
Central Banks Have Become Irrelevant - elsewhen
https://themarket.ch/interview/russell-napier-central-banks-have-become-irrelevant-ld.2323
======
pattusk
The article mentions at several point how the "financial repression" will be
negative to investors. But what about for the majority of the population that
holds little to no financial assets?

 _Are you expecting a repeat of the financial repression that dominated the
decades after World War Two?_

Weren't those decades also characterized by unprecedented economic growth and
increase in standards of living? Isn't what the author says government will do
perfectly defensible from a Keynesian perspective, not to mention from a
democratic perspective (why should unelected central bankers have this sort of
economic powers over duly elected representatives?)

~~~
pjc50
"Financial repression" is one of those heavily loaded political terms that
annoys me, because of the implication that the investment class are _owed_ a
positive risk-free rate of return even if that's at the cost of the rest of
society.

However, when I started reading this article I thought it might be a rant
about ZIRP, but it's actually much more sensible. It's extremely level-headed,
refers to pragmatic evidence, and isn't interested in name calling.

On the other hand, he still doesn't articulate what he means by "financial
repression" very clearly.

>> The cornerstones of the last period of financial repression after World War
II were capital controls and the forcing of domestic savings institutions to
buy domestic government bonds. Do you expect both of these measures to be
introduced again?

> Yes. Domestic savings institutions like pension funds can easily be forced
> to buy domestic government bonds at low interest rates.

This is kind of already happening .. voluntarily? Treasury rates hover around
zero.

I think the time may have come to re-evaluate capital controls while we're re-
evaluating globalisation and its positive and negative effects. Is
transferring hundreds of billions of dollars to opaque structures on tiny
islands _really_ good for the general public?

> If we’re taking the next 10 years, I see inflation between 4 and 8%,
> somewhere around that

That's .. worse than what we're used to, but not a disaster? What really
matters is the link between price and wage inflation. Remember that most
members of the general public in the west aren't worried about inflation
eroding their _cash_ assets because they have none or are negative
(mortgaged). But we _are_ worried about our salaries being eroded.

UK bond yields: the coalition government spent the lives of disabled people
propping up "austerity" nominally to protect the credit rating, which it
promptly threw out the window to in the course of Brexit. It seems likely that
the UK situation will get worse.

Another thing to think about: state control directing credit to businesses to
increase employment was a big part of how China has achieved spectacular
growth rates over the decades since consolidating power at Tianamen.

~~~
roenxi
> "Financial repression" is one of those heavily loaded political terms that
> annoys me, because of the implication that the investment class are owed a
> positive risk-free rate of return even if that's at the cost of the rest of
> society.

The investor class aren't owed anything and the jaw dropping foolish policy of
bailing out losers needs to stop.

But two points; first just to be clear on terms there is no such thing as a
return that is free from risk. The term 'risk free returns' means no risk of
the contract counterparty welching on the terms of the contract. The other
background risks still exist. Nobody knows what the return on bonds will be in
real terms and investors get involved in them with the knowledge that the
investment could well be worthless or worth-negative in real terms.

Second - if the rate of return is negative then that really just means nobody
rational will be willingly to lend the money to the government. So while I may
not be owed a positive rate of return (which makes sense, I can't force anyone
to borrow from me) there is no fair situation where I accept a negative (or
nil) expected rate of return for taking on real risk.

~~~
cerberusss
> The investor class aren't owed anything

I don't know about your country, but in my country, you would be generalizing.
There isn't a specific "investor class" because a large percentage of the
population invests due to industry-wide organized pension funds.

~~~
roenxi
They aren't owed anything either. If bad decision makers are rewarded then the
situation will only get worse and people who don't know what they are doing
will accumulate more market power.

There needs to be some sort of program to keep people fed and in decent
accommodation; but there is too much to be lost rewarding people for standing
by idly while bad decisions get made with their money. It is not going to work
out well in the long term bailing out specifically the people who are screwing
up.

------
acd
I think central banks cause deflation by increasing money supply through lower
interest rates. Here how that may works the newly created money does not flow
to wage inflation they flow to investing in more automation
software/robots/machines. More automation is deflationary products become
cheaper to produce lowering their cost to consumers. Further more, wages are
no longer local through globalization so local central banks cannot fully
control wage inflation on a global market as cheaper wages products from
foreign wages are imported. There has been a race to the bottom from central
banks on low interest rates where countries has competed in lowering their
currency by lower interest rates. This cycle is now somehow broken.

Interesting that the interest rate will go up and the potential effect on
mortgages.

------
dageshi
I think this is probably one of the more important/insightful articles that's
been on HN in some time.

~~~
sauwan
This guy also predicted significant inflation back in 2010 during the last
crisis which...didn't happen. Take it with a bag of salt.

~~~
dageshi
Always take articles like this with various amounts of salt. My thought is
most of what he's saying sounds plausible and it's relatively easy to see if
it begins to happen.

------
RobertoG
What a tortured logic this interview follow.

It's funny that the period from the second world ward to the neoliberal
revolution in the 80's is considered by this guy a bad thing. It was a period
of grow shared by a big part of the population. I suppose if you work in the
City or Wall Street, something like that looks like the end of the world.

And he believe two contradictory things, he thinks that politicians control
the central bank and that they need private saving institutions to control the
bond yields. But if you control de central bank you already control the yields
(see Japan), you don't need any private institution help.

Mainstream economics is arriving to what Modern Monetary Theory has been
telling us the last 20 years. There are not insights in this article that have
not been repeated again and again by the MMT people.

------
einpoklum
> Politicians have gained control of money supply and they will not give up
> this instrument anymore

The issuing of money is a key aspect of sovereignty. So, if anything, it's
"restored control of money supply".

But even this is a misrepresentation, since most money in modern Capitalist
states is created by commercial banks, through a Fractional Reserve mechanism:

[https://en.wikipedia.org/wiki/Fractional-
reserve_banking](https://en.wikipedia.org/wiki/Fractional-reserve_banking)

in a nutshell - banks only hold a fraction of the money they give out as
loans, i.e. when they make loans they literally create new money.

It's also a slight misrepresentation since governments are mostly not-really
issuing their own money, just telling banks to issue a lot of loans. Having
said that - the states may need to issue money to cover failing loans (or
otherwise introduce stiff austerity programs).

When the state issues money, it is typically not debt-based like commercial
money. (officially it may be registered as sovereign "debt" to the central
bank, but that debt is just an artifice, and is never collected).

\----------

> QE was a fiasco. All that central banks have achieved over the past ten
> years is creating a lot of non-bank debt. Their actions kept interest rates
> low, which inflated asset prices and allowed companies to borrow cheaply
> through the issuance of bonds.

But that's what they set out to achieve! That's the policy that government -
or perhaps we should say, large corporations and financial institutions,
through government - chose to enact. It is an aspect of the collective
insanity of capitalism that millions of people lost their homes, and got no
bailout or public housing etc. - but the financial institutions who had
inflated the bubble of speculation and helped drive those people into ruin
were showered with cheap money (after some of them having been bailed-out
outright at public expense).

------
nimbius
>Governments have taken control of the money supply.

laughable.

The economist Wolfgang Streeck debunks this entire premise in his book 'how
capitalism will end.' after the 1993 financial crisis and 2008 market collapse
financial power eclipsed the state through the introduction of debt and credit
as the means of financial operation. First at the personal level, through
blank-check irresponsible issuance of credit cards and mortage loans, then
through the insistance that states and entire nations operate on a debt model,
sacrificing traditional tax revenue from the top earners instead for a system
of infinite term, low and even zero interest credit. all they have to do is
prove their solvency through austerity measures, which absolve the wealthy
from paying evermore taxes in the process.

Streeck even highlights how this happens in the EU, with northern nations
routinely subsidizing obstinant southern nations in an uncomfortable exchange
to push them toward a debt structure that only benefits the wealthiest. He
makes a compelling argument that everyone knew what greece was doing, even
encouraged it, and yet walked away blameless after the crisis.

the only way central banks benefit the political class is in their employment
as a cudgel to punish the wicked. Central banks disarm valid opposition like
Edward Snowden, Julian Assange, and Kim Dot Com. Or at least they did, until
cryptocurrency.

------
zackees
X22 report had been talking about Trump taking control of the Fed since april.
There’s a reason X22 get 100k-300k views per youtube is episode, he is
constantly right on the money.

I’m glad the rest of the intellectual class are finally acknowledging that the
government has seized control of the central banks.

X22 says we are going to see tremendous growth in our economy starting in Q4.
His track record of being right on the money gives me optimism.

~~~
dageshi
I think the entire point of the article is that governments have a way of
pumping money into the economy that doesn't require central banks...

~~~
Fjolsvith
But that is not what Trump is doing. He is using the Fed to take on as much
debt in the nation as possible. Why? Because there will be an audit of the Fed
and it will be discovered that the Fed has been misusing their funds. This
will allow the US government to cry foul and dis-organize the Fed - in effect,
declare bankruptcy.

What does that do the US? It basically stimulates the economy by forgiving
that debt the Fed bought.

What does it do to the central banks to whom the Fed owes money?

Naysayers take note: The IRS stopped all collection actions back in January.
IRS filing and payment deadlines were delayed. How was that possible? The
president just can't wave a magic wand and make the Federal Reserve jump
through a hoop. Or can he? What's the current EFFR?

------
jariel
The amount of debt being created by governments, willy nilly, with lack of
oversight due to 'COVID' is just scary. And that's just regular debt, not the
broad-money creation problems articulated in the article.

Anyone with the power to 'invent money' is going to abuse it an fight to the
death to keep it.

COVID was/is a fight, we're going to have to fight to rationalise finance, it
may never happen.

Since 2008 we've been living in a weird kind of financial fiction.

FYI consumers have been 'paying' huge kinds of inflation on their homes.
Having some degree of inflation would put that to bed quite nicely and it may
not be so bad for quite a lot of people.

~~~
yokaze
Hardly willy nilly. It is in accordance with the Keynesian economics school of
thought. It's simply that the Chicago school of thought is getting out of
fashion.

Also, debt is currently cheap to get, so for the government not to invest
would be rather unrational. And that is ignoring the downside on the income of
a tanking economy.

~~~
raducu
God, I'm so tired of hearing this: "debt is currently cheap to get, so for the
government not to invest would be rather unrational".

Debt is cheap BECAUSE we had a financial crisis, BECAUSE we let people who
shouldn't have indebted themselves indebt themselves.

There will be grave consequences an suffering in enabling inept people and
corporations take on more debt.

~~~
neilwilson
You can only borrow if you have collateral to discount against.

The question is whether the bankers know how to do their job properly and can
assess collateral.

~~~
raducu
But isn't collateral a tried an tested measure of knowing if you are actually
able to repay your debt?

Who would know better than the bankers, politicians?

~~~
neilwilson
Lending stops when people run out of collateral. It's not the interest rate
that determines what people can borrow. It's how much collateral they have.

The financial collapse was due to bankers failing to assess collateral with
sufficient haircut.

~~~
raducu
Could you explain your last phrase more concretely?

In my country mortgage loans stop when people don't have the downpayment of
5%-15% of the mortgage or when they have already indebted themselves for more
than 45% of their income.

Other loan types are also capped when you debt level exceeds a certain
threshold of your income.

This all seems reasonable to me.

It also seems reasonable that banks would not issue more debt to people when
their collateral value drops in market values, such as housing market bubble
bursts.

~~~
raverbashing
Quite simply this:
[https://www.investopedia.com/terms/n/nina.asp](https://www.investopedia.com/terms/n/nina.asp)

Banks wanted customers and wanted to fill their goals: "loan X per yr."

That's why the mortgage loans went boom.

~~~
raducu
Aren't the NINJA loans an example of why we need more bank regulations and
tighter loan cheks instead of making banks hand out even more loans?

~~~
raverbashing
Government bonds/markets are a different story than mortgages.

If you own the bank $100k, you have a problem.

If you own the bank $100Bi, the bank has a problem.

