumstance. The inflation tax is an extremely attractive way for a state to pay for its liabilities. No one pays it directly, and hence there is a reduced chance for “taxpayers” to see the wealth appropriation. A government given direct control of the printing press has an incentive to give higher rates of inflation than the public desires, if only to pay off the debts it incurs. Central-bank independence removes this option.
Sovereign debt is not risk free; the real payoff may differ from the nominal promise. For domestic-debt holders, this arises when inflation occurs. For foreign-debt holders, this risk mainly arises through foreign-exchange risk. In either case the source is the same — inflation reduces the purchasing power of the currency of denomination and thus reduces the real value of the future payment.
Interest rates are set on sovereign debt with these risks in mind. Importantly, if direct default risk is minimized through the state’s future taxing capabilities, the lone risk remaining is through inflation or an adverse exchange-rate movement.
The advent of the European Monetary Union brought about an interesting change to the way that investors calculated these risks.