I think instead there simply isn't enough money in the system to cover the amount of assets (bank liabilities… "deposits") that will at some point get called. The banks will not receive a government bail-out again, but savers (those with deposit balances above the insured limit) getting bailed-in.
That isn't the government doing anything -- it is the government not doing something! IMO ol' Marty (among others) has scrambled his noodle in his bid to blame government for every problem that comes along.
The government will this time simply not be available when the call comes to provide offseting assets (UST bonds) to the Central Bank, in order to enable the creation of that lovely moar money for the banks… so they can turn around and make good on all their promises to "depositors".
This is credibility deflation. Of over-leveraged retail banks. Savers have given the banks too much credit.
It is to say "the link between retail banks and the nation State will be severed". (smile)
Bank deposit credit balances are not "money".
This is analogous to "spot gold" credits not being gold.
That is not to say no moar money will be created … because much moar might be required just to cover the insured "deposits".
But the difference is banks will actually have to part with some of their assets, to provide the balancing item for the Central Bank when it is creating that new money for them.
If you choose to, you can see this as divine justice playing out, as the Banksterz finally get theirs!
Oooorrr, you can just see it as the way its gonna be and prepare accordingly.
It may not have escaped your notice, that no "spot gold" credits are similarly insured. That may have something to do with the fact nobody can just magic up more actual gold after waving a wand over a top hat, like the Central Bank can with cash for the banks.
So, your mileage may vary.
"evil government will take our bank deposits!!"
I dont know who said that (or is it a strawman?), but that's surely wrong. To fix your post:
"The bank will not give you your money back, and the government will determine who is being paid what at random."
At least that's the way the game is being played in Euro(pe).
This was a post expressing some of my frustration about some of the fairly recent posts of Martin Armstrong, who is basically in the habit of finding a way to twist reality in order to blame all evils on the government bogeyman. Although there are other people of course with this same point of view - that the evil government is going to take people's deposits from their bank accounts, among their many other evil plans they are hatching for us.
As your comment rightly said, "The bank will not give you your money back"… this is not the government refusing to give you your money back! The government never had your money to give back!
The root of the problem is that the banks simply don't have all our money to pay us back. Which is what I meant by "Savers have given the banks too much credit". Of course, as long as they have sufficient quality assets to pawn, the Central Bank can supply them with all the actual (base) money they will need to make good on their promises to insured depositors.
I think the government has already determined who will get what in the event the banks run out of pawnable assets -- if you are below the insured limit, you will get all your money back because the government's compensation scheme will print out, if necessary, to cover it. Above the limit, you will get whatever is left over (if anything) after the insured depositors have been paid. This is the clear lesson to take away from Cyprus, and the related changes announced around the world that tell us all to expect the same elsewhere going forward.
"The government never had your money to give back!"
Yes and no ;) The government ruled that their debt shall be the most valuable asset on the balance sheet of the banks. Therefore the banks took my money and handed to the government. Now the government does not have the money (since they can only get money from taxing the circulation of money, which is shrinking), and say "sorry, soft/partial whatever default on the bonds", now the banks dont get the money, which they owe to me. Who's fault is it?
Your first link appears to be related to private insurance contracts, which I don't believe are subject to any explicit public guarantees and are in any case outside of the monetary system so beyond the scope of deposit insurance.
The second appears to be protection for the creditors of banks identified as insolvent, so that the rats aboard the ship cannot strip it of all remaining resources before winding up is executed. Whatever remains on the carcass at the point in time of declared insolvency is distributed among the creditors according to their seniority, as should be the case.
As for the liquidity of private company treasuries, I guess caveat emptor applies as always.
"Savers have given the banks too much credit"
and I also like to add to this assumption or conclusion of yours:
In this MMT enforced world I have the choice to give the bank or government my earned money, or to refuse to. You suggest that the savers should have refused to give credit. Yep, I aggree as well. But than what? The announcement would be: "Either you give us your money, or we print up that shit what we need, it is your choice". Oh yes, great. I know now you say FG-blblabalabla...., but what about the physical plane? Will that stop handing out EBT cards? Hell no, they just print whatever funny numbers on paper in order to let people work for their pet projects.
Yes, you trusted your money to the bank. They can then do with it as they see fit, and it's up to you to demand it back before it goes wrong for you, if you don't like what they are doing.
Whose fault is it that you lose your money in this scenario you described? Well, clearly it is the bank's because they took a risk and it didn't pay off.
But it would be naive to say that you as the "depositor" didn't take a risk too.
Yes, VAG§89 applies to the insurance business. But due to law those are enforced to hold gov.bonds. e.g. the biggest is Allianz (aka PIMCO). And for the insurance industry there are equivalent "public guarantees" organized basically just the same as the 100K guarantee.
About the second: yes, your right, but the magical german word in the paragraph is "Zahlungsverbot". Which basically leaves all lenders in the rain at free will of the government.
This is funny, now I learnt something new after googling "caveat emptor". Different from the anglosaxon world, read the german wiki version: In german legislation we dont know this idea (but I agree, you can never be careful enough, regardless of your local legislation).
Short of stacking boxes of €100 notes under the insurance company CFO's bed, there is no [nominally] safer asset than a government Tbill. Should they hold predominantly bank "deposits" instead?
Sadly I don't speak German, so I have no idea what "Zahlungsverbot" means exactly. But we seem to be in agreement: that it is the banks who will not return deposited money, not governments taking it (they will simply not provide extra money to the banks so that they can give it to the depositors). Some might say this was "ending too big to fail", and that it was perhaps not such a bad thing in the end.
I am completely with you when it comes to "let them fail". But that's not happening and never will happen. Cypruss was the most interesting experiment after all: If they would have let them fail (hard default -> ~5%? payout equally to everybody), the politicians and banksters would have been hanging from the street lamps after one week. So they choose the socialist approach: bread and circus for the masses (100K) to keep them asleep and bail out all friends, but instead ruin all private businesses.
Yes. For a while - until the vendors of the goods just stop accepting the funny numbered paper and we all go to a dark age of barter and personal credit-scoring among ourselves in private.
It's just not in their interest to do it.
They couldn't do this "payout equally to everybody" thing -- because there is the deposit insurance scheme to those with deposits below this level have seniority up to that cut-off point.
IMO that early part of the Cyprus theatre event was pure Kabuki, to ensure that people understood the significance of the insured limit.
The only private businesses who are ruined, are those that unproductively (and anti-socially) hoard massive amounts of "cash on deposit" in one bank group, or in Money Market funds looking for a return on this dead asset (=risk). OK, so huge corporations might need to keep a fairly big slice of "cash" on hand for cashflow purposes, fair enough… the average voter's heart bleeds for them I'm sure! ;D
I think we had a similair discussion before: You are always talking about a "deposit insurance", but always refused to show me the regulation or law or account of such in Euro(pe). Have you something new? I am still wondering. Until further: There is no such!!1111 It is just wooly air of liars to keep the stupid ignorant asleep.
About "anti social liquidity" of private companies, the monday after Cypruss I called my bank and said "I WANT MY MONEY, NOW, I DONT CARE HOW YOU GET IT INTO MY LOCAL BRANCH" (seven digit euro). I put it into a deposit box at the bank and for the IRS balance sheet accounted it to the petty cash. Seriously! Was that smart or socially better? Is that the future of european commerce?
If you put it into a deposit box and it still sits there and isn't about to go anywhere, wouldn't Frances say that makes it evil hoarding rather than liquidity? :-)
That is seven digits of extra base money that the ECB probably had to inject into the system just to keep the system monetary sufficiently liquid. I wonder how many other company treasurers made a similar call to their bank?
(While screaming into the Internet void that the ECB should stop printing so much damn money!!)
Not that I am trying to say you shouldn't have done this or I would never do the same thing… because of course I might! :-)
As it happens, I would have just spent most of it on something and let somebody else worry about what to do with all that filthy "cash in their bank account".
Exactly. How many people? What total amount? Would the TPTB ever admit this, or would it just be accounted under the day to day OMT fraud?
BTW. It took them four days to have that stuff printed. Vaccumed in single fresh new Bundesbank plastic 500x500€ note bricks stamped with the german eagle from the outside, really something to see :D
Why I did it? Well besides my political religious convictions, I was about to cash out the profits of the last year, but the accounting was not yet finalized for the dividend. And besides that, to spend it on what?
Four days? Weeee! I guess there were a lot of phone calls then... :-)
Must have been an expensive time for the banks (shame). But great business for the ECB.
"To spend it on what?"
Why, what about those lovely euro-denominated gold coins you showed me before?
you cant take unlimited number of those. Currently the latest new one was a 250€ coin. Only managed to get three of those, before they were sold out and you can only order one at a time. Also note, those are only legal tender in France and you dont get them from the french central bank, but only from the french mint through retailers (I dont understand this legal background, but thats the way it is).
Yes, it must have been expensive, it was a special armored truck and had to drive two times, and I dont know but the clerks at the bank were really nervous and couldnt understand when I told them "hey they just print that stuff up anyway" :).
After my first call the director of the main branch called me back and wanted to discuss. I said, interest should reflect risk as well, so he better make me a good offer. He said he can not. I said, but what's about the costs of this show? He said, it is the policy and nothing can be done about this. Okay, so gimme my money and swallow those costs.
I bet he wanted to discuss. I bet his boss wanted to discuss it too. ;D
Okay, probably the amount would not have blasted the total reserves of that bank. But in case it would have, what do you think would have happend?
IMHO nothing, so that's why I see not such a big difference to the bernank-style of fraud.
Oh, I dunno… didn't Cyprus suggest the ECB may be playing a bit harder ball than the Fed?
Bernanke stylee: Hello Bankers Hotline, how can I help you? … Awwww, cash a bit tight today? It happens to everyone dear, don't worry. We can just buy some of your Tbonds and MBS from you at face value and your account on our system will be credited at midnight tonight, how would that be? … No, really it's no problem, it's my pleasure! … Yes, you have a nice day now! … No, you hang up! No, YOU hang up! Now look, silly, I can't keep the next caller waiting, so we should both hang up on the count of thr- oh, he's gone. … Hello Bankers Hotline, how can I help you?
Draghi stylee: What? Come on, don't waste my time: out with it - what do you need? €10billion? Again already? Hmm, OK bring us €10billion of your eligible collateral again, marked to market value as of today, and I'll let you borrow the €10billion for three years at half a percent. And if your posted collateral goes below par at any time, you know we'll be calling you up for more you sonuvabitch. You can buy it all back any time or at the end of the three years, if you stayed current until then. Now fuck off and bring over the assets if you want to keep talking. … Yeah whatever, bye bye loser. … You can put the next loser through now, Dita.
"...or wait a minute, next time you call, I'll send you that german nazi wheelchair psycho over there, we'll see if you call afterwards ever again."
okay, seriously. Why the hell would or should Draghi buy something "at market value" from the market, if the bank can sell it in the market at the same value?
You don't HAVE to do that dirty work for them though, AD. Admit it - you do those jobs because you enjoy them, not for the money! ;D (Although of course the money helps avoid squeaky wheel syndrome too.)
If they did in a hurry sell in volume into the market, rather than perform a repo with the ECB, this would (a) depress the market valuation of this particular asset class, which may not win them too many friends, and (b) suck currency out from elsewhere within the market, which would cause the ECB to take some other action elsewhere instead of this one.
Again, Dragi's not buying anything, only taking it temporarily as collateral for a loan.
a) I dont see here the difference between buying or collateralizing unfinished spanish vacation condos MBS, soccer players or bonds of a further failing PIGS economy. Really, where's the difference if nobody wants that stuff? You argue "to protect the market from sudden too fast volume sales", com'on, I say to keep the bond market from popping and to carry that out on the edge indefinitely. Who would give credit on spanish banks at all anyway in a free market? Nobody, except the ECB, regardless of volume or time.
b) that is the whole point of a currency market, either I have the liquidity or somebody else has it, I lended it to (in case I have a later time preference vs. risk assumption).
P.S. got to go, it's weekend, nice one to you too.
If the bonds appear likely to perform if they were held to maturity, but there is just a liquidity issue (i.e.: not a present issue of solvency) then it is good to keep the system alive since it is wholly possible and in fact desirable for all to do that (as long as all understand this currency is not a commodity currency, in limited supply and therefore potentially a high-performing store of value, because currency today isn't like that at all as you know).
There is a world of difference between the effect of wholesale forced selling and using those assets as collateral that doesn't show up on the market, forcing down valuations by swamping demand with huge supply.
Wishes for an excellent weekend to you too! ;) Don't forget to oil the squeaky wheel so your marks won't hear you coming.
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