The US Dollar is "Contained"

[thriftyandboringinohio]

Re: The US Dollar is "Contained"

somewhere i posted an article about loans in the netherlands - banks now PAY borrowers, and CHARGE depositors.

I have seen these reports also.
My favorite is some adjustable rate mortgages in Europe that are pegged to a rate that is now negative.
So the homeowner pays back only principal, and that amount is reduced by a little bit for the negative interest.

[dcarrigg]

Re: The US Dollar is "Contained"

That is a good description of what has happened.
The concern that Finster often raises is that forcing interest rates down is, by definition, price-fixing.
Price-fixing for one of the most important items in an economy, the price of borrowed money.

My understanding is that the main difference between a "free market economy" and a "centrally controlled command economy" is whether price and production signals move easily and accurately between buyers and sellers, each actor making his own decision. In a free market economy the crowd votes with its dollars for a transaction price, and many good things happen up and down the supply chain.

Right now interest rates are clamped at about zero and have been for years on end.
The central banks have, quite literally, removed the free market economy and replaced it with a centrally controlled command economy.

There are degrees of everything, and we have accepted and encouraged central banks to push interest rates a little bit for a little while to adjust course.
But a decade of ZIRP is a different thing all together.

Way I look at it, the "free market economy" was, is, and will always be a myth. The truth is that Laissez Faire was planned. It was planned hundreds of years ago with the forced commoditization of land, labor, and money. And it has been planned ever since. First in London, then in New York. Breton Woods wasn't an accident. Neither was anything done by the British Bankers Association, Libor included. Hell, the City of London's special powers and exemptions that let it set rates for worldwide financial systems were granted in the goddamn Magna Carta, not by any invisible hand.

Let me tell you a little story about how the "free market economy" works in our weird reality (written last year):




...In an unassuming building on Gresham Street in London sits the Worshipful Society of Wax Chandlers, whose chief officers consist of the deposed King Michael Hohenzollern I of Romania and Fiona Woolf CBE. The Wax Chandlers and the other livery societies (former medieval guilds) then get together in person, and form what is called the Common Hall. They do this on Midsummer Day - sometime in June near the solstice, and they just unilaterally decide who gets to be the Lord Mayor of London. In this case, they just happen to pick Fiona Woolf CBE. Now, London has both a Mayor and a Lord Mayor. The Mayor is normal, but in London, the Lord Mayor is really weird.



See, the Lord Mayor presides over the City of London. The City of London is not the entirety of London, but rather simply its one-square-mile financial district. And instead of a normal municipal government, it is governed by the City of London Corporation. The Corporation is chaired by the Lord Mayor, who was selected by the liverymen. Other High Officers of the Corporation are elected, but in the strangest manner ever.


Only 6,000 people live in the City of London, and they each can vote, but the partners of each firm that does business there each get a vote, as do representatives of the corporations themselves. The City of London Corporation itself has no charter, and nobody is sure exactly who authorized it or when it began, but it is likely 800 years old (they say it dates back to 1067 and William the Conqueror) and therefore it is legally in some ways independent of Parliament and somewhat independent of the Monarchy. Even though the UK has no constitution, the City of London Corporation does have a constitution, and it has the unilateral power to amend it at will.




Now, one of the positions elected by this weird corporate election scheme is the City Remembrancer. The City Remembrancer gets the chair directly behind the Speaker in Parliament. The Remembrancer is not a voting member, because the City of London is not subject to Parliamentary authority as such, instead he acts as a permanently installed lobbyist for the City - and by proxy financial interests - right inside Parliament. If that's not weird enough, the Queen herself cannot enter the City of London without first going through some hoopla where the City of London Corporation police - London Metropolitan Police and New Scotland Yard have no authority in the City - bar her from entrance with a red rope until the Lord Mayor arrives with her sheriffs and raises then lowers her sword to signify the Queen may enter.

What's weirder still? The City of London Corporation itself - even though it's a municipal government - functions also as a sort of semi-secret quasi-public investment bank / real estate trust and it was just discovered last year that they had a £1.3 billion fund squirreled away they didn't let the public know about. And the City of London Corporation, and not just the Crown, exerts power over some Overseas Territories and Crown Dependencies, where tax havens just happen to pop up because they exist in a legal grey area that seems to be pattered after the City of London itself.

Think about it: an unelected group of rich and powerful people - not all of them British - take positions in liveries that were formerly medieval trade gilds, get together on the summer solstice, choose a Lord Mayor, and then let her chair a corporation that is above the law, manages a city, but lets foreign corporations have more votes than city residents do. Now, imagine if they tried to pull that off on Wall Street. I think the City of New York would throw the lot of them into the East River.

But the City of London Corporation forms the pattern of letting little islands exist outside the law with special privileges for the purposes of benefitting international financiers who don't like paying taxes or playing by any sort of rules whatsoever.



Figuring this stuff out should help the LIBOR scandal finally make sense to people from the US. Of course they were just sitting down at a given time of day for tea and arbitrarily and unilaterally deciding the credit card and mortgage rates for the entire world (and rigging them to make a tidy profit along the way). They do whatever they want and operate in a completely arbitrary system with no rule of law whatsoever.

They also have twice daily phone calls at 10:30am and 3pm GMT to arbitrarily fix the price gold. This is partially what makes the American pro-free-market arguments sound so funny to me. It's a bunch of royalty and nobility operating on their own mostly outside of the influence of any government that fix market prices worldwide every day in London, and they've been doing it for hundreds of years.

They even control the labor market and the everyday shopping markets in London. Here's a good story that gets you an idea of how that works.




Nothing is spontaneous order because everything is rigged, and at least in the UK, it's rigged fairly out in the open. But the class structure is also fairly out in the open and rather strictly inherited, so there's not so much to hide.

So I don't get particularly upset because the Fed can play the game instead of leaving it all to the Guildhalls in the City of London. Truth is, Breton Woods was in no small way an event to pass the torch from London to New York. It's only later that the Washington Consensus of ideologues pops up to fill the post Breton Woods vacuum. And so we get the all to familiar regime of persistent account deficits and rapid expansion of trade agreements, and wage stagnation across the first world, meanwhile you get the export and savings engine pop up to balance the equation in East Asia. None of this was an accident either. Millions of pages of documents and plans made it happen. GATT didn't just become the WTO in 1995 by spontaneous order. NAFTA didn't happen by spontaneous order. These are all conscious and deliberate policy decisions.

Even the term "Free Market" itself is a relatively new contrivance, particularly in its popular conception. I have living family members who were born before it ever got popularized by the DuPonts through the American liberty league.



Meanwhile, who coins the term "spontaneous order," but the Baron Von Hayek - deposed Austrian nobility himself. And naturally he worked to get that baroncy transferred to the more active British Nobility after Queen Elizabeth elevated him to the Order of the Companions of Honour.

There's some level of delicious irony in a nobility shouting from the treetops that there's no one behind the curtain -- that power and money and markets all just manage themselves spontaneously by magic for the equal benefit of all -- whilst members of their hereditary orders continue in actively pulling the strings...

But in the US, the noble titles are neither needed or wanted. And the US is still the biggest game in town these days. Doesn't mean there's not still price fixing. I guess the major point of writing all this is only to say that prices were, are, and will always be fixed. The question has never been "To fix or not to fix?" The question is only, "Who fixes?"

[thriftyandboringinohio]

Re: The US Dollar is "Contained"

dcarrigg, you are a wonder.
You caused me to look up the English translation of the Magna Carta.
Which in turn took me down a rabbit hole after "ancient liberties" and then on to the definitions of murdrum, childwite, jeresgive, scotale, miskenning....

Thanks for that post.
.
.
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[dcarrigg]

Re: The US Dollar is "Contained"

dcarrigg, you are a wonder.
You caused me to look up the English translation of the Magna Carta.
Which in turn took me down a rabbit hole after "ancient liberties" and then on to the definitions of murdrum, childwite, jeresgive, scotale, miskenning....

Thanks for that post.
.
.
.

Devil's often in the details. And the details are crazy - especially vis-a-vis murdrum and childwite.

In fact, you put your finger right on it.

Only 3 clauses of the Magna Carta still persist in British law today.

1. Special rights and privileges of the Church of England
2. Special rights and privileges of the City of London (finance)
3. Right to a jury trial.

In fact, the City holds onto the best surviving copy of the thing.

It's not for nothing. Special powers are nice. People don't want to lose them.

Such was the way with Royal Charters, even in the US, where they stood in for state constitutions for a hundred years, and still belong to some of the oldest institutions in the country - giving them a tiny taste of super-legal authority.

Sometimes I find it's useful to go back and read the old school books on US History. Also on world history. They're not all correct. They're certainly not PC. But they're also interesting insofar as you can see the events they focus on in early history and the differences from the way the new books do. And they're free online these days.

[jk]

Re: The US Dollar is "Contained"

dcarrigg, you are a wonder....

Thanks for that post.
.
.
.

+1

[gwynedd1]

Re: The US Dollar is "Contained"

I don't think it is correct that using gold and silver as money meant that people could borrow without paying interest.
In most times and most places, a borrower paid back more than the principal.

I don't think I follow. What did my comment have to do with commercial or private loans that must go to market for the available securities? Real ZIRP would be the rate from the central bank , not from commercial loans. Same would be true of zero yield Treasuries. If I loan them, I cannot use them whenever I'd like and there would be a risk. So just because a Treasury could yield zero does not mean private loans follow suit. Gold has no yield, but gold lease rates do. Sounds comparable to gold to me since gold has no yield, only "capital appreciation". The only reason why the Federal government would pay a yield is to make up for the discount on some safer alternative. What would that be ? Some might say gold but that has its own risks and as far as I am concerned its any body's guess especially in the short term. If I were to sleep a thousand years I guess I might say gold. But then the joy my quickly dissipate because despite the avoidence of leaving wealth in an extinct paper currency , one finds that there was a gold confiscation , or regime change that does not recognize your property rights. Without a friendly regime recognizing your property rights, might as well consider it as fiat as anything else. That is what Jesus said about all treasure on earth, not just fiat currency. Financial wealth is always a promise in every form.

So again what is the reason to sweeten the pot on the safest investment for protecting principle if that be the case?

[gwynedd1]

Re: The US Dollar is "Contained"

I have entirely abandoned the use of the term "free market". I instead refer to it as a market system. That is to say it is a rule based competition much like a sporting event. I would ask , what it is that we have in mind as entertainment for the evening? Would we like to see the skill of a jump shooter, or would we like a "free market" where someone can come off the bench and break a good shooter's legs? Perhaps someone could charge rent to occupy the paint too? Bootleg movies are free market for example. However there are rules to keep the income of the original producer higher, more or less promoting a particular nature of the competition.

[charliebrown]

Re: The US Dollar is "Contained"

dupe post

[GRG55]

Re: The US Dollar is "Contained"

I cant see the fed going on a multi year rate hike regime with other countries still in QE. Wouldn't that make the dollar soar?
bad for trade and all those foreigners who have loans in USD. I think a few token rate hikes and then on hold, or even go back to zirp when the finance bubble blows up. I don't know if that will wake the world out of their sleep that the debt will be repaid and the realization that it is zirp forever, until something really blows up.

Another thing that bothers me. Why does it take the fed one year of jaw boning to raise interest once? they are afraid of something. If you look at t-bill rates, I dont see the rate increase coming. Bills in July are fetching .02% and December .11%

A couple of years ago the talk about the Fed was "QE forever". Now that's been replaced with "zirp forever".

Forever seems like a rather long time to be betting on to me.