European Central Bank

Does anyone have a decent source on how the ECB works? For example, the current rate is at 4,25%, but I keep reading about the usual drivel about ECB "adding liquidity" and, based on anecdotal evidence, getting a loan is very easy at the moment. So how are they adding new money to the system, if people are wary of loans?

It works exactly the same as the Federal Reserve.  All the world's central banks follow a corrupt monetary policy.

It's hard for individuals to get loans.  Large corporations, banks, and insiders may borrow at will.  They're snapping up assets on the cheap during the recession.

fsk:

It works exactly the same as the Federal Reserve.  All the world's central banks follow a corrupt monetary policy.

Right, but it's more sophisticated than just using a similar corrupt system.  As Rothbard explains in "Case Against the FED", central banks function as a cartel nationally, and while he felt it was a difficult system to maintain globally, I think it is safe to say based upon recent meetings between Paulson and Bernanke with foreign Central Bank leaders that there is an attempt to form a cartel if one does not already exist.

 

If they all inflate in tandem, then there is less currency fluctuation, and capital does not flee from region to region sporadically.

 

liberty student:

If they all inflate in tandem, then there is less currency fluctuation, and capital does not flee from region to region sporadically.

Actually, insiders like the fact that interest rates are different in different countries.  This allows the "carry trade" where you borrow at a low-interest currency and lend at a high-interest currency.  Different interest rates in different countries fuel profits for currency derivative speculators.  As usual, the profits are paid by the average person as inflation.

In a true free market, interest rates would be nearly the same everywhere.  Otherwise, you could conduct arbitrage by borrowing in one area, shipping money/goods, and lending in another area.

Even though I'm aware of the corrupt international monetary system, I can't profit, because I can't borrow at the same favorable rates as insiders.

fsk:

I can't profit, because I can't borrow at the same favorable rates as insiders.

Get yourself an Internaxx account or something. You can trade a cross on any two currencies you like - earning interest in the one you hold and paying interest on the one you borrow. You can get Islandic interest rates if you like (13 or 14% last time I checked) providing you're willing to take the risk on the exchange rates... if the exchange rate shifts against you then you may well loose all the profits you've made on the difference in the interest rates (and some) - which is something all the carry traders must deal with, including these "insiders" that you refer to (whoever they are).

One reason banks don't lend you money at the same rate they lend it to the Federal government is, of course, the risk of default. For any loan, a certain component of the interest rate will be there to cover the risk of default. Bonds are traditionally considered zero risk (at least US bonds used to be). Housing loans at least are backed by the collateral of a house, so banks are usually quite willing to loan for housing. If you want to borrow to setup a business then you probably won't get the same rates as someone else that has more collateral (like Microsoft) since the risk that you'll default and the bank won't be able to recover anything from you is greater than the risk that Microsoft will go bust and the bank won't get anything back.

Not everything in life is a conspiracy, although there are certainly a few about.

Right, but FSK's point is still valid.  The government only has a lower risk of default than citizen A because they own the system.  They can tax and confiscate, the ordinary citizen has survive on the merit of his capital and business acumen.

liberty student:

Right, but FSK's point is still valid.  The government only has a lower risk of default than citizen A because they own the system.  They can tax and confiscate, the ordinary citizen has survive on the merit of his capital and business acumen.

"The government" applies by extension to large banks (Goldman Sachs, Citigroup, FRE, FNM).  FRE and FNM can borrow really cheap, because their debt is backed by the full power of the Federal Government.  The cost of this guarantee isn't just the amount that was just paid to bail them out.  The guarantee means they can borrow for only a slight premium to the Fed Funds Rate on a $5T portfolio.

Large banks can borrow cheap because they get bailed out in each recession.  Right now, most large banks are technically insolvent if you "mark to market" all their assets.  If any large bank were forced to liquidate at current market prices, they would be insolvent.  Accounting rules mean that large banks may continue operating even though they have a negative net worth on a "mark to market" basis.  The large banks will be bailed out by inflation, and everyone else will pay the cost as their purchasing power is eroded.

Even if I opened a currency derivatives trading account, I wouldn't get the same favorable terms as large banks and hedge funds.  You need over $100B in capital before you can start bending the rules in your favor and become "too big to fail".