शुक्रवार, १८ जुलै, २००८

खेळ पैशाचा - भाग ३ (बँकांची गरज - सतत इन्फ्लेशन)

प्रेषक नाना चेंगट ( गुरू, 07/10/2008 - 11:31) .

"सदर लेखन हा माझ्या 'इंग्लिश डॉक्टरेट'चा एक भाग आहे म्हणून, तसेच या विषयावर मी लिहावे असा काही लोकांचा आग्रह आहे म्हणून माझे लेखन मी येथे जसेच्या तसे प्रसिद्ध करत आहे. हे मराठी संकेतस्थळ आहे याची मला पूर्ण कल्पना आहे परंतु वर म्हटल्याप्रमाणे सदर लेखन हा माझ्या व्यक्तिगत अभ्यासाचाच एक भाग असल्यामुळे तो मराठीत भाषांतरीत न करता इंग्रजीमध्येच येथे प्रसिद्ध करत आहे. जनरल डायर यांनी "अपवादात्मक परिस्थिती" म्हणून हे मान्य केले आहे!"
खेळ पैशाचा - भाग १ (पैशाची निर्मिती)खेळ पैशाचा - भाग २ (इन्फ्लेशन)
Banks need inflation
It may seem, that inflation keeps itself going rather naturally. When prices rise during the lifetime of loans, new loans must finance more expensive things and thus have to be higher. At any time the cause of inflation would be the inflation itself. It is a clear and openly admitted policy of central bankers. Inflation is a component of our banking system.As said earlier, competition among commercial banks assures, that they will issue the maximum amount of loans. Hence, to higher or lower inflation the central bank only needs to loosen or tighten the issuance of loans.The best known way of central banks to steer inflation is changing the interest rate. It is meant to influence potential borrowers. The interest works like the acceleration and the break pedal of the economy. By an increase of the interest rate, prices will lower, or at least rise less quickly. By a decrease in the interest rate prices will rise faster.
A way to explain it is, that when the interest rate becomes higher, people will borrow less. And when less ending loans are replaced by new loans, there will be less money in the country. Over time, you can buy more with each unit of money. Prices lower or at least rise less quickly. Here the central bank has no intention to see the prices lower. In this case, apparently, the money stock is still allowed to grow, but just a bit slower.
When the central bank lowers the interest rate, the reason is straightforward: let there be more loans and let the speed of growth of the money stock increase. Of course, the interest rates also work on savings. When interest on savings is low, more people will prefer spending their money.
Central banks cannot steer the inflation on specific prices, like the prices of bread, bicycles or machines. They rather steer the monetary inflation, the increase of the total volume of loans. The extra money never spreads evenly through the economy. It rather increases the effects of other factors, like rising cost or rising demand.
When the economy cannot absorb the inflation anymore and the money does not spread sufficiently, bubbles occur. Then, bigger and bigger masses of money go round in for instance the stock markets or the real estate market, where money is earned by the forcing up of prices. Enterprises too are more and more often bought and sold as if they were financial toys.
Although central banks admit that inflation is part of their policy, they rather put forward economic reasons. They sound plausible most of the times and are richly provided with comments by economists and journalists. However, most of them forget, that, in the first place, central banks need inflation themselves.Central banks need income
Central banks have obtained the power to control the volume of the money stock, to set inflation and interest, and to dictate rules for financial institutions. With this power they can influence the economy. They have obtained laws to hold this power. If they would depend on others for their income, their power might quickly erode again. That is why they collect their own income.
Central banks get their income from monetary operations. A very lucrative source of income is borrowing money when the interest is low and lending it out when interest is high. As monetary operation the purpose is as follows. When interest at commercial banks lower too much, (low demand), the central bank borrows large volumes of money from the banks. This way there will be less money left in circulation. Therefore demand for loans will increase again and interest at commercial banks will go up again. In other times, when interest at commercial banks gets too high, the central bank lends out money to banks, so they can supply more loans to their customers and finally the interest lowers again. The bigger the differences in interest between the borrowing and lending of money, the higher the benefits for the central bank.
To get income from these operations, inflation is essential. Without inflation, interest rates would stay rather low. There would be hardly any difference between high and low interest. Related to this trade, central banks also expand their balance sheet. They buy more securities (lend out more money) than they sell.
Many central banks say, they want to keep inflation around 2 percent. With this they mean an increase of 2 percent of the Consumer Price Index of their country, not the real inflation of the money stock, which normally is a lot higher.Inflation is not only a necessity for central banks’ income, but also a means to exercise power over the users of money. By monetary inflation the population pays – even against its will - for the use of money. Banks collect interest from the borrowers. This way only the borrowers seem to pay for the created money. But let’s see how it works when there is inflation.
By inflation, the borrower has the advantage that his payments to the bank represent less worth over time. These payments concern interest and pay-back of the principal. The interest forms income for the bank. We may be sure, that the bank has foreseen the inflation and has counted a bit more interest in advance. So, for the interest, inflation does not deliver an advantage for the borrower. However, for the principle, this is different. The bank only needs its nominal amount to be paid back, for, with the payback, only the typed numbers, with which the loan started, have to be lowered to zero. The devaluation of the amounts to pay back for the principle certainly is an advantage for the borrower.
The borrower’s advantage on principle payments can be calculated separately for each installment. And when we also calculate the inflation supported by the following users of the money created by this loan, the totals will appear to be roughly the same.
In this example the red line shows the total amount of transactions made with the money of the loan during the lifetime of the principle. The loss of value from inflation is dissimulated in the 60 transactions. When the inflation is 2 percent, this is in average 0.167 % per transaction. The loss of value for the users of the money equals the advantage for the borrower.
Simply put: if the borrowers must pay 6 percent of interest (on the principle) and has 2 percent advantage from the inflation (on the principle), his advantage equals 2/6 of the interest. The users of the money lose an equal amount from inflation. The banks don’t lose. They have foreseen the inflation and have count a bit more interest in advance.In other words, this is what the inflation policy of central bankers does: shift a part of the interest burden from the borrowers to the users. This way the users pay interest for the use of the money!Manipulating inflation and interest
With the authority to set inflation and interest the central bankers have the power. They can make us save more, invest more, consume more, speculate more and always work harder.
As shown above, inflation is interest the users of money have to pay. Inflation pushes the population to work harder and to compete to obtain some of the extra money put into circulation and make up for the loss of value of the money they detain.
Inflation also pushes people not to keep money in their pocket or under their mattress, but to spend it or else bring it to the banks for some interest. This way most of the money remains available for the banks.
When interest is high, people will save more. When interest is low, people will rather spend, borrow and invest more.
What we think interesting to do at a particular time, largely depends on what the central bank wants us to do.
हे मिसळ पाव वरुण घेतले आहे.