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Just How Much Control Over Central Banks Do The People Have?
Formal central bank independence is increasingly under pressure as societal preferences for a lender of last resort savior grow ever stronger (and more priced into nominal risk markets) as do demands for politicizing the monetary authorities under the pretext that they should more politically independent. Morgan Stanley takes on the question of constitutionality among the G3 Central Banks and rather unsurprisingly finds the mandates, targets, and prohibition treaties to be 'flexible' at best and 'practically meaningless' at worst. We-the-people appear to have little if any remit to constrain - even if our collective call for more printing leads to 'be careful what you wish for' reactions, as Michael Cembalest noted yesterday, "first prize in the Central Bank balance sheet expansion race is not necessarily one you want to win".
G3 Central Banks: Constitutional Questions
Morgan Stanley Global Economics Team
If societal preferences towards inflation were to change, central bank constitutions would likely be flexible enough to accommodate this – formal central bank independence notwithstanding.
In addition, changing central bank constitutions does not run into insurmountable institutional hurdles (with the possible exception of the ECB).
The prohibition to buy government debt at auction enshrined in central bank constitutions is practically almost meaningless, given that monetary authorities naturally buy in the secondary market.
The prohibition to buy at auction for the ECB is not more stringently worded than for the Fed or the BoJ. While from an economics perspective the ability to buy in the secondary market is practically sufficient for the ECB to play a de facto lender of last resort role, legal complications may arise if the treaty is interpreted as prohibiting a de jure lender of last resort role.
A de facto LOLR role can be performed effectively even with the legal prohibition for buying at auction in place.
In this case, it is the fact that at least part of the Governing Council is reluctant for the ECB to assume even a de facto LOLR role that differentiates it from its central bank peers in the eyes of the market. While the reasons for this reluctance are sound, this attitude can be a double-edged sword. Eurozone governments issue liabilities in a currency they cannot themselves print. Much like banks, that makes them vulnerable to a self-fulfilling run, and in part it is to prevent such runs that central banks were historically created: to provide a lender of last resort. As we have said in the past, even if a fiscal union was in place in the eurozone, a resolution of the crisis would likely still require the ECB to be able to act as a de facto LOLR for governments.
Conclusions
While there are subtle differences across central banks’ mandates, the universal “price stability” mandate is inevitably very broad. While the operational definitions of price stability are specified by the monetary authorities themselves, they are not immutable (and in any case the vague time horizons allow very sustained deviations from target, as the case of the BoJ demonstrates). Further, changing the central bank constitutions themselves appears – with the exception of the ECB – not excessively difficult. In short, there is nothing hard-wired into central bank legislation that would prevent at least moderately higher inflation in the medium term. Soft constraints – i.e., the importance central bankers attach to their hard-earned credibility – may be more important.
The prohibition to buy at auction exists across the board but is practically not a very meaningful constraint on government financing, since the ability exists to buy in the secondary market.
Economically, this implies that a central bank could be a de facto lender of last resort to sovereigns even if it is de jure banned from buying at auction. In the case of the ECB, the legal prohibition of monetary financing is very similar to the prohibition the Fed and the BoJ face: it applies to primary market purchases only; and it seems not more stringently worded. While from an economics perspective the ability to buy in the secondary market is practically sufficient for the ECB to perform a de facto LOLR role for eurozone sovereigns, legal complications may arise if the treaty is interpreted as prohibiting a de jure LOLR.
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Corporations are people, right?
From a legal perspective, corporations are people, yes.
The Pale King by DF Wallace:
"Corporations are machines for producing profit; that's what they're ingeniously designed to do. It's ridiculous to ascribe civic obligations or moral responsibilities to corporations. But the whole dark genius of corporations is that they allow for individual reward without individual obligation. The workers' obligations are to the executives, and the executives' obligations are to the CEO, and the CEO's obligation is to the Board of Directors, and the Board's obligation is to the stockholders, who are also the same customers the corporation will screw over at the very earliest opportunity in the name of profit, which profits are distributed as dividends to the very stockholders/customers they've been fucking over in their own name. It's like a fugue of evaded responsibility. [...] With corporations I have no problem with government enforcement of statutes and regulatory policy serving a conscience function. What my problem is is the way it seems that we as individual citizens have adopted a corporate attitude. That our ultimate obligation is to ourselves. That unless it's illegal or there are direct personal consequences for ourselves, any activity is okay."
Shouldn't someone do an article titled "Just How Much Control Over People Do The Central Banks Have?"
Agreed, this is a great question.
More important question IMO is can any of our economists figure out if .gov can be directly funded by the central bank (at some % of GDP so as to restrain our politicos) and we can eliminate the IRS? Is such a thing possible? Can we be taxed equally at 2% inflation target? Frankly realistic dicsussion of such is above my pay grade, but if possible, this seems much better stimulus.
The final cause of corporations (or business in general) is "profit". The final cause of the state is the "common good". If you disable de state, that vaccuum of power will be filled by the strongest players: the corporations. And by that time, the final cause of that neo-state will be "profit" too. And profit at the "common"'s expense.
Then the buying and selling of corporations should be slavery, right?
Many people fail to understand the negative impact of having our currency controlled. It permeates every aspect of our lives, in that someone else is controlling the fruits of our labor.
I think you meant to say ripping off our labor.
LOLR LOL.
LULZ is next.
Less than zero?
Oh, and as for the laws, I'll note they are mere words on paper, and are wholly transitory.
Irelevant but India is ready to buy oil with it's gold from Iran.
Must be time to fire up Pakistan, then.
That has been reported by Debka, a somewhat less than reliable source. I will believe it when it is reported elsewhere. Perhaps I can dig out a customer service number for one of the products I own and chat with a local in India to confirm the story.
I guess somebody else confirmed it allready.
So does that mean we will be bombing Iran AND India shortly???
You don't have to bomb the entire planet you can simply bomb the fed.
That's a joke of course fed is godsend
Gold may become the new reserve currency the way Central Banks are hoarding and fighting over it. I'm am not a gold bug but I am impressed with their position after seeing the EU try to block Iran from trading gold. It must be valuable or they would not care.
While there are subtle differences across central banks’ mandates, the universal “price stability” mandate is inevitably very broad.
Yeah... It's called PRICE MANIPULATION... That ought to narrow it down a little in comprehension...
How much control do the people have?
Judging by the pathetic non-interest or evil collusion by the people's representatives in Congress, there is NONE.
OT a bit, but perhaps something of interest...
http://live.ivey.ca/pauljenkins/
Starts at 1 PM eastern.
way too much.
Go Galt.
Let's just call them imperial credits and be done with it. Also instead of bailouts and stimulus let's refer to such actions as prosperity injections.
Good idea, though 99% of the natives don't know they are living in an empire. Remember Quaestor DSK?
As far as I know, the level of control is limited to whether one takes it on one's knees or prone.
No matter that the bylaws and such are governing central banks.....Bernanke showed that he has absolutely, positively no restrictions and is seemingly unaccountable to anyone (except the bankers that chose him to run it-with the presidential rubber stamp). The little "emergency clause" allowed him to throw every governing rule and principle out the window. He is a law unto imself at this point. As are other CBs. They make the rules as they go, like the CME CFTC, etc. This cannot be denied any longer.
Exactly!! How preposterous to suggest that central have banks have “constitutions” and operate according to “central bank legislation” or under “constraints.”
The fact that transactions are secret and that the central bank has far more political power than the U.S. Congress or the U.S. President is all you need to know to answer “Just How Much Control Over Central Banks Do the People Have?”
This article apparently is an attempt to suggest that there are some limits on central bankers and, even though the explanations here are foggy to say the least, it represents banker propaganda in its crudest from.
I have to say that the absurdity of the statement below simply takes my breath away:
In short, there is nothing hard-wired into central bank legislation that would prevent at least moderately higher inflation in the medium term. Soft constraints – i.e., the importance central bankers attach to their hard-earned credibility – may be more important.
As Dorothy Parker would say: "What Fresh Hell Is This?"
The prohibition to buy at auction exists across the board but is practically not a very meaningful constraint on government financing, since the ability exists to buy in the secondary market.
This. So what that the Fed can't buy bonds directly from the Treasury. It's not like there is any shortage of bankster middlemen willing to flip bonds between the Treasury and the Fed. Since the Fed doesn't give a shit about what it "pays" for assets, it's essentially taxpayer-funded arbitrage by Goldman and JPM. Treasury = win because it gets to keep splurging on war and welfare, Goldman = win because they made a tidy profit with zero risk, and the Fed wins because it gets to continue to destroy people's savings, which is the real plan all along.
how much influence do people have?
N-E-W-T
She turned me into a NEWT!
(I got better!)
Here he comes to save the day,
The Mighty Newt is on his way,
Complete disinterest is in the land,
And Captain Open Marriage takes the stand.
Monetizing debt prohibition. Is that the same as direct monetary financing prohibition? lol
OT-But has anyone watched these ridiculous Steve Liesman debates with himself as he acts as the Chairman of the Fed, a hawk and a dove.
I can't believe they put that on TV as much as they have done or even at all
How much control do central banks have over people?
In case you forgot the federal reserve is a criminal cartel enslaving the people!
I prefer the image of a drug pusher. Or would you refuse a sweet, sweet ZIRP multi-billion loan from Oncle Ben?
if LOLR works, why are we looking for LOLR's?
benzelbub isn't styooopid; he knows enuf econ to not put the punch bowl out here past the QE of chubbyChecker and "swapping" at beneficial terms to the liquidity seeker, for "expended and accomodating" periods of time (100 daze, big load, last Fall)
if he "prints" he ain't gonna advertise it at this point!
let's stop throwing big words around and what some davos shitheads think are "constitutional" questions about "controlling" the central banks
oh, but slewie, this isn't the right kind of LOLR in the eurozone
yes, it is. they can change it if they want to print to infinity, but that really doesn't make sense, does it? deleveraging is not a crime and going BK isn't, either
well, the losses will spread throughout the financial system...
maybe not, and if they do, so what? what the hell did people ecpect with more debt than can be humanly handled. force the banksters to mark & clear; counterparties; clients; hey, if people can't pay, they can't pay! it is duly noted how many insist that the social costs of forgiving student loans would bring down the house, too. like fanny and freddie, only more so: WE guarantee it! i have administered these loans for graduate students. i have qualified the bona fide students and documented the need via a personal budget, qualified the stu and sent him/her to the bank (WFC in my case) for funding
i was fast too! L0L!!! i would hand them a paper and say: goto the bank with this for your loan
now? yes, now! however, all documents were in order, none fraudulent; all files were complete; and i managed my grants to within .5% (.005) of budgets, none overdrawn. true! if grads aren't given an EZ BK for student loans, i'll still be able to sleep!
slowly, people will see that liquidation is superior to taking on more systemic monetized debt at this point
the chairsatan knows it; slewie knows it; this is the FED "position"! the chairsatan will do what he thinks is best or necessary, maybe even both on some thingies! he is very powerful and he just "let" dexia and a PD (MFG) fail, didn't he? i'm not saying he won't do some more T-funding QE if necessary. he's already in for the 30s, but he sez he is swapping bills and notes, via the 'market', not printing
he has a shitload of pre-printed assets on his balance sheet from prior QEs. maybe another centralBank or two has done this, also. if somebody doesn't like his decisions, they can what? eat shit, lay eggs, and die young comes to mind, offhand...he can move stuff around, now, depending on need/function
the bankster on holiday in the alps will not admit their insolvencies. they are at the prom this week! it will take years for us to grow into the debt structure of this 'economy', where it will no longer be toxic and fuking up the economic activity itself. so, it's like maybe $80K worth of dentistry, maybe some chemo and a few score bone marrow transplants and other "interventions", nothing too bad really, and maybe some hair plugs, too! and a new pacemaker? ok. and a hip. that's it, tho!
haircuts and growing pains...maybe a few years managing the landfill with the garbage flows...we can do this! the goobermint may not be too helpful: prez0, the congo, the supremes, the states, the counties and minis, and all the little legal entities we cteated on the way to help us sweep shit under the rug and do ponzi & extortion. not hard, we can crunch the numbers and decide who on earth could possibly take these losses instead of, say the nation. any thoughts on that?
say! do i smell coffee?
The owners of a private central bank have all the control over the bank. The rest is window dressing to make it look independent.
When things are going bad, the owners direct the "independent" bank to bail out the owners.
The people, for the most part, don't have a cud-chewin clue what a central bank is. I strayed off the ZH reservation earlier today to check out the comments at MSN, aka Propaganda Central, where they were polling the herd with this gem of mind-fuck misdirection: How would you improve the tax code? It was quite sad to observe the overwhelming ignorance of the endless parade of fully indoctrinated dittoheads proudly posting their preferences for various methods of IRS thuggery/buggery. These hopeless dolts don't just deserve the gov't they have, they're actually begging for it.
It's possible they were mostly .gov trolls, but probably not.
...sad ain't it, when your eyes are open and the dark revelation is upon you? How does one turn on the light without breaking the first rule of Fight Club? Lol http://www.youtube.com/watch?v=xMJNKOOVqc0
@tyler: nice. could you add Bank of England, Bank of Canada, & China?