Billmon: The Eurosystem's (Monetary) Control of Europe's Politics
Note: This post was composed from a Twitteressay by Billmon.
J.W. Mason lists some Lessons from the Greek Crisis:
Before the crisis no one even knew that national central banks still existed — I certainly didn’t. But now it’s clear that the creditors’ unchallenged control of this commanding high ground was decisive to the outcome in Greece. Next time an elected government challenges the EU authorities, their first order of business must be getting control or cooperation of their national central bank.
The quote says "control or cooperation," but I can guarantee the latter is never going to happen.
It is nearly impossible to exaggerate the degree to which the campaign for central bank "independence" has made them the enemies within for any left governments.
The central bankers waged a 50-60 year political war to wrest back the monetary flexibility that the break down of Bretton Woods gave to national governments. Having won that war across most of the developed world in the 70s and 80s, they extended the battlefield to the emerging markets in '90s and '00s.
The autonomy of central banks (meaning the political allegiance to Wall Street/London City/Frankfurt etc.) was maybe the biggest neoliberal victory of all. If rightwing political victories (Reagan, Thatcher et. al.) were the beachheads of the Great Counterattack on social democracy then "independent" central banks became the citadels of the occupation forces: Neoliberalism's "Republican Guard."
Ironically, the ECB was originally conceived - or at least was sold to the European left - as a way for governments to regain monetary flexibility at a higher level. As a way to a) escape US dollar hegemony and to b) outflank the Bundesbank by formalizing the joint political control of European monetary policy. I do not know if the hack establishment Social Democrats who sold that vision ever believed it, but if so, more fool them. Because what the European Monetary Union became, obvious now, was a way to turn the vision on its head: formalize joint MONETARY control of Europe's politics.
The "Eurosystem", the network of national central banks governed by the European Central Bank, gives central bankers unprecedented ability to squeeze and manipulate national governments in a coordinated way. It is as if every government in the Eurozone ALREADY has a colonial entity watching it like the Troika's agents are supposed to watch Syriza in Athens. And, since the ECB Governing Council (like other EU institutions) tries to operate by a non-transparent "consensus" (i.e. the votes are not revealed), the degree to which national central bank heads are representing the ECB in their countries, rather than the other way around, is often not clear.
As long as the cozy comprador system tied peripheral governments to the core (i.e. Berlin), the role of the ECB and the Eurosystem could be obscured. Peripheral governments appointed "made guys" (i.e. banksters and/or their technicians) to national central bank boards and pretended to govern. Core politicians and their local comprador politicians let the Eurosystem technicians in Frankfurt tell them what "structural reforms" they should push to make the EMU "work."
But the moment an outsider government like Syriza came to power, the role of the Eurosystem and the national central banks in it could no longer be hidden. The fact that the Greek National Bank was an instrument of the ECB in Frankfurt, not of the Greek government in Athens, became obvious to everybody. The ECB's role as the muscle behind the Eurogroup's (Berlin's) diktats put the Greek National Bank in the position of helping to choke its own banks and terrorize its own citizens. And under the rules of EMU the Greek government was completely powerless to do anything about it. A defining moment.
The inescapable conclusion is that the allegedly "independent" Eurosystem now operates not as a network of central banks but as a parallel government.
The role of the Eurosystem within the half-hidden political order of the eurozone really is comparable to the Soviet or Chinese Communist Party. Like the Communist Party, the Eurosystem is now the "leading organ" of the neoliberal order, operating at all levels of the EU structure and providing "guidance" to elected political structures which are not formally under its legal control, but in reality are dominated by it. And behind the administrative apparatus of the party (Eurosystem) is the Central Committee (Eurogroup) and the Politburo (the key creditor government officials). And behind THEM is the real locus of the party's centralized power: the General Secretary (Germany/Merkel).
So J.W. Mason is quite right: it is impossible for any left government to attack the dictatorship of finance unless it controls its national central bank. But while control of the national central bank is necessary, it is hardly sufficient. As long as the EMU exit is off the table, verboten, so to speak, control of the national central banks only eliminates the "near enemy."
Ultimately it comes down to political will, which in parliamentary democracies, comes down to public support. As long as the majority (of all voters or of propertied influentials, depending on the system) is more loyal to the Euro than to national sovereignty an effective challenge to the dictatorship of finance is impossible - no matter how many national central banks the left controls.
Posted by b on July 16, 2015 at 10:57 UTC | Permalink
« previous pageIt seems to me, at the end of he day, bottom line, it would be so less confusing if people learned that 1. "Banks make legal serviceable contracts", 2. "These bank contracts produce a credit condition", 3. "That credit is used by a bookkeeping credit (called 'Principle') to the bank customer's account for their use and a bookkeeping debit to the bank's loanable funds", 4. "Servicing that bank contract reverses the bookkeeping where the bank's loanable funds are credited and the customer's account holdings are debited for enough to meet the terms (called 'Interest' representing the time the Principle was used and the rate charged for using the Principle (for both the risk taken and the ability to use the bank's funds)) of the contract made", 5. When the original bank contract is settled, neither debt nor credit exist, only what the loan contract produced while it was in existence remains, be that an income producing condition (which helps pay back the bank contract) or to fill some consumption need, want or desire (in which case, interest paid is added to the costs of whatever is purchased).
The above tells the story of what banks are basically about, a way to distribute the unconsumed economic wealth (Savings) to those who have some need to use that wealth while assuring those who save and are willing to receive an interest payable to those savings (or at one time this was the full case) that the bank aggregates in its accounts. And since contracts are not easily confounded with similar terms used in other contexts, saves mightily in the number of words needed to dis-confound misinformation.
Posted by: Formerly T-Bear | Jul 28 2015 2:42 utc | 202
"what banks are basically about, a way to distribute the unconsumed economic wealth (Savings) to those who have some need to use that wealth "
Banks don't lend out savings.
Banks don't lend out deposits.
Banks don't re-distribute anything. There is no intermediation at play.
Loans create deposits. This is all that has to be understood about banking. That and loans create more liabilities than assets…loans don't create the money necessary to pay the interest, so as a loan is paid off it shifts net money, persistent money (savings) to the banking sector as it destroys (amortizes) the dollars originally created.
Banks create credit from nothing. When a bank makes a loan the level of dollars and liabilities in the non-government are increased to the penny by the amount of the loan.
Borrowing money makes the banking sector stronger and the rest of us (save a few parasites) weaker.
Posted by: paulmeli | Jul 28 2015 12:17 utc | 203
@Formerly T-Bear,
Within a sovereign currency regime, whether that's USD, GBP, CAN, YEN, or AUS [but not the EUR],
You can can break it into two parts:
the federal sector and the non-federal sector (everybody else, including banks).
Same roof [currency], different rules.
Unfortunately, they use the same language to describe similar activity on both sides and that's why everyone is confused. Because they mean two entirely different things. The underlying rules differ depending on whether you're talking about the federal sector, or the non-federal sector.
Posted by: MRW | Jul 28 2015 15:11 utc | 204
@200 paulmeli.. thanks.. i will take a look at the link on the bottom of your post.. "The interest we pay on public debt is of no consequence so why worry about it?" i had heard a big chunk of the money that canuck gov't brought it annually was going to service the debt - can't remember the figure..
here is something you, mrw and tbear might want to chew on...
"the Basel Committee was established by the central-bank Governors of the Group of Ten countries of the member central banks of the Bank for International Settlements (BIS), which included Canada. A key objective of the Committee was and is to maintain “monetary and financial stability.” To achieve that goal, the Committee discouraged borrowing from a nation’s own central bank interest-free and encouraged borrowing from private creditors, all in the name of “maintaining the stability of the currency.”
The presumption was that borrowing from a central bank with the power to create money on its books would inflate the money supply and prices. Borrowing from private creditors, on the other hand, was considered not to be inflationary, since it involved the recycling of pre-existing money. What the bankers did not reveal, although they had long known it themselves, was that private banks create the money they lend just as public banks do. The difference is simply that a publicly-owned bank returns the interest to the government and the community, while a privately-owned bank siphons the interest into its capital account, to be re-invested at further interest, progressively drawing money out of the productive economy."
hereis a link that expands on that quote...
@201 mrw... thanks.. but i encourage you to also read the link i have provided which challenges the basic viewpoint you and paulmeli seem to support here on the thread.. yes, i did read @160, but perhaps you meant a different post?
i go back to why our canadian gov't takes in revenue and pays a large percentage of it towards the debt it has accumulated.. the post i have linked to appears to explain this via the designs and actions in canada at least from about 1974.. i don't know the story in the usa, but there may be some obvious parallels here which you may be overlooking..
Posted by: james | Jul 28 2015 15:22 utc | 205
Please read better than that. Nowhere in the first paragraph was anything like that said. You are paying attention to what is between your two ears and not what is in front of your eyes. The second paragraph you address is more an historical overview of banking's origins, not necessarily descriptive of the banking process as it has developed in its latest forms. You have just added a load of obfuscation, and unnecessary shite to already murky waters. Nice one Sparky! And by the way, loans do not create deposits, contracts are the basis of loans from which deposits are generated, which was the point of the first paragraph, had you bothered to read what was there. Your reading awareness and comprehension skills need some brushing up. Where would you expect to make the larger loan (1) at a bank with $300,000 capitalisation and 1,000 accounts or (2) a bank with 30,000,000 capitalisation and 15,000 accounts? What puts limits on transaction banks can carry out? Or has the banking system left those rails as well?
Posted by: Formerly T-Bear | Jul 28 2015 15:38 utc | 206
Apologies: My # 206 was to paulmeli # 203, the intervening commentary had not shown up when post was pressed.
@ MRW - at no time was any reference made to MMT, nor was there intent to bring MMT into the picture. My focus was entirely upon traditional commercial banking, nothing else. Otherwise I am at a loss as to whatever it is you are pointing out. I wasn't even referring to central banks is my comments, thank you nonetheless.
Posted by: Formerly T-Bear | Jul 28 2015 15:52 utc | 207
Formerly T-Bear @ 206
Please read your own material more closely.
2nd paragraph, copied and pasted from your own writing at 202.
That may not be what you meant but it is what you wrote. The first paragraph is mostly mostly word salad.
Loans do create deposits and your convoluted phrasing does not change that fact. The loanable funds theory is nonsense and virtually every central bank rejects it, as does arithmetic.
From the link I posted:
"In the intermediation of loanable funds model of banking, banks accept deposits of pre-existing real resources from savers and then lend them to borrowers. In the real world, banks provide financing through money creation. That is they create deposits of new money through lending, and in doing so are mainly constrained by profitability and solvency considerations."
I included the link in the original post so there would be no confusion, but I underestimated you. Did you even bother to check the link?
The last part should answer your question regarding two disparately-sized banks, but your question leads one to think you don't even understand the discussion going on.
Posted by: paulmeli | Jul 28 2015 18:04 utc | 208
Formerly T-Bear | Jul 28, 2015 11:52:35 AM | 207
I know. ;-) I was just making a generalized comment (thinking about the copious amounts I've written here and how confusing I'd been) on my iPad while I drank my morning on the porch watching this one cocky bird sing and shit on the tree. "It seems to me, at the end of he day, bottom line, it would be so less confusing." It was a riff on "confusing." That's all.
Posted by: MRW | Jul 28 2015 18:05 utc | 209
@Formerly T-Bear @206,
And by the way, loans do not create deposits, contracts are the basis of loans from which deposits are generated.
I think you're saying the same thing. (Can't get a loan without a contract.)
It's common shorthand in the banking business to say "Loans create deposits."
The Bank of England explains it in the left column of the Overview on page 1, and more on page 2, here:
Money creation in the modern economy.
Frank N Newman, former Deputy Secretary of the US Treasury describes it in his great, little 87-page book, Freedom From National Debt (2013). Chapter 2.
There are often misunderstandings about how the total amounts of deposits grow in an economy and a banking system. Many commentators state or imply that somehow, if we could get depositors to try to save more money, then that would lead to increases in total deposits in the system, and more money available for banks to lend. But that is not possible, since deposits by every depositor have to come from withdrawals from another bank account. It is impossible for depositors to increase total deposits in the nation, no matter how hard they might try. As explained in Chapter 1, people do not “use up” money when they spend: it just moves from one deposit account to another; similarly, when people save, it does not add to total deposits, since each person’s income comes from another deposit account. The main source of growth of deposits in a nation comes from the banks, which create money as they make loans.An individual bank may want to increase its market share of deposits, in order to improve its liquidity, because if some of its deposits are moved to another bank, then the first bank must provide cash (reserves) to cover that amount in its Fed account, as the Fed moves reserves from the account of the first bank to the account of the second bank. A bank that has increased its deposits may feel more confident about its liquidity position, but money just moves from one bank to another without changing the overall total of deposits. [Emphasis in original]
Newman, Frank N. (2013-04-22). Freedom from National Debt (pp. 15-16). Two Harbors Press. Kindle Edition.
Posted by: MRW | Jul 28 2015 18:36 utc | 210
I forgot this other quote from Newman:
the banking system does not use deposits to make loans: the system creates new deposits as banks lend.Newman, Frank N. (2013-04-22). Freedom from National Debt (p. 23). Two Harbors Press. Kindle Edition.
Posted by: MRW | Jul 28 2015 18:45 utc | 211
MRW @ 209
MRW, I have no complaints about anything you've written. It seems bad formatting has resulted in your words being put in someone else's mouth, but you are not responsible for that.
If more people had your good attitude the world would be a better place.
Cheers, and keep up the good fight.
Posted by: paulmeli | Jul 28 2015 20:14 utc | 213
@ MRW | Jul 28, 2015 2:05:35 PM | 209
The riff on 'confusing' - worked. I fully missed your view of the bird in the tree, no chance it was a partridge and the tree pear was it?
IIRC J.M. Keynes realised savings acted as a break on the production/consumption cycle depressing the volume. He saw that banks (in the classic sense) using interest to involve savings as a way to reintroduce some fraction of savings back into that economic cycle. The accounts of a bank, saving, current accounts and time deposits in conjunction with the banks own capital provide, after appropriate required reserves are observed, the loanable funds of that bank. Contract based loans when deposited further enlarge, again after required reserves are observed, the funds available for loans (as well as repayments received from prior loans and their interest charges). This is what my reference was about. If none of that is still being done, then I admit standing in error, some parallel universe surreptitiously replaced the one I was aware of.
Posted by: Formerly T-Bear | Jul 28 2015 20:56 utc | 214
JAMES @205,
OK. Here's your quote from @205 (for those who don't want to scroll up)
"the Basel Committee was established by the central-bank Governors of the Group of Ten countries of the member central banks of the Bank for International Settlements (BIS), which included Canada. A key objective of the Committee was and is to maintain “monetary and financial stability.” To achieve that goal, the Committee discouraged borrowing from a nation’s own central bank interest-free and encouraged borrowing from private creditors, all in the name of “maintaining the stability of the currency.”The presumption was that borrowing from a central bank with the power to create money on its books would inflate the money supply and prices. Borrowing from private creditors, on the other hand, was considered not to be inflationary, since it involved the recycling of pre-existing money. What the bankers did not reveal, although they had long known it themselves, was that private banks create the money they lend just as public banks do. The difference is simply that a publicly-owned bank returns the interest to the government and the community, while a privately-owned bank siphons the interest into its capital account, to be re-invested at further interest, progressively drawing money out of the productive economy."
This was from Ellen Brown’s 2012 article here .
If this were true, then the Bank for International Settlements would be running the same kind of scam that the NY bankers tried to push through in June 1913 via Rep. Glass’s House Banking Committee version of the The Federal Reserve Act. This was exactly what the NY bankers wanted back then: to be in control of the money supply and create the currency. There is no sovereign central bank in the world today that would put up with anything like that. It’s straight-up Cosa Nostra. (BTW, this was the same Glass who 20+ years later created the Glass-Steagall Act as a Senator, but in 1913 he was reliant on the bankers for campaign funds.)
It was Senator Robert Owen, chair of the Senate Banking Committee, who brought in over 500 witnesses from across the country in October 1913--I found all 3600+ pages--and quickly and quietly rewrote the Federal Reserve Act during November and the first two weeks of December 1913 to put the federal government in charge. Owen had been a banker in Oklahoma. He could see through the NY bankers. Owen slipped his rewritten final version of the bill into Wilson’s office and got it signed December 23, 1913 before anyone could make a peep. That’s the real truth of the events and I have the original documentation to prove it, scanned by Google from archives in October 2008, and April 2011.
Anyway, I just spent 3 hours reading the Basel historical documents. Ellen Brown is making all this up because she doesn’t understand what the documents say. The Bank for International Settlements acts solely and completely as a supervisory and regulatory oversight body for central banks and international banks operating in each others' jurisdictions.
She completely misunderstood what they were talking about when she wrote the following, "the Committee discouraged borrowing from a nation’s own central bank interest-free and encouraged borrowing from private creditors.”
No. No. No. Nowhere, absolutely nowhere, in any of the BIS documents does it say anything at all like that, and the people who run the link you gave, Qualicum Investors or whatever it’s called, do not have the operational knowledge to understand the difference. The BIS docs describe how a foreign bank is to be treated locally by the Federal Reserve, say, and how the parent (foreign) bank and the parent country (foreign) banking authority are all supposed to interact in order to achieve stability in the global banking system.
To be contd. my friend, because there’s more.
God, 'I love napalm in the morning'.
Posted by: MRW | Jul 28 2015 21:08 utc | 215
James @ 205
James, yes, I'm aware of the Basel Committee. The Basel Committee is a neoliberal group espousing neoliberal ideas and yes, MRW and myself are arguing the opposite point of view as represented in the first paragraph of the quoted material. The 2nd paragraph seems to be aligned with what MRW and myself have been discussing. It won’t change their overall philosophy one iota however, because accuracy and truth are not their goal.
I read (partially) the link you posted and it seems it is arguing for public banking as opposed to allowing private banks to create credit denominated in state money beyond what they hold in deposits.
I get the idea but I don’t see how that is in conflict with what MRW and myself have been saying. We are focusing on the operational aspects of money systems rather than the political aspects. If one doesn’t understand the math (circuit analysis really), any solution will miss the mark unless someone is extremely lucky.
That said, keep in mind the accounting that is going on…paying interest to the government for a loan is effectively a tax. The loan not only removes money (and liabilities) from the economy as the principal is amortized, so too is the interest, decreasing the money supply by more than the loan amount when satisfied.
The more credit outstanding the faster spending drains from the economy. The advantage I see here is the rich are not able to have a toll-gate on the economy that allows them to be the tail that wags the dog.
Student loans in the US operate in a similar fashion.
But it removes net financial assets from the economy. At the expense of consumers. This is a Bad Thing™. Like running a budget surplus.
For this to work some entity (who I wonder?) has to replace the lost spending at another entry point or the economy will contract.
A more effective solution in my view is to tax the rich so that their wealth does not accumulate at a faster rate than the rest of the economy. Excess wealth is a drag rather than a boost to economic activity…remove it. This is Michael Hudson's view.
Regarding your reference to interest on bonds coming from taxes (or revenue)…no, it doesn’t.
Spending is a prerequisite for (taxable) Income which is a prerequisite for income taxes. The Arrow of Time has spoken…it is logically impossible for taxes to fund spending, because in order to do so taxes would have to come first on the timeline, just as the landing cannot come before the jump, the effect cannot come before the cause.
A government that is sovereign in it’s own currency can spend whatever it wishes (subject to political constraints) whenever it wishes regardless of some level of tax revenue. The only constraint on spending is that it can’t buy more than is available for sale in the currency of issue.
Based on my rough back-of-the-envelope calculations interest on Canadian National Debt is 6.5% of total revenue or 1.3% of GDP. It appears to me Canada includes only deficits in it's revenue number. I added the budget amount to the revenue figure to do this calculation. I used a portfolio rate of 2% to get the interest figure (currently Canadian Treasuries are yielding about 0.6%).
In the US, interest is 13% of total revenue, or 2% of GDP. Canada appears to be spending a lot less in relative terms than the US…not good for it's citizens. Canada's spending is it's citizens income and it's deficit is it's citizens savings.
In either case the interest is a net add to the level of financial assets (state money) in the economy. It therefore has no ‘cost” per se, although there may be other considerations, i.e. this piling up of wealth allows the rich to buy, or effectively co-opt the government, but this money is pittance compared to the many trillions accumulated by the top 0.01%.
Posted by: paulmeli | Jul 28 2015 21:17 utc | 216
Where's my comment to Formerly T-Bear? More Typepad trouble?
Posted by: MRW | Jul 28 2015 21:30 utc | 217
ps james re 216
If Canada continues this march towards balancing it's budget or running a surplus it follows that we should expect a recession very soon…history tells us so.
Posted by: paulmeli | Jul 28 2015 21:36 utc | 218
james @205,
The presumption was that borrowing from a central bank with the power to create money on its books would inflate the money supply and prices. Borrowing from private creditors, on the other hand, was considered not to be inflationary, since it involved the recycling of pre-existing money.
If the BIS bankers presumed this, then they are bonkers and don’t deserve the job. Nucking futs, as my sister who doesn’t like to swear would say.
This is completely and absolutely off-the-wall.
Ellen Brown, in this article (because I think I heard that someone got to her to point out her glaring mistakes), does not understand
1. How Congress creates new money.
2. The difference between the vertical and horizontal, or the difference between the federal government sector and the non-federal government sector.
Congess increases the money supply when it authorizes new spending and the US Treasury tells the Federal Reserve to pay the vendors.
The subsequent issue of treasury securities by the US Treasury (in the same amount as the spending) restores the money supply to balance. All of this happens without the Federal Reserve or the banks having anything to do with it.
It would be insane if the BIS didn’t know this. We’ve been doing it for decades and decades. So has Canada.
Posted by: MRW | Jul 28 2015 21:47 utc | 220
paulmeli | Jul 28, 2015 5:36:01 PM | 218,
If Canada continues this march towards balancing it's budget or running a surplus it follows that we should expect a recession very soon…history tells us so.
Hallelujah. Dead right.
Posted by: MRW | Jul 28 2015 21:49 utc | 221
Another thing, james @205
That chart on the Qualicam website is NOT FEDERAL DEBT OWED. Not. Does not have to be paid back unless you want every citizen to be broke.
It is a record of the amount of Canadian dollars created since 1867, minus the dollars destroyed (taxes).
It's a total sum of what is in every Canadian's bank account.
Federal Debt = Federal Money = Federal Equity. it is what the people own.
Posted by: MRW | Jul 28 2015 22:02 utc | 222
"It would be insane if the BIS didn’t know this"
They know it. Acknowledging it means deviating from the neoliberal party line. The BIS is another neoliberal-controlled entity.
The IMF acknowledges that Greece has no chance of repaying it's debt unless growth is achieved. This can only be accomplished through austerity (the right hand)…
The IMF acknowledges that growth cannot be achieved under the current regime (austerity) (the left hand)…They thought it could but they admit that they were wrong (the left hand contradicts the right hand)…
The IMF says Greece must bow to the troika's demands for austerity because TINA (the right hand).
Posted by: paulmeli | Jul 28 2015 22:07 utc | 223
james @205,
Furthermore, what happened in 1974 is that Canada did not have to save its gold for international payments. The reserve currency, the US, took everybody off the gold-standard permanently on August 15, 1971, and you're just seeing the effects of it.
Posted by: MRW | Jul 28 2015 22:11 utc | 224
paulmeli | Jul 28, 2015 6:07:22 PM | 223,
The EU is blowing itself up, Paul. ;-)
The BIS, I thought, was the banker for central banks and international organizations. Doesn't it handle the SWIFT system, or oversee it? So the IMF banks there, but does the BIS dictate to the IMF?
Just as the Federal Reserve, with its regulatory hat on, is the banker for federally charted US banks (like Citibank, JP Morgan, or the Commerce Bank Of Washington.)
Posted by: MRW | Jul 28 2015 22:32 utc | 225
james @205,
Saving the Big Kahuna for last, james . . . . [search for all the james @205 replies I gave you.]
Qualicam Institute references Ellen Brown’s article, http://www.commondreams.org/views/2012/04/01/canadas-2012-budget-imposing-austerity-worlds-most-resource-rich-country
She writes:
It seems that no gamer, lawmaker or otherwise, was offered the opportunity to toy with the number one line item in the budget: interest to creditors. A chart on the website of the Department of Finance Canada titled “Where your Tax Dollar Goes” shows interest payments to be 15% of the budget—more than health care, social security, and other transfer payments combined.
Go look at it. This describes who the Canadian government “owes" interest to. I hope this clears up your confusion, because God knows Ellen Brown doesn’t understand it, and neither does Qualicam Institute.
Right there, in black & white, it says:
1. Interest Payments
The largest single federal spending item was interest payments on Canada's public debt (that is, money borrowed by the central government over the years, which has not yet been repaid to the lenders). These payments-to institutions and people who hold federal bonds, treasury bills and other forms of the debt-cost $33.8 billion. That's just over 15 cents of every tax dollar.
In other words, institutions and people BOUGHT federal bonds, treasury bills and other forms of the debt (other forms of financial instruments) FROM the federal government. They took their own money out of their own local bank account and exchanged it for treasury securities that the Canadian government generously pays them interest on. It’s an asset swap.
Just like they do here in the USA when they buy treasury securities. It’s the same as 3. Treasury securities in my MRW | Jul 27, 2015 9:23:34 PM | 201 post.
The Canadian government did not “borrow" that money from them. I keep trying to explain that people use the same language for federal government operations as they do with non-federal government operations. Whoever wrote this parenthetical statement is misrepresenting the process through ignorance, using words that the common people have a different sense of: "that is, money borrowed by the central government over the years, which has not yet been repaid to the lenders.” The Canadian government issued the very money that these “institutions and people" had in their local bank accounts to begin with. Where the fuck—I’m not my sister--do you think the Canadians got their Canadian dollars to begin with? Some counterfeit factory on Mars?
What this Department of Finance Canada website is saying is that a lot of Canadians have their money parked in federal bonds, treasury bills and other forms of 'the debt'. Probably for safety. And each year, the Department of Finance pays them interest on their treasury securities. Big Whoop! The interest owed annually was around $33.8 billion when the page was written. Taxpayers do not pay for this. The federal government does. It is mandated by law. It has nothing to do with tax revenue. I don’t give a shit what supposed on-air economists say or supposed business reporters, or even newly-minted MLAs, say. They know jackshit. The Canadian federal government pays for the “interest on the debt” the same way the US Treasury pays for it, by issuing “more debt,” more treasury securities. And they do that at The Mint in downtown Ottawa. Hell, they probably do it from the Department of Finance or the Bank of Canada computers because it’s all electronic now. No taxpayer, no children, no grandchildren involved. The interest paid on these treasury securities gradually raises the “federal debt” over time, the amount of money that the federal government allows its citizens to keep, adding new money into the economy.
Posted by: MRW | Jul 28 2015 23:28 utc | 226
MRW @ 225
The BIS may have no direct relationship with the IMF and I didn't mean to imply there was. I am confident they sit in on a lot of the same meetings and share similar world-views.
The BIS has it's own research facilities. It's emissions reflect the dominant neoliberal point of view. The BIS is a support system…for neoliberalism.
One can see similar patterns of contradictory statements emanating from all of these 'institutions'. Propaganda outlets seems more accurate. The virus is pervasive.
Is there any institution with power that does not promote the neoliberal point of view?
I haven't come across one. I may be wrong, but it seems to me there is no countervailing output with any institutional power in existence.
We can (with care) accept their data. We can't believe (or even listen to) their conclusions.
Posted by: paulmeli | Jul 28 2015 23:29 utc | 227
@ paulmeli | Jul 28, 2015 7:29:29 PM | 227
Is there any institution with power that does not promote the neoliberal point of view?
Obtain: Philip Mirowski "Never Let a Serious Crisis Go to Waste, How Neoliberalism Survived the Financial Meltdown"
ISBN-13: 978-1-78168-079-7
You will not regret reading Mirowski.
Posted by: Formerly T-Bear | Jul 29 2015 4:58 utc | 229
mrw and paulmeli from @215 to my new post here.. thanks for going to the trouble to explain all that to me.. i am beginning to get it.. it is confusing and as mrw points out @226 - not especially easy to understand given the wording.. i am now understanding all this in a different type of light..
regarding international institutions falling under the spell of neo-liberalism - i don't know when that is going to change, especially as it continues to favour some over others and keeps an unbalanced atmosphere going that will lead to more conflict.. at any rate - interesting viewpoint paul on the bis and etc that make understanding these institutions that much more complicated.. thanks both of you..
Posted by: james | Jul 29 2015 16:44 utc | 230
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james @198, etc.
First we have to define what this money is that you think is owed to banks, what is this ‘debt’, and why there's interest owed.
The Canadian government--like the US, British, Japanese, and Australian governments—makes three classes of “money”
1. Physical cash
2. Computer keystrokes
3. Treasury securities
Physical cash you understand. (Only a small % of a country’s money is physical cash.)
Computer keystrokes are how central banks (Bank of Canada, Federal Reserve) mark up the accounts of the vendors the federal government is buying from, how it makes automatic payments to seniors, pays for federal buildings and maintenance, issues electronic paychecks to federal employees, pays for Air Force One, you name it, etc.
Treasury securities are “money” that the federal government prints up to sell at auction to the public, aka the non-federal government sector, that wants to net save in $CAN or $US, and it pays interest on those treasury securities.
The government sells treasury securities for a bunch of reasons.
I don’t know the ins and outs of how Canada uses its treasury securities specifically, but it’s roughly the same.
THE ACT OF THE FEDERAL GOVERNMENT SELLING TREASURY SECURITIES TO THE NON-FEDERAL GOVERNMENT SECTOR IS CALLED “BORROWING.” When it isn’t. It doesn’t borrow squat. It’s completely off-the-wall to say that. The federal government is simply offering a safe haven for its citizens’ cash that the citizen can count on getting back with interest down the road, because it knows the the country can’t go broke. A commercial bank can go insolvent and many did in 2008.
So why do they call it “borrowing”?
Because in double-entry accounting, the federal government records the treasury securities it issues on the right-hand side of the ledger, which is traditionally for Liabilities. Liabilities are called “debts” in accounting language. The federal government records what it does after the fact. So the shorthand became that the federal government “borrows.” Which is utter bullshit, the federal government does not borrow what it can issue. But we’re stuck with the nomenclature. It’s as simple as that, james. Nothing more complicated than that.
So when your local bank in Montreal has $4 million in deposits, it will buy treasury securities to keep that money safe; it has a responsibility to. Treasury securities are as good as cash, however. Technically, they are called “net financial assets” because they represent the wealth of the people. In the US the daily treasury securities trading market is nearly $750 billion. And your local bank earns treasury security interest from the guvvie just like the rich individuals, pension funds, university trusts, small businesses, corporations, foreign governments, foreign banks, and foreign investors that buy them. The US govt has no problem paying interest. It just issues more treasury securities.
The US Treasury pays out interest twice a year, I think. Used to be more often when treasury securities were on paper. It was called “clipping coupons,” and I think it was either monthly or quarterly.
BTW, the “National Debt,” aka Debt Held by the Public, is the record of all the currency (physical cash, keystrokes, and treasury securities) created by the US federal government since 1791 minus all the taxes collected and destroyed (taxes remove money from the real economy).
Does this make sense? Did you read the @160 post?
Posted by: MRW | Jul 28 2015 1:23 utc | 201