Central banks originated from private sector wholesale banks that were used to cover excessive withdrawals which could in turn start bank runs. Over time they were grouped together and controlled partly by the government to provide a permanent solution to potential bank runs and enable the withdrawals from banks to run more smoothly. They began regulating reserve requirements to help stop bank runs and noticed the affect on the interest rate set by the size of the reserves of each bank. This started the secondary function of money supply control. The central banks perform two main objectives 1. to manage reserves to prevent bank runs 2. to control money supply to control inflation or deflation. They have the ability to increase the monetary base. This is the only thing they can really do now.
You just disagree with people for the sake of it. I don't think you actually understand the function of the central bank. I think you have an abstract understanding of what they do because of your interaction as a bond trader. You are missing the initial reason they were set up and how they fail to meet that objective. They were set up to stop bank runs to start with, then to control money supply, which I disagree with. They have other powers but they are based on a banking system that is fundamentally flawed and that is becomming apparent now. I assume as a bond trader you see them as a controlling mechanism that has an impact on the bond price in their attempts to control the economy through increasing or decreasing liquidity. This is not the original function they were meant to perform. They have ruined the system by flooding it with cheap borrowing and ignored the long term consequences of the mechanisms used to enable it. I think you are playing a game with me to try and piss me off. Just diagreeing with me to frustrate me.
Wouldn't it be more fair to say that martingoul has a less abstract, more physical understanding of a central bank? since, as a bond trader, the central banks are the biggest players/counterparties/drivers of that market place? Perhaps you meant to say you have a more abstract understanding of central bank rather than a utilitarian one?
No the bond trading factor of central banks became the secondary or tertiary reason for their existence. Like I said they were set up to provide money to other banks to cover excessive withdrawals. The other stuff is unnecessary and no longer viable due to the over saturation of debt. The only real function the central bank can do now is print money, they cannot increase interest rates without having serious fallout on the wider economy, they cannot decrease the interest much more, so all they can do is print money off. Why not just make counterfeiting legal. It would be fairer that way.
We are on the same wavelength there. And still another factor, the Fed Chairman is the chief regulator, but Greenspan did not believe in regulation. He was warned repeatedly about excesses in lending, but kept repeating that "market forces" would take care of the problem. Well market forces DID intervene when the investment banks began to fall one after the other. But they didn't "take care" of the problem. The tax payer stepped in, and that is hardly a "market force." Greenspan was wrong on so many levels-- don't get me started.
Sorry. That was more of an attack on jargon than on you personally. I am angry however. Did not mean to take it out on you.
No, not at all... I disagree with you, because I genuinely believe you're completely wrong. However, I am also very tired, as it's been a somewhat crazy day, so I really don't feel like engaging in a lengthy discussion of why you're completely wrong. That's why my disagreement has been of the relatively reticent variety.
I don't believe you. You have a habit in my opinion of saying someone is wrong then repeating what they said in a different way to make them sound wrong. The central bank was originally private wholesale banks. Fact. It failed to provided the lender of last resort facility with Northern Rock. Fact. The ability of the Bank of England to control interest rates is now limited. Fact. The only function that the Bank of England is capable of doing is printing money, in what ever form you say it is done. Fact. Before you say it do qualitative easing it is rubbish and won't work. Regardless even if the central bank can flood the market with liquidity the demand aspect of lending is flawed due to the high risk. The banks will not lend money out at the levels they used to no matter how much money the central banks will give them.
I think that's the way it used to be. They did have reserves (aka money or gold or whatnot). However, that was 100 years ago. Today they are simply kiting checks. No reserves. No money. Just digits and/or a worthless check that is deposited into the Treasury. Note: this is only limited by the debt ceiling.
The rest is subject to debate, but this one isn't. For some reason, UK history gets projected to the rest of the world. Starting with the Banque de France, but certainly not ending there, central banks have been official creatures, not private. That includes the Fed, regardless of the idiotic nonsense that passes for knowledge around here.