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  • Russian Roulette: Taxpayers Could Be On The Hook For Trillions In Oil Derivatives [View article]
    But they are not. The article is a flat out lie intended to make you hate banks. There isn't a shred of truth to its statements about overall risks, or oil specifically.
    Dec 21, 2014. 05:27 PM | 2 Likes Like |Link to Comment
  • Russian Roulette: Taxpayers Could Be On The Hook For Trillions In Oil Derivatives [View article]
    This is a very bad article. The statement that "the derivative banks will get killed if oil prices don't come back soon" reflects a deep ignorance of the actual nature of the oil derivatives market. The largest oil derivatives are straight futures, and they are exchange cleared and cash settled every day. It is not possible to build up six months worth of losses in them as unpaid bad debts and then default on those debts. There is a reason exchange cleared straight futures have never caused any systemic risk event, and the writer is deeply irresponsible for claiming that they can and will.
    Dec 21, 2014. 05:25 PM | 4 Likes Like |Link to Comment
  • Can A Central Bank Always Create Inflation? [View article]
    Relevant does not mean what you think it means...
    Dec 21, 2014. 09:25 AM | 2 Likes Like |Link to Comment
  • New Study On Wealth Distribution Shows Where People Should Be Investing [View article]
    whiskeydog46 - mechanically saving the first 10% of income before you even see it, from the moment one starts paid work; buying a house rather than renting, with a reasonable rate fixed mortgage; investing in a diversified portfolio or index mutual funds rather than chasing fads, recent performance, or avoiding all risk in CDs, or overly concentrated bets like gold - these are the ways to wealth. If one can't start at 10% savings, start at 5% and then increase it every time you get a raise. Start early, dollar cost average a lot, never sell. Yes being disciplined on expenses and especially on high rate credit is also important. But simple savings discipline goes a long way. Instead of teaching this to everyone in school - as we used to - instead we teach grievance studies in the interests of future communism. Just silliness, in other words.
    Dec 21, 2014. 09:22 AM | 3 Likes Like |Link to Comment
  • Can A Central Bank Always Create Inflation? [View article]
    No, bank notes *originated* as promises to pay, but they are now the item actually paid, and have been since the end of any redemption right to receive some sum of another good in return for the note. And FRNs are not promises by the government to pay anything, they are liabilities of the Fed not the government. The only obligation the Fed has to take them in exchange for something is that it must accept them back as full payment for interest or principal of any of the bonds the Fed owns. That is the only sense in which they can be "redeemed" for anything else, and that only by the initial borrower.

    And you simply don't know what "debt" is, if you are confused in this matter. Every debt is an asset to whoever owns it and a liability to whoever owes it. There is no such thing as a net financial asset. Even equity, which is clearly an asset to those who own it, appears on the liability side of the sheet of its issuer. Every financial claim has an issuer - it is not specific to debt. As for "our" debt, if by that you means the debt of the US Treasury, that is owed to a variety of other owners, the Fed being one but by no means the largest of those owners.

    And no, you haven't "simplified" any of this, you've merely misunderstood it.

    As for what "a dollar" is, that is a unit of account like an inch or a gram, and doesn't tell you what any given financial claim denominated in dollars actually is, until you have also specified its issuer (and in some cases, its owner as well).

    The car loan I signed last March is a dollar liability, but it is classified as a loan on the books of the bank that owns it. That bank paid me for that note with a bank deposit balance. That bank deposit balance was a liability to the issuing bank and it was an asset to me. Was it "dollars"? It was a debt, it was measured in dollars, but what is "was", was a bank deposit. It was also money, because the car dealer was perfectly willing to accept a transfer of ownership over that bank deposit as full payment for the car I drove off his lot.

    When my bank transferred that bank balance from my ownership to the dealer's, since his bank was different from mine, our banks had to engage in another transfer to clear and complete that transaction. My bank Chase paid bank reserves to his bank, Citi. Chase's sheet shrank as that happened, by equal amounts on its asset and liabilities sides - it lost the bank reserve balance but also closed out its bank deposit liability to me. Citi's expanded by the same amount, as it acquired the bank reserve balance transferred to it, and simultaneously ran up a debt to the dealer for the same amount.

    The only place Fed anything appeared in that transaction is in the bank reserves that moved from Chase to Citi. Those are direct Fed liabilities. Either bank could convert them into physical FRNs on demand. But my note was not a Fed liability, Chase's deposit liability to me wasn't, Citi's deposit liability to the dealer isn't, either. Does that mean they aren't dollars? Not really, no. My loan is a nominal asset denominated in dollars. People separate it from the category of immediate money because not everyone knows I will repay without fail (Chase does, that is why they readily lend to me etc).

    But Chase's and Citi's deposit liabilities, no one has any such doubts about so they treat them as "dollars" and as money. Those form the majority of the money supply, in fact. The Fed didn't issue them, Chase and Citi did. They exist as their credit, not as the Fed's (let alone the government's).
    Dec 20, 2014. 03:29 PM | 2 Likes Like |Link to Comment
  • New Study On Wealth Distribution Shows Where People Should Be Investing [View article]
    Mayhawk - nobody is actually in all of these groups eternally. The whole manner of describing incomes is designed to artififically create the impression of some social caste system where there is none. It also preys on the general ignorance among most of the public of the actual nature of income distributions, which are power law distributed, not normally distributed. The actual meaningful distinctions in that distribution are the top 5% as "rich", the next 45% as "middle class", and the whole bottom of the distribution as "don't really have meaningful income". Specifically, 3/8th of income is in the "rich" slice so defined and half is in the "middle class" income so defined. Only 1/8th of income happens in the bottom half of the distribution. This means anything about overalls or averages has to talk about the middle class upper half of the distribution or it is completely misleading. The rich plus the middle class *are* the economy.
    Dec 20, 2014. 03:11 PM | 3 Likes Like |Link to Comment
  • New Study On Wealth Distribution Shows Where People Should Be Investing [View article]
    "an average rise of 42 per cent each year for 77 years"

    Um no, not even remotely. A 42% increase for each of 77 years would compound to a change of 5.3 billion times. A 32 fold increase in 77 years, on the other hand, is only a 4.6% annual rate of increase.
    Dec 20, 2014. 03:07 PM | 2 Likes Like |Link to Comment
  • Currencies And Brent [View article]
    No. If a given trader is actually *owed* something on a derivative position that has moved into the black, then that is an asset on his sheet. If a given trader *owes* something on a derivative position that was moved against him into the red, then that is a liability on his sheet. Only the amount actually owed to or owed by that trader, should appear on the balance sheet as an asset or a liability.

    And this is done. For US banks right now, derivatives with a positive fair value are an asset worth $200.7 billion. Derivatives with a negative fair value are a liability worth $185.7 billion. The net position of US banks in derivatives is a razor thin, nearly entirely flat, $15 billion net asset. Both are recorded on their sheet. Neither is material in amount, on a total asset sheet of $15 trillion in assets.
    Dec 19, 2014. 01:00 PM | 2 Likes Like |Link to Comment
  • Can A Central Bank Always Create Inflation? [View article]
    "in one year those Bills will be paid off but the FRN would still be in circulation"

    No. The transaction fully reverses *when the Fed is paid at the maturity of the bill*. Unless the Fed engages in a new transaction to keep the size of its sheet constant, rolling over the proceeds of the maturing bill.

    The Treasury has to actually pay its debts. If it pays them to the Fed and the Fed doesn't buy anything else, the Treasury's debt is retired *and so are the FRNs*. There is a mutual balance sheet expansion when both are outstanding, and a mutual balance sheet contraction when each *returns to its issuer* and is thus *cancelled*. Almost the entire Fed sheet would be repaid to it in 10 years time doing nothing - and cancelled as a result.

    That there is routinely a regular market for the Fed's liabilities, so that it can and routinely does place new liabilities and invest in new assets, is a fact about the market demand for dollars - not government anything.

    Nor is the effect of Fed liabilities circulating in any way tied to their routinely being invested in US Treasuries. These days they are also routinely invested in mortgage backed securities, and in the past they were routinely invested in banker's acceptances and similar corporate paper issued by financial institutions. Neither changes its operations in the slightest, nor changed the effects of the expansion of its balance sheet.

    Indeed, in the 1930s the Fed engaged in open market operations to expand its balance sheet by buying gold from the rest of the world. It still expanded the dollar money supply doing so. The world sent its gold to the US and received dollars in return, that it preferred because the dollar was undervalued and dollars could actually be used to pay for real imports.

    Sure there are lots of people on SA and elsewhere confused about all of this. They are confused about accounting, they don't know what debt is, and lots of other things. All standing in their way of understanding finance generally, and monetary finance specifically.
    Dec 19, 2014. 11:01 AM | 3 Likes Like |Link to Comment
  • New Study On Wealth Distribution Shows Where People Should Be Investing [View article]
    "If more of the savings of the economy leads to an increase in the value of land rather than the stock of capital goods"

    Fundamental misunderstanding. 75% of all capital in the US, by value, is real estate. Business equipment is less than 10% of all capital.
    Dec 19, 2014. 10:52 AM | 3 Likes Like |Link to Comment
  • Can A Central Bank Always Create Inflation? [View article]
    The fact that (example, without loss of generality) IBM's entire balance sheet has never disappeared does not suffice to prove that IBM has never paid its debts. As a fact, IBM has never failed to pay its debts, exactly as contracted.

    The rest is just failing to understand or appreciate what accounting is and has been since the Italian renaissance, what merchants routinely have done that whole time, etc.
    Dec 19, 2014. 09:33 AM | 3 Likes Like |Link to Comment
  • Can A Central Bank Always Create Inflation? [View article]
    A federal reserve note is not a debt obligation of the federal United States government, and you are thoroughly confused.
    Dec 19, 2014. 09:29 AM | 3 Likes Like |Link to Comment
  • Currencies And Brent [View article]
    Derivatives are not debts. Pretending they are is pretending.
    Dec 19, 2014. 09:27 AM | 2 Likes Like |Link to Comment
  • Can A Central Bank Always Create Inflation? [View article]
    Bank execs got fired. James Dimon at Chase is the only one of the entire crew who made it through the crisis still in charge of his bank. Your resentment is just bankrupt.
    Dec 18, 2014. 10:18 AM | 1 Like Like |Link to Comment
  • Can A Central Bank Always Create Inflation? [View article]
    Hamilton was not basically selfish and out for himself. He was ambitious on a scale that necessarily brings public spirited behavior. He wanted to teach England moderation by erecting a commercial empire strong enough to balance her, and thus to dictate all the terms on which the new and old worlds would communicate and deal with each other, and to have those terms be fair commercial ones, not lopsided and military ones. He succeeded, and changed world history, dramatically for the better for billions of human beings. He is one of the greatest benefactors of mankind in human history - if a bit unsung. Such a man is not adequately described as "selfish". Those describing him with that crimped vocabulary are simply too petty to understand him - or anyone like him. But all that is an aside. The ungrateful condemn themselves; their disrespect is praise.
    Dec 18, 2014. 10:12 AM | 1 Like Like |Link to Comment