An Idiot's Guide to Central banking - My article for Express Tribune

[Unicorn]

@AsifAmeer and @Unicorn on the contrary i am arguing that nation states of today are powerless against globalized capital as represented thru the banks and MNC's. the US is not forcing anyone. The international capital (as represented by ...) has decided for all of us that this is the way things should function. this is not a direct coercion, but if you refuse to play ball (like say iran does), you are treated like a pariah state and your participation in global trade is severely limited. if what you are saying is true (that nation states have control on how to participate in the global capitalistic system), then why is there not one significant country which has abandoned the dollar. it is easy to say that the chinese should restore their people's purchasing power. but for that to happen, they will have to throw the US debt back on the face of the US or atleast stop investing in US debt from now onwards. but if they do that, it will case a massive shock in the global economic system and the controlling capitalists will bear down upon the US and china to come to some agreement so as to not upturn the applecart.

this is why i hate these equilibrium and free will based arguments. if these aruments were correct, long back the china or the Russia would have diversified out of US dollar denominated trading, as they have powerfull enuff militaries that the US cannot attack them. it is not as simple as that and it will never happen, unless the people in control decide to move towards a different inequilibrium point, or there is revolution against these people and they are replaced by a different set of capitalist ideas.

similarly i ask you, why are the EU guys hell bent on having Greece and the PIGS within the european union. the greeks dont want it, the german dont want it. but their is this overreigning group represented by the EU (but actually who themselves represent the capitalists of today) who want to keep the show going. you cannot use equilibrium arguments to explain this. Unicorn will ask why dont the greeks themselves get out of the union. well there are a few political parties within greece who say that. but there is massive propoganda against them before elections which keeps them out of power. even if they came to power and tried to get out of euro, the IMF, the WB, the European central bank and the rest will fall on them like a ton of bricks. in my opinion, the only country where this idea worked was iceland who went their own merry way, but they also got away mainly because they are to small an economy.

I am glad that you have admitted that US is not forcing anyone to use their currency. I agree that as an individual my choices are limited I can trade using other currencies but it would be expensive. It were the countries X Y Z who chose to trade among themselves with US currency as it was seen as the most stable. The day people see it as unstable they will stop and find another medium.

I think you should pick another Nation state beside Iran if you want to argue a case " Nation state vs Capitalism" Iran would be a very bad example and you won't go very far.

 

[guest]

unicorn it is presumptuous (with due respect, dont mean to be personal) to think you are the only smart person who sees the problems with the US trade deficits. you think people who are running china or russia cannot see the problems with the US deficits? i keep repeating it is easy to say, but not easy to do. I additionally gave the example of greece where both the ultra right golden dawn and the ultra left syriza party have promised to abandon the EU zone. but neither came to power, and you really think if they came to power they would be able to deliver on their promise? there will be so much pressure on them from their internal capitalists, the external agencies like WB, IMF etc that they will eventually change their mind. this simplistic idea of people who are gullible and do not understand what you understand is not in my opinion the best argument you can come up with. it is a deeper problem.

if what you are saying is correct, 99% of people in US hate the bank bailots. but have they been able to stop it? economics unfortunelay being related to the human condition cannot be analysed as a passive science. it is intertwined with politics and power so irrevocably that you have to do a deeper analysis, than say that everything is individual choice. thats just plain intellectual laziness, a copout.

The day people see it as unstable they will stop and find another medium.

 

[Unicorn]

capitalism has been around for a while, agreed. but never has capitalism been this global and this fluid. never could money from macau be invested in the forex market of NY in the morning and then later in the afternoon move on to get invested in oil bourse at london and evening spend its last hours of the day sitting in the US bond market. so its a false comparison.

let me give a poor yet effective analogy which expolits the idea of the fluidity of todays capitalistic system as against anything before the WW2. if older version of capitaism was like honey (a very slow moving and dense fluid), todays capitalism is like a gas. like in physics you may model flow of honey by say stokes flow, while gas would have to be modelled by gas dynamics equations. totally different physics with different laws, though both are fluids and are fundamentally (asbtractly) derived from the same set of abstract equations.

US was made the cosutomer of last resort when the 2nd bretton woods agreement was dumped in favour of dollar free float by reagan and further soidified after the OPEC Oil crisis when dollar was used to trade oil. these agreements were not in favour of any nation state. on the face of it, they benefited the US, but they laid the foundation for the destruction of the american working class, as the well paying production jobs were permanently moved away from US. and its for this reason that the median income in US has stagnated since roughly the same time. so your analysis based on nation states is wrong. It harmed large sections of the US population in a massive way. Yet it benefited the banks and MNC's operating out of USA massively as corporate profits went thru the roof since that time and corporate taxes went down the drain.

Fundamentally capitalism is the same today as was anytime in history just like everything it has evolved. As new technologies are deployed it will continew to evolve.

You can have a system where state invests in everything not people. The only major problem in either system is GREED. Greed has far more adverse effects when the state does the investment and less in a capitalist environment.

 

[AsifAmeer]

Here is how I view it. Reason why every country has to use the dollar is
1. Dollar denominated Energy Markets (Political reasons)
2. Dollar denominated International Debt Markets (legacy institutions)
3. China pegging to Dollar (Currency Wars)

Every country needs dollars to buy Oil, LNG and so on..

If you agree with every thing he said than you explain how US is forcing every one to trade in their currency. I also disagree like you with the statement in bold. Capitalism has been around for thousands of years before US so it would be an impossibility to " Structure " capitalism to have US as a customer thousands of years ago, I rest my case.

Again, there isnt a darn word you said that I would disagree with. Help me understand your objections to the original article. Remember, I wrote this article for a NON-US Central Bank (SBP). Existence if a reserve currency is a dilemma in itself (which i shared earlier - called the Triffin Dilemma) . Tell me specifically what part of the article is of concern to you. I am really keen in knowing that.

capitalism has been around for a while, agreed. but never has capitalism been this global and this fluid. never could money from macau be invested in the forex market of NY in the morning and then later in the afternoon move on to get invested in oil bourse at london and evening spend its last hours of the day sitting in the US bond market. so its a false comparison.

let me give a poor yet effective analogy which expolits the idea of the fluidity of todays capitalistic system as against anything before the WW2. if older version of capitaism was like honey (a very slow moving and dense fluid), todays capitalism is like a gas. like in physics you may model flow of honey by say stokes flow, while gas would have to be modelled by gas dynamics equations. totally different physics with different laws, though both are fluids and are fundamentally (asbtractly) derived from the same set of abstract equations.

 

[Unicorn]

unicorn it is presumptuous (with due respect, dont mean to be personal) to think you are the only smart person who sees the problems with the US trade deficits. you think people who are running china or russia cannot see the problems with the US deficits? i keep repeating it is easy to say, but not easy to do. I additionally gave the example of greece where both the ultra right golden dawn and the ultra left syriza party have promised to abandon the EU zone. but neither came to power, and you really think if they came to power they would be able to deliver on their promise? there will be so much pressure on them from their internal capitalists, the external agencies like WB, IMF etc that they will eventually change their mind. this simplistic idea of people who are gullible and do not understand what you understand is not in my opinion the best argument you can come up with. it is a deeper problem.

if what you are saying is correct, 99% of people in US hate the bank bailots. but have they been able to stop it? economics unfortunelay being related to the human condition cannot be analysed as a passive science. it is intertwined with politics and power so irrevocably that you have to do a deeper analysis, than say that everything is individual choice. thats just plain intellectual laziness, a copout.

No offence taken bro we are exchanging ideas here. What does trade deficits has to do with capitalism? I agree trade deficits are problematic for both the one who owes and the one being owed to, a country who is becoming more and more Capitalist by leaps and bounds China can stop this deficit today if the want but where they will find the market for their goods? Don't forget EU has a big trade deficit with China as well.

 

[AsifAmeer]

Ok. Tell you what.. couple of things I will share..
Economic Equilibrium is an illusion. The Equilibrium of supply and demand is an delusional paradigm. And let me explain why.
Suppose you car gas tank is half full. You have this habit of fill the tank full every weekend. You start to see gas prices starting to trend higher... What r u gonna do? Yup.. go get your gas tank full. A movement in price creates momentum, which inturn creates further momentum. We are taught in schools that there is supply and demand and the intersecting points are points of equilibrium. Not only does the point doesnt exist, but the very concept doesnt exist. I noticed this phenomenon in trading futures. And I could feel it but didnt have the concept completely understood till I bumped into "Alchemy of Finance" by George Soro. He calls it the Theory of Reflexivity. This concept is looked down upon in Academia because it cant be quantified by Gaussian statistical modeling. Academia's stand is if we cant understand something, it doesnt exists.

Now the other thing about fluid and gas dynamics and comparing that with market equilibrium. There's a difference. Its called CONCIOUS. You see Gas and liquid dont have a conscious. You can calculate their movement. But you cant predict collective conscious. This is classic Karl Popper (which I havent read..yet)

unicorn it is presumptuous (with due respect, dont mean to be personal) to think you are the only smart person who sees the problems with the US trade deficits. you think people who are running china or russia cannot see the problems with the US deficits? i keep repeating it is easy to say, but not easy to do. I additionally gave the example of greece where both the ultra right golden dawn and the ultra left syriza party have promised to abandon the EU zone. but neither came to power, and you really think if they came to power they would be able to deliver on their promise? there will be so much pressure on them from their internal capitalists, the external agencies like WB, IMF etc that they will eventually change their mind. this simplistic idea of people who are gullible and do not understand what you understand is not in my opinion the best argument you can come up with. it is a deeper problem.

if what you are saying is correct, 99% of people in US hate the bank bailots. but have they been able to stop it? economics unfortunelay being related to the human condition cannot be analysed as a passive science. it is intertwined with politics and power so irrevocably that you have to do a deeper analysis, than say that everything is individual choice. thats just plain intellectual laziness, a copout.

Greed/ego existed even before the existence of humans.. Thats why we got the Satan. I will not lot the West claim monopoly over greed. Greed's been there since day 0. So that cant be THE factor.

Fundamentally capitalism is the same today as was anytime in history just like everything it has evolved. As new technologies are deployed it will continew to evolve.

You can have a system where state invests in everything not people. The only major problem in either system is GREED. Greed has far more adverse effects when the state does the investment and less in a capitalist environment.

 

[Unicorn]

Here is how I view it. Reason why every country has to use the dollar is
1. Dollar denominated Energy Markets (Political reasons)
2. Dollar denominated International Debt Markets (legacy institutions)
3. China pegging to Dollar (Currency Wars)

Every country needs dollars to buy Oil, LNG and so on..



Again, there isnt a darn word you said that I would disagree with. Help me understand your objections to the original article. Remember, I wrote this article for a NON-US Central Bank (SBP). Existence if a reserve currency is a dilemma in itself (which i shared earlier - called the Triffin Dilemma) . Tell me specifically what part of the article is of concern to you. I am really keen in knowing that.

I have not disagreed with your article at all some of it I understand and some i am still trying to digest. My only objection was countries being forced to trade in US dollar.

I don't see the the energy markets are dollar dominated for political reason. Lets assume for argument sake that they are what benchmark would you use as price for your barrel of oil and what medium will you use to trade against TODAY beside US dollar and gold. Do you see any other because I do not?

 

[AsifAmeer]

Sorry for the confusion, that was meant for [MENTION=32679]guest[/MENTION] to respond to.

About Energy markets being dollar denominated. Do this, listen to Michael Hudson.. and listen very carefully to the name droppings..

About how China is cornered (click on the link)
http://youtu.be/0zEbo8PIPSc?t=1h17m29s
Listen for about 3 min

Now, listen to this.. Why Arabs sell their Oil in Dollar
http://www.youtube.com/watch?v=0zEbo8PIPSc&feature=youtu.be&t=1h34m52s
Listen for about 3 min..

tagging [MENTION=32679]guest[/MENTION] here too..

I have not disagreed with your article at all some of it I understand and some i am still trying to digest. My only objection was countries being forced to trade in US dollar.

I don't see the the energy markets are dollar dominated for political reason. Lets assume for argument sake that they are what benchmark would you use as price for your barrel of oil and what medium will you use to trade against TODAY beside US dollar and gold. Do you see any other because I do not?

 

[Omrkhan]

I just want to know how US is forcing anyone to trade in their currency? Every country can choose how or what medium to use as trade. Before US dollar people traded with British pounds and gold. When did US force anyone to trade in their currency?

Remember Saddam, he wanted to accept Euro against oil. Look what's happening to Iran, they wanted to use Euro against oil too. And yeah that WB or IMF boss talked against dollar and Budha got implicated in a rape case.

 

[AsifAmeer]

Omer, listen to this


About how China is cornered (click on the link)
http://youtu.be/0zEbo8PIPSc?t=1h17m29s
Listen for about 3 min

Now, listen to this.. Why Arabs sell their Oil in Dollar
http://www.youtube.com/watch?v=0zEbo....be&t=1h34m52s
Listen for about 3 min..

Remember Saddam, he wanted to accept Euro against oil. Look what's happening to Iran, they wanted to use Euro against oil too. And yeah that WB or IMF boss talked against dollar and Budha got implicated in a rape case.

 

[Omrkhan]

Utube is banned n PK.

 

[JojoBubble]

I WISH this stuff were Textbook material in Unis. Its not. I had to get in touch with senior traders at Major banks and IMF to understand the complexities. Had to buy 10s of books, get in touch with their authors like get understand the issues.

Gotti, Maybe you can elaborate Khan's concerns too. Criticism lacking specifics is noise. You dont wanna sound noisy.. do you?

really ? who buys your BS . why waste traders and your time. and money on 10s of books, when you could ve googled this sh!t. talked to senior traders my ***

 

[AsifAmeer]

thank you for your useful contribution.

really ? who buys your BS . why waste traders and your time. and money on 10s of books, when you could ve googled this sh!t. talked to senior traders my ***