March 25, 2020 Olympic Peninsula, near the South Hoh Wilderness area I am doing my due diligence not to spread the coronavirus. I have been a germophobe for over a decade. I do not go outside to congregate; I go outside to self-isolate. Why should I be punished for the actions of a few bad apples? Why should my access to the outdoors be shut down? Was I rationally wrong to practice good hygiene all these years, since I am now lumped in with all those who thought I was a crank? --- Stay home is like "Let them eat cake" for those of us who have no stable home. --- I do my best not to spread the coronavirus. I am following the spirit of the Governor's directive not to congregate. I go outside to self-isolate. I avoid other people. I pack out my trash, bury my waste, and practice leave-no-trace guidelines. I don't want a bat to catch the virus so I bury fruit leftovers, for example. --- I come outside to self-isolate; the only contact I have with people is when approached by cops. --- If I had a note from my doctor, would that allow me to be an exception to the "stay indoors" order? --- 47812924 --- "The role of the central bank is to preside over a legal order that effectively grants banks the exclusive right to create IOUs of a certain kind, ones that the government will recognise as legal tender by its willingness to accept them in payment of taxes." . Yes. MMT gets this point wrong by insisting that the private sector cannot create new net financial assets. --- Dear Governor Inslee and State Public Lands Commissioner Franz: I go outside to self-isolate, not congregate. I take all due precautions at gas stations and stores. I am mindful of chains of transmission and try to break them. When outside I bury waste and pack out trash so as to minimize the risk of transmitting the coronavirus back to animals. I am not a threat. I am doing my best not to spread virus. Going outdoors is essential to my physical and mental health. I get very depressed staying indoors for too long. I have found self-isolating outdoors to be the best treatment for my depression. Please consider that you risk very little by opening public lands to people such as myself. Please re-open state public lands. Sincerely, Robert S Mitchell --- The economic effects are forced by ergodic scientific models that focus only on the ensemble average and ignore individual time-series averages, the overwhelming majority of which will experience mild symptoms. --- If markets fail at supply chains, doesn't that mean we should abandon markets because despite farmers throwing away food, capitalism can't allocate efficiently, purely due to a shortage of the medium of exchange? There is plenty of demand and plenty of supply, but an imposed scarcity on the medium of exchange prevents efficient allocation of supply to demand? Prices have to rise because currency is scarce, not because commodities are scarce? --- Regulations cause more problems than they are supposed to solve. After 2008, Basel Liquidity Coverage Ratios and Fed capital surcharge regulations caused seizing up of repo market lending in September 2019, leading to the Fed reversing normalization. Regulators have no clue what is going on in financial markets and their interference makes things worse. . Best is for economists to stop prioritizing output and employment. Overproduction of food was FDR's chief concern in the Great Depression; farmers increased supply as demand dropped, contrary to economic theory. The same is happening with oil producers today. Pollution is dropping as overall output decreases, even as food and gas prices drop thanks to overproduction. Why should we celebrate an increase in pollution and oil prices, just because economists tell us our only purpose in life is to increase the ensemble average that GDP is supposed to measure? . One hopes unemployment becomes more voluntary as more of us reject the public policy advice of economists. The best policy is pay everyone a basic income at the average income level and let those who want to, work ... --- @ Henry Rech: I encourage you to examine real balance sheets. I pored over Puget Sound Energy's Federal Energy Regulatory Commission filing; although the assets and liabilities net out to zero, they have $3 billion in equity. They also do many creative things with explanations buried deep in footnotes, such as book a "fair value" for derivatives that often turns out to be much cheaper later on. They also hide a lot of money in tax deferments. They booked more tax liabilities than they ended up paying due to Trump's recent tax cuts, for example. There is a lot of room in real balance sheets to hide the fact that assets are greater than liabilities, and no one is checking too closely (PSE board members sit on the regulatory committees ...). . My contention is that the consolidated private sector balance sheet nets out to net worth, or about $120 trillion as measured by government accountants. The net worth assets are much more than officialky issued government money. The Fed essentially promises to supply dollars at par for the private sector assets. Real private sector net worth is probably ten times the reported amount, because it is hidden in shadow banks and other unregulated vehicles. --- > What if the food, clothing and personal tech that UBI is supposed to purchase are mostly imports? Trade can still function. If you are worried about inflation, you can protect contracts with inflation swaps. Treasury Inflation Protected Securities can replace Treasuries. In a system with one bank at the top of the hierarchy, there need be no runs because that bank produces the best money, which private firms prefer for settlement. The Fed is that de facto bank today for the world, but the unlimited central bank currency swap network allows for the possibility that another central bank currency could become the world's reserve currency. Central bank currency swap lines effectively make exchange rate risk a policy variable. They can wholly eliminate exchange rate risk, using unlimited currency swaps at away-from-market rates. So trade can still occur because the nominal money demand of exporters can still be met, as today without a money-printed basic income. --- @georgesdelatour I am not an MMTer, because I hold that the consolidated private sector balance sheet balances to net worth, not zero. And private household net worth is at least $120 trillion, which is far more than government currency. Thus, I say, in contradiction to MMT theorists, that the private sector creates new net financial assets, which are backstopped as necessary by government currency. The car example leaves out currency swap lines at away-from-market policy rates. If Greece in your example can get any amount of US dollars at zero percent, rolled indefinitely, they can use those dollars to buy BMWs, because German firms want US dollars too. Most international trade includes a dollar leg. See https://voxeu.org/article/dollar-s-international-roles "In international trade, the dollar is widely used for invoicing and settling import and export transactions around the world." "Many countries maintain an exchange rate regime that anchors the value of their home currency to that of the dollar." Exchange rate risk is effectively eliminated by unlimited central bank currency swap lines. Thus we should print money for a worldwide basic income, funded on the balance sheets of world central banks. --- The fucking idiot mods have banned me so I prefer to take discussions to nab.cx because I'm not censored there. I'll be happy to track down the sources listed in that zerohedge graphic i know they often play fast and loose with graphics so i'm interested to check for myself. --- Please re-open public lands. You live in a mansion; my equivalent wealth is what little remains of the commons. Please let me use my natural rights to experience the wealth in nature, as you get to experience wealth in your Mansion. Sun very likely helps break chains of transmission. I should be outside in virus-killing sunshine and germocidal air. I naturally self-isolate outdoors on public land, and practice leave-no-trace ethic, so I am no threat to you by staying outside on public land for a week or two, enjoying nature's natural bounty, as is my self-evident, unalienable, natural right. Please open public lands. You can use my lifestyle outdoors as an example how everyone should live. Thank you. Bob Mitchell --- 49737982 --- > Economic stagnation combined with zero or negative interest rates remove incentive for people to save. This depletes the supply of private capital available to invest in businesses and jobs. Ron Paul has no clue how finance works: negative rates mean decreased funding costs, so private capital can still increase. Spreads matter, not negative rates. Apple is currently borrowing at low cost to buy back shares; if they aren't investing in real production, it is due to demand destruction. Paul ignores this. The best solution is to pay everyone a basic income of $3000 per month and let those who want to, work. --- Researcher on NPR's Science Friday on Friday May 8 2020 said she thinks the brain stores maps of the cerebral cortex in the hippocampus during the day, and then feeds the maps back to the cerabral cortex during sleep. If you can find a story in the subconscious that is compatible with the map, the map is permanently stored. --- I am not a follower of Modern Monetary Theory, because my inflation model is much more heterodox: I believe that inflation is arbitrary, while MMT upholds a standard, money-quantity based approach. APoll of economists is as useful as a poll of Tarot readers when it comes to making public policy. The problem with the comments in that poll is that the US has effectively printed money throughout its history, without any of the predicted consequences coming true. The US debt is growing at the same time as interest rates on the debt are falling, thus contradicting many of the economists' predictions in that poll. Those economists are reciting catechisms based on blind faith in a quantity-based theory of money. The evidence is clear: the US has never been subject to the constraints economists would impose. Reagan proved deficits don't matter; Trump proves solvency does not matter. --- @lars syll blog: Shadow banks sell bets that the weather forecast, say, is right or wrong, and use the premiums to make opposite bets. The worst they can do is lose the premium they earned by selling bets; the best they can do is often unlimited, or at least many times greater than the potential maximum loss. Using this strategy in volume guarantees a profit. Private insurance arrangements cover counterparty default risk, implicitly guaranteed by the Fed's proven power of unlimited liquidity. --- Fair enough: it is my intuition, based on observations and interactions with traders. See anecdotal evidence from a retired exotic options trader: . https://threadreaderapp.com/thread/1142997842803351552.html . "Because of their different approaches in managing the risk, it is possible for both sides of the trade to hope that the price goes the same way going into settlement." . "As an experiment once, we set up a diverse portfolio of rate option trades with the gamma trader (me) getting the long and the Vega desk, which managed long dated options, taking the short leg. Over a six month period, both desks made money on their side of the options portfolio." . It is often said that derivatives are zero-sum, but this downplays the fact that combinations of derivatives are often used to clearly define your risk beforehand, and give you the opportunity to get out before the trade turns negative. All parties can do this because the derivatives split up risk so finely and each counterparty can hedge all their downside risk. Counterparty default risk is handled by private clearinghouse credit with the implicit backstop of the Fed if there's a widespread panic. . My own experience includes buying and holding Apple for a decade, making enough to buy a new car, and more recently playing with a toy portfolio. I'm not trading options (yet) but the free information provided by @volatilityvix, for one example, told me to get out of stonks before the most recent crash. So I kept most of the gains since I bought the dip in late 2018 (going on advice in Chris Dillow's blog), avoiding the big drawdown. Now I'm playing with a few ETF shares, buying on positive futures, selling on negative futures. The real money is in the buying and selling of futures themselves, because you can self-hedge the trades using butterflies and such. . My goal is to form a Green Hedge Fund and pitch the Bezos Earth Fund and Microsoft environmental fund and others like that on investments to buy up logging contracts and sell carbon credits, or otherwise use trading to make a return using the contract as collateral without ever logging the trees. --- "When real money is on the line your psychology is totally different." . Prices are arbitrary, psychological, noisy. Scale matters because of arbitrary human psychology? If I had the despicably shallow personality of the Wolf of Wall Street, you would respect me more? You are reinforcing my contention that bluster matters more than standard economic constraints in financial markets, and elsewhere. . The Green Hedge Fund would also be Public in that it solicits trades via a public website where anyone can submit, peer review, and vote on trades. Strategies could be backtested and simulated, and the best-vetted trades implemented. . Some arrangement with the state should be worked out so that property taxes were reduced by some proportion of the profits, thereby incentivizing professional traders to contribute. . However, in a world where bluster and showmanship win the day, I have faint hope of succeeding in my plan. Perhaps I may inspire others ... --- Right, but finance's potential is to discredit the assumption of Pareto-optimal equilibriums by figuring out how to remove economic constraints on individual self-expression. If everyone can make the money they want in finance, we can figure out provisioning without "price signals" that already depend on arbitrary psychological administrations by a certain privileged few. If we move profit entirely to finance, people can self-provision or provide for others because they want to, not because of an artificial imposed scarcity on money. Finance can liberate us from money by enclosing trading in a financial market sandbox. . I.e., I read today that oil prices spiked on Saudi Arabia's decision to unilaterally cut production; there is no physical scarcity of oil in this price signal, there is a signal that some Saudi Arabians want to hold larger money balances. Another zerohedge article proclaims that markets are completely disconnected from fundamentals. So? Let traders play with derivatives upon derivatives, while the real economy continues unencumbered by financial constraints, learning to need fewer real things as people learn more. "Greed is good" becomes sandboxed in financial markets. That is the best potential finance offers, as I see it. --- "I resent all this pathologizing of normal healthy behavior." https://nab.cx/t/gnv/comments/d108660e4470a9e1dff2ecd308ce830e78c42402/normal-person-gives-online-account-of-not-normal-person Normies cherry-pick on any small deviancy from arbitrary, fickle social rules to scapegoat free-thinking individuals for all of society's problems. But they couldn't find any deviancies in Stephen Paddock who holds the record for mass shooting deaths. Oops! --- https://www.zerohedge.com/health/how-new-york-turned-nursing-homes-slaughter-houses > The Nobel Prize-winning economist F.A. Hayek observed that the problem with trying to centrally plan economies and other complex social orders is that central planners cannot possibly access, comprehend, and weigh the vast amount of information relevant to their sweeping decisions. Technology changes "cannot possibly" to "can possibly". Hayek neglected technological advance. > The only way to cope with this "knowledge problem" is by bringing to bear the special knowledge that each individual has about the matters he or she is intimately familiar with. And that can only happen through decentralized processes, like the market price system. The market price system counts one dollar as one vote, which devalues the knowledge of individuals who choose not to sell knowledge. Because dollar volume is important, "whales" making big bets can move prices, even though their information may be faulty. A better way to pursue ultimate knowledge is by freely sharing information so that any individual may pose questions and get free answers that he evaluates based on his own judgment. > "It is hard to imagine a more stupid or more dangerous way of making decisions than by putting those decisions in the hands of people who pay no price for being wrong," wrote Sowell. But big banks pay little or no price for being wrong, because the Fed bails them out. > Media were quick to describe the nursing home tragedy as a "market failure," pointing out that 70 percent of nursing homes in the US are for-profit. This is hardly a market failure, however. Long-term care facilities saw the danger and warned public officials what would happen. Why wouldn't the private solution be to expel all sick residents, telling them to fuck off and die, because that would maximize profits? > [...] the dictatorial arrogance on display when Cuomo indignantly insisted that unquestioning compliance was the only appropriate response to his mandate. > Tragically, that conceit was quite literally fatal for many of the most vulnerable members of society. Private solutions motivated only by profit maximization would be even more fatal. --- https://www.zerohedge.com/political/taibbi-democrats-have-abandoned-civil-liberties > I can understand not caring about the plight of Michael Flynn, but cases like this have turned erstwhile liberals – people who just a decade ago were marching in the streets over the civil liberties implications of Cheney’s War on Terror apparatus – into defenders of the spy state. Politicians and pundits across the last four years have rolled their eyes at attorney-client privilege, the presumption of innocence, the right to face one’s accuser, the right to counsel and a host of other issues, regularly denouncing civil rights worries as red-herring excuses for Trumpism. > Nowhere has this been more evident than in the response to the Covid-19 crisis, where the almost mandatory take of pundits is that any protest of lockdown measures is troglodyte death wish. The aftereffects of years of Russiagate/Trump coverage are seen everywhere: press outlets reflexively associate complaints of government overreach with Trump, treason, and racism, and conversely radiate a creepily gleeful tone when describing aggressive emergency measures and the problems some "dumb" Americans have had accepting them. > I also recognize the crisis is also raising serious civil liberties issues, from prisoners trapped in deadly conditions to profound questions about speech and assembly, the limits to surveillance and snitching, etc. If this disease is going to be in our lives for the foreseeable future, that makes it more urgent that we talk about what these rules will be, not less - yet the party I grew up supporting seems to have lost the ability to do so, and I don’t understand why. Me neither. --- Anis Chowdhury quoted: "go to the source of expectations and find out what people actually expect or anticipate and to endogenize that within the framework of models" . Look at futures. The VIX term structure was in contango until the crash, went into severe backwardation meaning future volatility prices were cheaper the longer you go out, and now may be flipping back to contango. Such price signals in futures are used by sophisticated traders to form expectations. . antireifer said: "I was negotiating collective agreements and fighting for contracts that would keep up to inflation but NAIRU was saying that heightened wages were causing it" . Yes, the best response is to index everything to price rises so real purchasing power is kept stable even if nominal prices rise unboundedly. Cost of Living Adjustments inflation-proof incomes; Treasury Inflation Protected Securities inflation-protect savings; inflation swaps take inflation risk out of private contracts. The Fed should serve as counterparty of last resort for each of these instruments. --- 51113500 --- ihttps://www.cnbc.com/2017/06/26/wall-street-economists-consistently-wrong-in-10-year-rate-forecasts.html > "From a pure economic perspective, what we really are waiting for is inflation. The Fed has been saying for a while now that they want to raise rates. And, the Fed is clearly saying they want to raise rates a lot faster than what the market believes," Slok said Friday. Note that the analyst who is pointing out how wrong other analysts' forecasts were, was wrong about interest rates, which three years later are back to zero. Anyway he should be using treasury futures. But they could be wrong because of hedging. Slok also strangely does not mention that borrowing costs often go down with ten-year note yields, so his repeated framing of high yields = good for Wall Street is odd. Higher Treasury yields means higher borrowing costs. Also if you invest in a bond ETF, you make gains if yields go lower. --- > What matters is whether the money has somewhere to go. People like to hold money balances. > For basic income to buy goods and services, those goods and services have to be available for purchase — there has to be something in the vending machine. Financial goods represent by far the most money volume in the vending machine. You can buy credit, and if you default the Fed has proven it will buy distressed debt instruments. In 2008 the Fed bought a lot of mortgage-backed securities that included originally private label mortgages repackaged into government-guaranteed mortgages. The Fed bought a lot of bad private debt. And today, the Fed is buying corporate bond ETFs, again shoring up private companies that buy credit from the "economy as vending machine". Inflation is not a problem because, if the real goods and services in the vending machine go up in price, you can use the Fed's money vending machine to give individuals more money to put in the vending machine. The Fed can set the price on its money vending machine at zero (as it has done with interest rates). > How much basic income can our economy handle without causing inflation or other problems? Since inflation is primarily psychological, not an indication of scarcity, inflation should not be a constraint on the amount of the basic income. Since people demand money balances, any inflation due to money printing is likely to be exported to the financial sector, where it is redefined as wealth creation. > Let’s say the vending machine restocks itself every morning, but it’s only able to fit so many candy bars. In other words, our economy has limited resources; it only has the capacity to produce so many goods and services. If the amount of the basic income is too low, candy bars will remain unclaimed in the machine at the end of every day. If the amount is too high, then there will be a shortage of candy bars. Consumers will have extra money left over that they wanted to spend. Instead of real things, why won't consumers with more disposable income simply hold money balances? Everyone knows the rich save more than they spend. As everyone gets rich, why won't everyone save more (i.e. consume more financial goods)? > natural level of basic income This relies on too many convenient assumptions about supply and demand determining price. In the real world, prices are administered, noisy, arbitrary. Ask any trader, they'll confirm for you that price is a liar. > Let’s say that consumers receive enough basic income to buy all the candy bars twice over. We can bring the basic income to its natural level either by doubling the price of candy bars or by cutting the basic income in half. Or offer financial goods. That is what the rich spend most of their money on. I could go on, but maybe you get the point? You are completely ignoring the financial sector in your naive model. In the real world, the financial sector is the dog that wags the real economy as a tail. --- Listening to Sugarfoot Stomp, by Fletcher Henderson, as I read this post, I thought of the many stories each participating musician might tell about the form. I don't think they would agree, but they still manage to hit the right accents. I can tell my own story about the song and it doesn't matter if the others tell a different story so long as I can start and stop playing on the same beats as the others. . My point: "the underlying structure and forces that produce the observed events" might be "reducing science to a pure discursive level." The underlying reality may be a bunch of different stories. . What is the "reality" of the song? The waveform? The score? The stories each musician and listener tell in their heads? Why prioritize one point of view over any other? Each individual can tell their own story. Critical realists can tell theirs but why enforce it as the "correct" view? === Or, if there is some kind of independent reality like an elephant being felt by blind men, we might best approach that reality by listening to all stories and figuring out how to make them all true at once ... . Also, the blind men and the elephant story is itself just a story told from a particular point of view. Why prioritize that point of view over any other? Another point of view might take into account non-localized consciousness and tell a very different story of what is going on. Why should we prioritize one view over others? If you see all the stories, do you have to judge some of them wrong? "Tout comprendre, c'est tout pardonner ..." --- Listening to Sugarfoot Stomp, by Fletcher Henderson, as I read this post, I thought of the many stories each participating musician might tell about the form. I don't think they would agree, but they still manage to hit the right accents. I can tell my own story about the song and it doesn't matter if the others tell a different story so long as I can start and stop playing on the same beats as the others. . What is the "reality" of the song? The waveform? The score? The stories each musician and listener tell in their heads? Why prioritize one point of view over any other? Each individual can tell their own story. Critical realists can tell theirs but why enforce it as the "correct" view? . The French have a saying: "Tout comprendre, c'est tout pardonner." Reality allows contradictory stories. Even the blind men and the elephant story is told from an arbitrary point of view. Another might see non-localized consciousness and tell that same story from another point of view that includes knowledge not yet accessible to us ... . (Trivialism is another expression of the point of view I'm prioritizing, as is the Jain doctrine of Anekantvada which tells the blind men and the elephant story from the point of view of a sighted person.) --- I received this message: Your account has been suspended from Reddit for using alternate accounts to evade a subreddit ban. The suspension will last 7 day(s). Evading your ban in r/olympia from 2020-04-24 on a connected account. Moderators get to decide who can participate in their subreddits. Using alternate account(s) to circumvent a subreddit ban makes it more difficult for moderators to effectively run their communities and is a violation of Reddit's rules. This is an automated message; responses will not be received by Reddit admins. -- I am not guilty. I have never once even visited r/olympia since they banned me. I do not ban evade. I have no other accounts. Their evidence is wrong. Please verify. Thanks. I do not ban evade. I respect your rules. Please do not judge me guilty of an offense I never committed. --- smegko says: I have just been banned for ban evasion on the r/olympia subreddit. I wish the good people of r/olympia well. It's sweet that they still think about me, can't say the same of them. I haven't visited the subreddit since I was banned, much less expended effort in evading their ban. I have moved on. Can they? --- Lot 1 Div.14 -- https://www.zerohedge.com/markets/it-doesnt-matter-what-you-think-reality-what-it Disaster porn. The best policy is an inflation-proofed basic income of at least $3000 per month in today's dollars. Give people money, encourage them to self-provision and learn to need less, and let those who want to, work. --- https://www.zerohedge.com/markets/hedge-fund-cio-we-have-reached-point-where-entirety-future-prosperity-has-been-pulled "Each crisis was easily solved with monetary magic, pulling future demand to the present." Money supply equals present demand for money balances. Future demand is irrelevant. --- Leftards: not wearing a mask is killing my grandma Me: masks are counterproductive if you have to constantly touch them to adjust them; the best way for me to wear my bandanna is to tie it high on the back of crown of the head, which looks weird and will prompt social ridicule from the very people requiring me to wear a mask. Masks are just another opportunity to socially shame. --- https://www.zerohedge.com/commodities/fiscal-firehose-japan-approves-record-117-trillion-stimulus-package "Fiscal Firehose": Japan Approves Record 117 Trillion Stimulus Package "the Bank of Japan is likely to keep borrowing costs low with aggressive bond buying" I've argued for at least a decade that central banks could easily print money for a basic income. Normals said the increase in central bank balance sheets was unthinkable. And here we are. > "Japan may face the risk of credit downgrade in the medium to long run." Of course it does, the question is not if but when, and that would be the beginning of the end for the world's foremost experiment in monetary and fiscal stimulus insanity. Zerohedge usually predicts the same hyperinflationary societal disaster porn at the end of monetary policy articles. But since prices are psychological and have been kept so, by zerohedge's own admission, for decades, why can't we set a basic value on life, and keep kicking the financial can down the road forever? Private banks have been doing it for centuries. --- Wasn't Alesina just a convenient academic pawn used to provide expert cover for austerity policies that Germans had already decided upon? Meanwhile Japan continues to run huge fiscal deficits without predicted consequences. The idea that GDP growth is a desirable goal in the first place should be challenged. China is officially abandoning GDP targeting ... --- "benign indifference of the universe" - final sentence (?) of Camus' "The Stranger" benign = not scary indifference = not hate, could be interpreted as love, letting you be yourself --- https://www.gutenberg.org/files/1177/1177-h/1177-h.htm#link2H_4_0004 From Xenophon's Memorabilia, quoting Socrates talking to one of two brothers: "At present you two are in the condition of two hands formed by God t o help each other, but which have let go their business and have turned to hindering one another all they can. You are a pair of feet fashioned on the Divine plan to work together, but which have neglected this in order to trammel each other's gait. Now is it not insensate stupidity (8) to use for injury what was meant for advantage? And yet in fashioning two brothers God intends them, methinks, to be of more benefit to one another than either two hands, or two feet, or two eyes, or any other of those pairs which belong to man from his birth. (9) Consider how powerless these hands of ours if called upon to combine their action at two points more than a single fathom's length apart; (10) and these feet could not stretch asunder (11) even a bare fathom; and these eyes, for all the wide-reaching range we claim for them, are incapable of seeing simultaneously the back and front of an object at even closer quarters. But a pair of brothers, linked in bonds of amity, can work each for the other's good, though seas divide them. (12)" I wish my brother Jim and I were working on building simple, natural shelters in Ellensburg, mining financial markets for funds (or relying on a basic income). Drugs are legal, we take our time making shelters, we are mindful, we respect each other, we have philosophical discussions, we play music for and with each other ... --- Defining "arbitrary" and "fickle" A recent troll to this subtopic regarding the words "arbitrary" and "fickle" demands response. The troll insinuated these words have no meaning, or too broad a meaning to be useful in serious discussions. The proper response is to formalize in natural language what I mean by the words in question. Arbitrary means that an inflection point might go any way, depending on irrational decisions by individuals. Fickle means that you are not bound by past (arbitrary) decisions when making present or future similar decisions. One Fed tightens in a panic, another loosens. The first could easily have gone the way of the second, given a few personality changes. --- https://www.zerohedge.com/political/statistics-lies-gdp-there-no-politically-acceptable-means-escape > Macroeconomists argue that a different analysis applies at the aggregate level, without a convincing explanation as to why it is so. Physics has the same problem: General Relativity is incompatible with Quantum Mechanics. Contrary to Thermodynamic assumptions, there clearly are scale effects. > The origin of their contempt for established theory stems from the denial of Say’s law, that we divide our labour to maximise our production and therefore our ability to satisfy our needs and wants. The role of money is to turn our production into our needs and wants by being able to evaluate and choose between different products. Far too simplistic. Enclosure means we can't choose to opt out of the system. Production includes lying. Capitalists use bait-and-switch lying techniques to produce sales which knowingly supply an inferior product at an arbitrarily high price. Thus, prices become arbitrary and Say's Law is hopelessly naive because it neglects lying. --- @ larspsyll's blog: > "Are alternatives to microfoundations modelling methodologically coherent?" Well, I don’t know. . Refreshing honesty! In my own humble opinion, demanding coherency is similar to the epicyclists assuming circular planetary orbits, because how could it be otherwise? But nature is inconsistent, incoherent often. Godel even proved as much for mathematics. Economists such as Wren-Lewis seem bent on the equivalent of a Hilbert's Program, which Godel ended ... --- Instead of ending the fed which just gives all power back to private clearinghouses, we should use the Fed to print a basic income --- Lösningen är grundinkomst .. --- https://www.stplacid.org/wp-content/uploads/2020/01/2020.Jan_.NL_.WEB_.pdf "In St. Gregory’s life of St. Benedict he told of the timeless moment when St. Benedict saw the whole of creation in a single ray of light. In this oneness there is no judgment, no rejection, no them and us. It moves beyond charity to a place where the boundaries between giver and receiver dissolve and we live in gratitude to the Creator of all things." When I walk on the path which has recently been posted No Trespassing, I too feel gratitude and commune nonviolently with nature. Why does the Priory reject my innocent, harmless enjoyment of God's creation? "We, the Benedictine Sisters of St. Placid Priory, a monastic community, cultivate a contemplative spirit that leads to hospitality and works of justice and peace. We witness Gospel values in building community. We are committed to nurturing spiritual growth in ourselves and others, collaborative leadership, stewardship of the environment, and taking risks in following God's call." The new No Trespassing signs are not hospitable. I want to contemplate the beauty of nature and listen to the birds; why forbid me from your path? --- 3905869370 0552 --- https://www.zerohedge.com/markets/simple-case-buying-everything-right-now > Deficits don't matter anymore. Obviously there is no free lunch but fiscal conservatism doesn't win elections anymore. So why not another $8 trillion deficit next year? What's possible in the economy when government spending is unlimited? A fully inflation-protected basic income of at least $3000 per month is possible. --- Real heterodoxy says output and employment and price stability should not be public policy goals. Real heterodoxy says pay everyone $3000 per month in today's dollars and maintain that present purchasing power by simply printing money faster than prices rise. Then let whoever wants to, work. No Job Guarantee (that just perpetuates hierarchies and control structures). No raising taxes to fight inflation; simply raise incomes in lockstep with prices. No GDP targets (China has recently abandoned GDP targeting). . The private sector already uses this heterodox economics: rising asset prices are affordable because investor incomes rise faster. You leverage to buy an Exchange Traded Fund and the asset rises in value much more than your borrowing costs. In a crash the Fed (following the Bank of Japan's lead) steps in to maintain a floor price on assets, acting as insurer of last resort (but increasingly of first resort). . MMT fails to see that money balances are a good in themselves, demanded for their intrinsic value as status signals, not only for the real economy goods they can theoretically be exchanged for. Financial goods take on values disconnected from real underlying assets. Proof: stocks are rising despite record unemployment, low earnings, and bad GDP prints. MMT ignores this huge influx of new money from private financial markets, which enables investors to afford rising home prices (say) because their market-created incomes rise faster. --- MMT doesn't go far enough for me: output, employment, and stable nominal prices shouldn't matter, just as public deficits and solvency don't matter. Knowledge advance should be public policy's main goal, best facilitated by an explicitly inflation-indexed basic income and usufruct policies to re-establish the Lockean Proviso. Government policies should encourage self-provisioning and gift economies rather than specialization and markets. --- MMT is right that government deficits and debt don't matter, but real heterodoxy challenges the need for full employment and price stability as well. . We know that the Fed administers the price of the world's best money irrationally, i.e. it is not profit-motivated. Thus when such a major market agent sets prices arbitrarily, we know that prices are not signals of the scarcity of real goods. Trump might set prices deliberately designed to provoke losses, because he can get tax breaks and beguile Deutsche Bank executives into further lines of credit despite his market failures. Thus prices are arbitrary, administered. The corollary is that inflation is not a sign of scarcity but an arbitrary increase in money demand. The Fed can satisfy this money demand from its infinite, vertical supply curve on the world's best money. . Full employment shouldn't matter because, as recent lockdowns during the coronavirus pandemic have shown, probably 75% of jobs, at least, are frivolous or about attention. Basic income is better policy than full employment, because I don't want to work for the state. I can advance knowledge better without a boss. . MMT misses the essential public-private hybridity of money (see Perry Mehrling's articles on this topic). The dollar has value not because of US taxes but because private international agents prefer the dollar as the unit of final settlement. This choice has little to do with US taxes; much more, it is about the Fed's ability to expand dollar supply without limit to backstop wanton dollar-denominated private credit creation. . To reiterate: not only do government deficits and debt not matter, full employment and price stability don't matter either. Basic income provides more individual freedom than a job guarantee, and indexation (or Cost of Living Adjustments), inflation swaps, and Treasury Inflation Protection Securities maintain real purchasing power even if nominal prices should rise without bound. --- You know how when you're a kid (or even later) if you repeat a word over and over, it stops being comprehensible? That is when you confront the essential arbitrariness of the linguistic sign (see de Saussure). Words are arbitrary symbols, like nodes in a mathematical graph structure, with links attaching them to emotions. But the links are arbitrarily attached and can change. "Awful" used to mean "awesome", now it means the opposite. The links attaching to the node "awful" have changed. In order for the links to be able to change, people must have different links to words. Society tries to impose one meaning for some words. But as shown above, that is not how language works. Language allows contradictory meanings for the same word. Society does not get to impose a single meaning on a word. We each choose our own meanings and use words as we see fit. Puns rely on different meanings for words. --- @ Blissex on Chris Dillow's Stumbling And Mumbling blog: > the right to own property off any description is a fundamental right in a free society. The Lockean Proviso requires "as much and as good" land left in common. The Lockean Proviso has been blatantly violated, thus property rights are unethical. > if the profits of taking on tail risk go to "our own" and the costs of tail risk are borne by someone else, Correct, but the Fed insures tail risk, not taxpayers. Currently the Fed's balance sheet is at $7 trillion, expected to reach $12 trillion by the end of 2020; no tax increases are involved in funding this reserve increase. The Fed has a vertical supply curve on reserves. That's how the prevented the 1987 crash from becoming a depression, by insuring the transpired tail risk. The Fed is currently insuring the pandemic tail risk, without needing taxpayer money. (Some Treasury money was allocated but that is really for show. The Fed could lend to main street without needing to leverage Treasury capital.) --- "The JG is a directly targeted automatic stabiliser with a built-in price anchor." . "Employment Buffer stocks and their role as an inflation anchor and a means to maintain full employment" . Specifically, how does a job guarantee anchor prices? If inflation should jump to 10% or 20%, would the government increase JG salaries to match? In other words, are Cost of Living Adjustments the "inflation anchor"? . Also: if we know prices don't clear all markets, because right now the non-profit-motivated Fed is buying private bonds that otherwise would not be bid by private agents, why is price stability a goal in the first place? The prices the Fed is bidding corporate bond Exchange Traded Funds back to were arbitrary to start with (as they were disconnected from Earnings even before the coronavirus event). Why maintain arbitrary stable prices when you can focus on real purchasing power stability instead? --- Monday, June 8, 2020 On the banks of clear blue waters in the midst of white rapids on the Ohanapocash (?) river just south of Mount Ranier National Park. Meditating on the benign indifference of nature, should I slip on the steep rock slopes while getting water. The opposite bank was cliff-like, with what looked like horizontal columns of Colobia-like basalt. --- @ MMTers on larspsyll's blog: Inflation is expectation-dependent. Expectations can change while underlying economic variables seem the same. One decade perhaps inflation is a monetary phenomenon, because people expect that thatis true; another, inflation is exported to asset prices, because everyone expects asset prices to rise while general inflation stays low no matter how much money is being printed. Inflation is expectation-dependent: it depends on shared ideas in people's heads, independent of real variables. MMT tries to plant some ideas about inflation in our heads, so our expectations will match their predicted results. --- "Taxes" . "Gov raises taxes to create unemployment - that’s deflationary for a start." . Okay, thanks. . I have four or five objections: . First, previously it was claimed that wages and inflation are not connected as the Phillips curve suggests; but to fight inflation, government will raise taxes so that real wages decline? Isn't the Philips curve assumed, despite the claimed rejection of it, by using taxes to lower private employment therefore decreasing inflation? . Here are two previous quotations from different posts above, stating that MMT rejects the Phillips curve: . "The Job Guarantee sets MMT apart as something new, and is fundamental in their rejection of the Phillips Curve." . "It is true that MMT rejects the traditional Phillips curve inflation-unemployment trade-off" . Second objection: the immediate observed effect of raising taxes is to decrease real purchasing power. Thus prices go up even more, either due to consumption taxes or passed-along corporate taxes. Thus common voters keep voting to decrease taxes, because taxes are experientially inflationary. Reagan, Bush I, Bush II, Trump ... . Third: Inflation, as Fischer Black suggests in "Noise", is expectation-based, and expectations are not rational. MMT tries to treat inflation as something real; but inflation is simply in our collective heads, not in supply and demand curves for real goods. Different psychological attitudes result in different inflationary expectaions for the same sets of economic variables. Inflation is psychological, or noise ... . Fourth: MMT's inflation theory assumes ergodicity (as other orthodox schools do, too). An average ignores individual experiences of inflation. Many benefit from inflation. The simple average hides the disparity of individual timelines. . Inflation's real-world lack of ergodicity leads to the fifth point: There are inflation buyers and inflation sellers. An inflation seller benefits from rising prices in the real economy, and fears deflation or disinflation. Inflation buyers fear rising prices, and want to lock in a maximum inflation rate. Inflation swap markets let inflation buyers meet sellers. Inflation break-evens are the rate where buyers and sellrs both make enough money to make the inflation swaps worthwhile insurance for both sides. . The Fed can make markets in inflation swaps if private markets should break down under high inflation. By buying or selling inflation, the Fed can manipulate break-evens. . Thus do inflation swaps protect private contracts; Cost of Living Adjustments protect incomes; and Treasury Inflation Protected Securities protect savings. Inflation need be no constraint on public policy. . P.S. I read that Gerald Ford wanted to raise taxes to fight inflation, foreshadowing MMT in part at least; but the policy was shot down, probably because of Objection Two above: raising taxes is politically tone-deaf. --- Oui, mais on peut tout comprendre et tout pardonner, et en même temps donner à tous ce qu'ils désirent ... . In other words disconnect society entirely from the real world in Virtual Realities and such. So they eat Impossible Meats and tell stories about it instead of killing cows. They invest in financial markets that are disconnected from provisioning, so provisioning can be done for reasons other than profit. You get higher returns in financial markets (r > g), so if you provision, you do it as a hobby because you enjoy it. You share standalone self-provisioning technology, which markets don't invent because profit motivation biases corporate innovation towards centralized production and subscription-selling models. If you give the greedy what they want using digital bank balances or virtual realities or meat substitutes, they can get out of the way of true knowledge advance ... --- Yes, see http://subbot.org/coursera/money2/GAO_swap_lines.png for a screenshot from a July 2011 GAO report on the Federal reserve (full report: http://subbot.org/coursera/money2/GAO%20Fed%20Investigation.pdf ). . From Appendix IX starting on page 201: . "Many foreign banks held U.S. dollar-denominated assets and faced challenges borrowing in dollars to fund these assets." . In other words, Deutsche Bank, among others, had dollar-denominated obligations and the ECB got to ask the Fed for as many dollars as needed to pass on to German banks so that investors did not lose money. . German taxes were not needed; the German banks needed US dollars because they had made promises to pay investors in US dollars but normal dollar liquidity providers were hoarding dollars. So the ECB created Euros (not needing German taxes) to swap for dollars. There were no capacity limits and no rollover limits. Today the swap lines are also being used to ensure that German banks don’t suffer a dollar shortage. . See also an old Perry Mehrling blog on the global currency swap lines: . http://sites.bu.edu/perry/2015/07/31/testing-the-global-central-bank-swap-network/ Comment by Robert Mitchell 18 Jun, 2020 # --- @ spunchy A question and answer for spunchy Question: How specifically do you calibrate basic income? If inflation spikes to 10% or 20% because of some "black swan" that your model failed to predict, do you raise the basic income? I would. What do you do? Answer to the question "what do you mean by 'inflation is psychological'?": "Inflation is psychological" means that expectations determine the general price level, not anything real. Prices are always a psychological choice. Inflation is arbitrary in the sense that if your supply costs go up, but your bank account also goes up, you have no rational reason to raise your prices. Price increases are an arbitrary choice that could easily go another way, depending on personality or expectations (i.e., individual or group psychology). For example, a producer can deal with temporary physical shortages by rationing rather than raising prices. I have observed this strategy in grocery stores for items such as toilet paper during this coronavirus pandemic. That is what I mean when I say "inflation is psychological": prices are in our collective heads, not in the real world. The best way to deal with inflationary psychology is to treat inflation as just another payments problem and supply liquidity on demand. In the worst-case scenario of Zimbabwe or Venezuela style hyperinflation, we can switch to thinking of prices purely in units of real purchasing power: if a roll of toilet paper costs 0.001% of your nominal basic income today, it will be guaranteed to cost no more than 0.001% of your nominal basic income tomorrow, no matter how much the nominal price may have jumped in the meantime. Social Security currently uses this policy; it is called Cost Of Living Adjustments. (Note: COLAs are calibrated to the Consumer Price Index; basic income should be indexed to a customizable, personal basket of goods.) Thus we can and should set basic income immediately at a generous level. In case inflation shows up, index everything. The private sector already knows how to profit in inflationary times: they hedge inflation with inflation swaps, Treasury Inflation Protected Securities, and other inflation-based Exchange Traded Funds etc. Inflation is a solved problem. We can maintain the freedom to raise prices at will, and the real purchasing power of basic income. There is no need to be cautious about setting the initial basic income amount, because you don't want to set off inflation. Even if basic income does touch off nominal inflation, we can maintain a stable real purchasing power for incomes. Inflation should not be a constraint on public policy, because we can adjust to inflation and still thrive. --- Money takes on a value like points in a game. The more pure money you have, the more status. Bill Gates and Warren Buffet don't compete on the amount of stuff they own but on their net worth, a fraction of which they spend on real stuff. Mary Mellor is correct (I linked to her article, Money for the People, in a previous post here): the purpose of the economy is not provisioning but profit. I agree that all you really need to do is provide basic income; then you can let financial markets stand on their own. However, financial market players have a lot of money and thus status and power. How will you persuade them to give it up? Also, your theory of inflation ignores black swans. Inflation can appear without being predicted by any model. What do you do if inflation appears despite your theory that it should not? Last point: when you say the dollar is pegged to a basket of goods, what has happened throughout history is that as the prices of the basket of goods rises, the money supply rises faster. Real purchasing power improves because money has expanded faster than prices rise. --- An immediate decrease in purchasing power. The first time I got a paycheck, I felt cheated because it was less than hours worked times advertised pay per hour. Raise taxes and voters see that as an unfair decrease in spending power. Corporate taxes are widely expected to show up immediately in prices, as an add-on item. The tax will essentially show up as an "Inflation Surcharge" on receipts, adding to cost and therefore inflation. Immediately ... Hence, voters will vote you out, should you try to raise taxes to fight inflation. --- I'm sorry, did you cite any empirical data? My theory of inflation is like Fischer Black's in [Noise](https://onlinelibrary.wiley.com/doi/full/10.1111/j.1540-6261.1986.tb04513.x): > Noise in the form of expectations that need not follow rational rules causes inflation to be what it is, at least in the absence of a gold standard or fixed exchange rates. Noise in the form of uncertainty about what relative prices would be with other exchange rates makes us think incorrectly that changes in exchange rates or inflation rates cause changes in trade or investment flows or economic activity. Prices are arbitrary, inflation is psychological ... --- @ Stumbling And Mumbling blog: "There are no independent neutral observers." My tribe is those who have no tribe. "It's also clear that it's got nothing to do with personal freedoms because they want everyone to go back to work pronto." As long as they wouldn't prevent me from going outside, I'm on their side of this lockdown issue. Staying indoors is the unhealthiest option for me and at least the right seems to adopt a position of "whatever floats your boat as long as you don't hurt me" and they don't define "being outside" as "hurting me". The lockdown enthusiasts clearly stated that going outside was killing grandma. --- I remember agreeing with [this article](https://www.greshm.org/blog/inequality-is-not-the-problem/) by Alex Howlett: > Specifically, basic income does not address inequality. It takes nothing from the rich. It merely gives the poor better access to the economy’s resources. If we have the resources to end poverty, which we do, then basic income ends poverty. [...] > I care about how poor the poor people are, not how rich the rich people are. I feel that the issues of income inequality and wealth inequality are largely irrelevant to human prosperity. [...] > Real-world countries usually achieve greater equality by redistributing money from the rich to the poor. If, instead, they just gave money to the poor without taking from the rich, we would likely see many of the same positive social and health outcomes, but much less reduction in inequality. [...] > Political power, on the other hand, is not something we can just produce more of. In an ideal world, we would like political influence to be more evenly distributed among the people. But no amount of taking money away from the rich will give more agency to the poor. Basic income, on the other hand, gives people more freedom to be civically engaged. [...] > as long as rich people being rich isn’t somehow causing poor people to be poor, I’m happy to let inequality slide. C. H. Douglas made the point that the rich being rich does not cause the poor to be poor, in [Dictatorship by Taxation](https://www.socred.org/images/douglas-archives/DictatorshipByTaxation.pdf): > In fact, the whole theory of taxation as a justifiable expedient rests upon two propositions; first that the poor are poor because the rich are rich, and therefore that the poor would become richer by making the rich poorer; and secondly, that it is a justifiable procedure to have a system of accumulating riches, and to recognize that this system is legitimate, while at the same time confiscating an arbitrary portion of the accumulated riches. The latter proposition is very much the same thing as saying that the object of a game of cricket is to make runs, but if you make more than a small number they will be taken off you. As for the Alaska Dividend, they should be getting a much higher return on their principal. They should investigate the means of money production and start a public hedge fund to manufacture a higher basic income payment. --- "As social scientists - and economists - we have to confront the all-important question of how to handle uncertainty and randomness." . The financial method of dealing with uncertainty and randomness is insurance. Central banks are insurers of last resort. . Central banks should sell panic insurance upfront. Then people could explicitly hedge against panics, instead of waiting for the Fed to do what the market already expects it to do. The only financial uncertainty is whether the personalities in charge of the Fed's unlimited supply of reserves will be hard or soft money-oriented in philosophy. Volcker was hard; Bernanke, Yellen, Powell have been soft. --- take away their goto excuse, which is economics that requires scarcity, so they get to impose it at will -- I'm worth more digging holes and filling them up again at the whim of a government official, than working on my own projects with a basic income? . You could guarantee jobs and pay a basic income. Whether you classify basic income as voluntary unemployment is semantics. One main point of basic income is to disconnect employment from income. Just as MMT disconnects government income from taxes ... --- larrykaz: "Their mission and reason for existence is to create social value and address very specific problems like poverty, hunger, homelessness, environmental degradation, community blight, inadequate care and education for all, and other." . I deliver more social value on my own, maintaining forest roads and trails and dispersed camping sites. I don't do well around others. I don't respect bosses merely because they have a title. Job Guarantee does nothing for me. . Allan: "UBI ignores the importance of reciprocity." . MMT assumes I can only reciprocate if a government boss tells me what to do? MMT is distrustful. . Also: an MMT government benefits from my labor, and reciprocates by giving me notes it produced by costless seigniorage? What sort of reciprocity is this? I am to trust my MMT boss, but he is not to trust me to reciprocate labor I bought with the tokens it cost him nothing to create? Basic income is more honest ... --- Basic income is compensation for theft of the commons. Enclosure means I can only survive with money. Until you re-establish a commons in which I can self-provision, you are in violation of the Lockean Proviso. You stole from me first; you owe me a basic income. . @ Nanikore: . Country leaders with bluster get away with printing: Hitler, Erdogan, Assad, Mugabe never went bankrupt. North Korea and other pariah states issue bonds to raise dollar reserves. Currency swaps are also used to borrow foreign reserves, at away from market rates if you go through a central bank. --- why can't the easily-offended learn to tolerate self-expression on the internets? why can't the easily-offended use filtering userscripts to delete content at the client, thus not preventing others from seeing it? why can't we use free speech to self-police undesirable speech and supplant it with better speech? why did we let censorship become the default mode of dealing with speech on the internet? what is a dangerous idea? must dangerous ideas be stopped by censoring or by presenting better ideas? society is made uncomfortable by some ideas and reacts inappropriately by trying to censor them filtering at the client and finding better words is healthier Epictetus: > Thus you too will be at one time a wrestler, and another a gladiator; now a philosopher, now an orator; but nothing in earnest. Like an ape you mimic all you see, and one thing after another is sure to please you, but is out of favor as soon as it becomes familiar. For you have never entered upon anything considerately; nor after having surveyed and tested the whole matter, but carelessly, and with a halfway zeal. Is his own full-throated zeal dedicated to picking others apart and criticizing, deciding how they should act? Or is he projecting? What if I can be Olympic Champion in a holodeck? Would that still displease this judge of me? --- The idea of price takers and makers leads easily to a story of irrational price making https://www.zerohedge.com/energy/russia-benefiting-oil-market-turmoil This article exemplifies the arbitrariness of oil prices. Supply is not physically constrained; supply is increased or throttled at will by psychological agents. Political sanctions affect prices more than physical supply or demand. Also, the idea of price takers and price makers easily leads to a story where price makers use arbitrary psychology to make prices. Prices are not necessarily signals of scarcity. Prices are mostly set irrationally according to what's in the heads of people, not by measurements of physical quantities. --- "In the real world, it is the second law of thermodynamics and historical - not logical - time that rules." . Thermodynamics assumes no quantum or scale effects, therefore the second law is severely restricted. (Thermodynamics 101 assumptions here: http://subbot.org/edx/thermodynamics/assumptions.png ). Thermodynamic practitioners make no claims about their laws' applicability beyond steam engines, basically. . NAIRU is wrong because supply chains are payment chains in reverse. Payments create supplies; inflation is a noisy interruption in payment flows, easily dealt with by the Fed supplying as much liquidity as desired. Public policy should treat unemployment with basic income and challenges to advance knowledge in individual or ad hoc group ways ... --- "the Bank of England has a duty to the other CBs that bailed England out to get this back under control" . Why? The Fed and BoE expand their balance sheets, and can keep them there indefinitely. No taxpayers need suffer.The Fed creates dollars to swap for created Sterling, and the BoE creates more sterling as needed to buy dollars to swap back to the Fed. The rates are negotiated, administered, away-from-market. Any "discipline" seems to be confined to punishing scapegoats ("the poor") via austerity. . In other words, I am challenging the Fed's recent announcement: . "The tools that the Federal Reserve is using under its 13(3) authority are for times of emergency, such as the ones we have been living through. When economic and financial conditions improve, we will put these tools back in the toolbox." . But when they started to put the Quantitative Easing tool back in 2019, markets panicked, and they went right back to printing money, several months before the coronavirus event. . We should be pushing for more use of central bank currency swaps as a backstop to currencies. Central bank currency swap networks are a proxy for one world central bank. With one bank, you never need experience runs because the top bank manufactures the best money. Bank runs are a policy choice. If the ECB refuses to make good policy choices, they should be called out and exposed by all of us world citizens ... . Note: before this last crisis, I argued with many who said central bank currency swaps would be unlikely to be used again in a crisis. But they have been used liberally. And no taxes are needed to pay for them. --- 1) Fed swaps $100 billion to BoE for 80 billion pounds. . 2) BoE gives $100 billion to British banks with US dollar obligations they can't meet. . 3) Say the British banks default. . 4) BoE gets unlimited rollovers from the Fed, so the defaults can be delayed. . 5) If British banks still don't repay the dollar loans, BoE can always digitally print Sterling to buy dollars to unwind the swap. Or it can sell assets. . 6) No taxes needed. --- The Fed is supplying liquidity through other channels, so the Sterling price of dollars probably goes down before the swap unwinds. . The Fed acts as a "value investor" for Sterling. If Sterling drops, the Fed will swap dollars for pounds at away-from-market rates, without capacity limits. This implicit backstop is recognized by markets, so Sterling doesn't blow up despite the dismal predictions of economists. JP Morgan's research department would probably be recommending carry trades as the cross-currency basis went further negative, but mainstream economists don't understand any of that so it doesn't enter into their stories. Thus their predictions of blown-up Sterling are wrong, again and again ... --- "it is obvious that behind observable data there are real structures and mechanisms operating" . Psychological, arbitrary, fickle things. The Fed in the 1930s could have expanded. The Greenback Party's 1873 Inflation bill could have been signed rather than vetoed by President Grant. As Mehrling's "money view" points out, supply chains are payment chains in reverse; to me, this means that payments are a sufficient condition for supply. Payment flows and the elasticity of survival constraints are the "real structures and mechanisms" that you are looking for; and the elasticity of survival constraints depends on administered policy, which policies are easily changed given different personalities ... --- "it is obvious that behind observable data there are real structures and mechanisms operating" . Psychological, arbitrary, fickle things. The Fed in the 1930s could have expanded. The Greenback Party's 1874 Inflation bill could have been signed rather than vetoed by President Grant. As Mehrling's "money view" points out, supply chains are payment chains in reverse; to me, this means that payments are a sufficient condition for supply. Payment flows and the elasticity of survival constraints are the "real structures and mechanisms" that you are looking for; and the elasticity of survival constraints depends on administered policy. Such policies are easily changed given different personalities ... . (To illustrate, https://www.journals.uchicago.edu/doi/pdfplus/10.1086/250119 provides an account of Grant's veto of the 1874 inflation bill; Grant was ready to sign it, but was emboldened by an organized letter-writing campaign started by the author of the account, Edward Atkinson. He out-lobbied the poor farmers represented by the Greenback Party. But this is fairly arbitrary; different personalities could have made different decisions and, subsequently, did. Many of the Greenback Party's platform planks have been since implemented including the abandonment of the gold standard.) --- In my view, terms of trade are swamped by financial flow volume. Current account deficits are irrelevant. There is demand for Sterling entirely apart from real economy trade goods. For example, Mexico issues Sterling bonds. The amount of Sterling flowing through trade of purely financial goods dwarfs real goods trade. . The opportunity cost of thinking in timid ways that focus on real goods trade rather than the far more substantial financial goods trade is that you badly underestimate the value of Sterling. Short it, if you believe your predictions. But smart players hedge so they make money no matter which way Sterling moves. . It's funny because I agree with you, Nanikore, when you've said elsewhere that history is key to understanding economics. The reason Grant vetoed the 1874 Inflation Bill, as I went into in another post, is an example of how a lobbying effort started by one man influenced the final veto decision. A story told by one man changed economic history ... . "the US will be prepared to remain the ultimate guarantor of the multilateral system. including the multilateral monetary system. That’s an assumption that will be tested as the US has made it clear, and even Merkel has acknowledged, that it no longer feels obliged to perform this role." . I think you are confusing NATO and the Fed. The Fed is currently buying foreign corporate bonds. The Fed's commitment to maintaining global financial stability by supplying unlimited liquidity is very firm; look at transcripts of Fed meetings such as the September 16, 2008 FOMC transcript in which Dudley forcefully presents the view that the Fed's support for world markets should be open-ended. I bet when current transcripts are released you will see the same "whatever it takes" attitude. --- @ Henry Rech and Nanikore: . Reading https://www.bis.org/publ/cgfs65.pdf I was reminded of this discussion. I believe the two of you are still too tied to the system described in the paragraph beginning: . "Before the GFC, a major source of protection against risks related to foreign currency exposure was countries’ own foreign exchange reserves (a form of selfinsurance). [...]" . I'm trying to express the following paragraph's point: . "During and since the GFC, a network of bilateral central bank swap lines has been established, covering a range of currencies [...] These were initially set up in response to US dollar funding shortages in the GFC (Annex A) and were seen as effective in reducing pressure in funding markets by providing an important signal and acting as a vital liquidity backstop." . The new signaling supercedes the older system. --- "Like all other central banks, it accepts the Effective Lower Bound" . Is Buiter unaware that the Bank of Japan and Swiss National Bank currently have negative rates? . "For those (risky) Fed programs for which both a maximum scale and a Treasury guarantee/equity injection can be established easily, we find up to $1,950 billion of potential Fed exposure and a mere $195 billion of Treasury equity to back it up." . Treasury gets equity from the Fed anyway so the Fed's capital is a trivial concern. The Fed moves markets by buying bonds, thus in essence insuring itself against loan losses. Also, loans can be rolled over forever. No taxes are needed to back up the Fed; Treasury pays bond redemptions from new bond sales, many of which are bought by the Fed, thus providing non-taxpayer equity for Treasury. When Powell says that the Fed needs Treasury equity, he is being disingenuous at best ... I agree with you (Bruce Wilder) that debts should be forgiven but there is no need for pain. The Fed can take debt on to its balance sheet and hold it forever, at a marked-up away-from-market value. No losses need be shifted onto taxpayers. Most likely however no losses will occur because markets front-run the Fed, buying whatever the Fed buys so the Fed's assets will always be profitable. --- > When you are in your thirties you will need more: a house in a good school district and all the other necessities of ordinary middle class life. Science is a profession, not a religious vocation, and does not justify an oath of poverty or celibacy. This guy just does whatever his betters tell him for money. There is no physical science in this article. This guy is a fag telling you science is arbitrary social consensus and they still have to think you "brilliant" to succeed. If this were about science and knowledge, why not benefit us by passing on some of his brilliance? > spending your working life doing scientific research, using your ingenuity and curiosity to solve important and interesting problems. Basic income and access to public labs allows this without teaching institutions. We can teach each other without senseless social hierarchies getting in the way. --- > When you are in your thirties you will need more: a house in a good school district and all the other necessities of ordinary middle class life. Science is a profession, not a religious vocation, and does not justify an oath of poverty or celibacy. This guy just does whatever his betters tell him for money. There is no physical science in this article. This guy is a fag telling you science is arbitrary social consensus and they still have to think you "brilliant" to succeed. If this were about science and knowledge, why not benefit us by passing on some of his brilliance? > spending your working life doing scientific research, using your ingenuity and curiosity to solve important and interesting problems. Basic income and access to public labs allows this without teaching institutions. We can teach each other without senseless social hierarchies getting in the way. --- The green hedge fund seeks to express through markets the view that logging should vastly decrease. The fund borrows $2 million from a private fund such as the Bezos Earth Fund or Microsoft Environmental Fund, and buys a logging contract. The contract can be used as collateral. Borrow $2 million; repay over time using proceeds from fully hedged lumber futures trades. --- Wednesday July 8 2020 At Peaches' grave site, a Douglas squirrel coming towards me on the path stopped, looked curiously, ran around a bit, then finally scooted past me on the narrow path. I take this as a positive sign from Peaches' spirit. --- Yes, I agree with peterblogdanovich's comment above. . Bridges stay up because, if I remember correctly from Bridge Engineering 101 ( https://www.edx.org/course/the-engineering-of-structures-around-us-2 ), engineers multiply specs by a safety factor of two. This is like economists saying "the poverty line is $12000 but we'll make it $24000 to be safe." . Discontinuities occur not only in quantum mechanics, when particles change from continuous to discrete, but when you boil water: after the water is boiling, you can keep it boiling by turning the heat down so low it never would have boiled the water to start with. . To come up with a set of assumptions that predict the behavior of water, you have to allow for irrational triple points and such. Instead water is treated as an exception but it is so common ... . Atomic theory did not predict entanglement, dark matter, dark energy, etc. . Keynes' physics envy was largely misplaced, indeed. --- "two over-arching macroeconomic goals — full employment and price stability." . The problem is that these two goals assume ergodicity. Employment was full before the recent pandemic, but many wages were needlessly stagnant; a few may benefit from full employment but, just like Ole Petersen's diagrams showing an average ensemble increasing while the majority of individual time-series decrease, most of us do not benefit from full employment. . Stable prices also assumes ergodicity: the ensemble average may remain stable while rent increases so much as to drive many of us into homelessness. . Much better macroeconomic goals: basic income and automatic inflation adjustments. --- Thomas Sowell is a very simplistic thinker who ignores the out-the-window realities of finance. This of course has nothing to do with his race. He needn't be canceled, as long as I can keep pointing out the glaring errors in his thought. --- "The market for money determined interest." . Since interest rates have declined over 700 years (see Paul Schmelzing, "Eight centuries of global real interest rates, R-G, and the 'suprasecular' decline, 1311-2018"), has supply of money outstripped demand? The price of money has deflated? . "The failure of Keynesian macroeconomics to establish full theoretical independence from the classical labor market and the classical neutrality of money" . If money isn't constrained by neutrality then why not print more to fund a basic income and end poverty? --- Right now, the Fed is trying to keep US debt yields up, not down ... Congress and the public are woefully ignorant about how banks profit from yield arbitrage. But even flat curves don't matter if you use butterfly trades. Instead of the rigamarole we have now with the Fed doing things Congress has no inkling about, Congress should just tell the Fed to implement basic income on its balance sheet ... . My point is that there are plenty of buyers for US debt, and interest rates keep going down despite massive supply increase. The Fed (not taxes) is the ultimate downside insurance. Markets accept this and we should take advantage by using the Fed's power of unlimited liquidity to fund good ideas such as basic income. --- Inflation is easily hedged using inflation swaps, Treasury Inflation Protected Securities, and Cost of Living Adjustments. The Fed can easily buy and sell inflation swaps in the open market to set breakeven rates where it wants, just as it sets interest rates by buying and selling reserves. Expect the Fed to figure the inflation swap thing out eventually. Or, Congress could tell them to use inflation swaps to provide inflation hedges for anyone who fears inflation's unwanted effects and can't find private inflation swap sellers. --- Reagan must have been an MMTer, because he implicitly blamed Carter's paltry deficits for high 1970s inflation. Except Reagan cut taxes as inflation fell, and ran deficits four times higher than Carter. A real MMTer would have raised taxes in the 1970s? I bet they would have been voted out faster than Carter. . Far better is to realize inflation is not a constraint at all, since it can easily be hedged and adjusted to. Reagan understood that projecting US power in the Middle East would bring down inflation ... --- Mortgage Backed Securities were properly hedged in 2008 by Goldman Sachs and other large players. The insurance piece (AIG) broke, but the Fed propped it up. Markets provide insurance so that physical uncertainty need never result in financial uncertainty. The Fed is insurer of last resort, or increasingly of first resort. We can fulfill Keynes' vision of solving the economic problem right now ... --- The desire to crack down on fraud is unreasonable and doomed to failure, like Zero Tolerance policies for drugs, terror, and coronaviruses. Instead, we can use public money to insure us all against fraud ... . Also, the risk of bankruptcy is easily mitigated by bluster, as Trump's presidency despite six bankruptcies proves. All you do is sell yourself bigly to another bank. --- The desire to crack down on fraud is unreasonable and doomed to failure, like Zero Tolerance policies for drugs, terror, and coronaviruses. Instead, we can use public money to insure us all against fraud, and make sure we can financially self-quarantine ... --- We know how gravity works because we built the tower! If you're so smart build your own tower. Galileo of course was a social hacker, and got access. How many had his same idea but not the social hacking skills? We can fix that by testing the idea that a userscript stub written by someone can result in a userscript that hides stalkergoy's site-unfriendly cahbot in the chat window. --- @ ralph47: "loaned out money never is safe." . It's safe if the bank at the top of the hierarchy (currently the Fed) guarantees the loans. . By the way, the Fed recently set the fractional reserve rate to 0%: in other words, fractional reserve banking is no more. The fractional reserve model is deeply flawed because banks make loans first then borrow reserves later if needed; so instead of restraining lending, fractional reserve rates can actually create more lending and borrowing to cover the required reserve rate. The Fed appears to have acknowledged the uselessness of the fractional reserve model, although there are still liquidity coverage ratios on the big banks. . "taxpayer backed deposit insurance" . The Fed backstops the Treasury debt issuance so the deposit insurance is really Fed-backed. . @ Bruce Wilder: . "the possibility of systemic fraud disabling or degrading the functioning of the financial markets." . For me, financial markets are always dysfunctional. Best to insure all of us against the potential unwanted effects of fraud. Then you don't have to police nonviolent virtual activity, imposing your own normative beliefs on others who may simply be hedging or otherwise doing things you don't understand. --- "firms organize around their limited understanding and sunk-cost capital investments are committed" . My only quibble with this paragraph is that firms such as Tesla borrow to pay "sunk costs" then sell financial goods to make the bulk of their profit. Car companies are really finance firms; the real output of cars is like a side effect. Tesla's stock provides more value than its cars, and its stock value is based on traders. Note: in its most recent quarterly disclosure, Tesla reported far more income from sales of "regulatory credits" than from cars. Tesla is really a finance firm producing cars on the side ... . It is possible the $430 million Tesla reports as "regulatory credit" income is fraudulent. But how will you prove it? I fear regulations will lead to more profit-generating items on company balance sheets as an unintended consequence. Another unintended consequence of financial regulation is to create more barriers for someone like myself, who wants to trade lumber futures to generate enough profit to borrow money to buy logging contracts not to log them. Rather than try to regulate fraud in markets, we can use markets against themselves, and insure our green hedge fund with the Fed ... --- Pay inflation via inflation-indexed bonds and inflation swaps, and print money if inflation rises. --- Pay inflation via inflation-indexed bonds and inflation swaps, and print money as needed. . Inflation swaps currently match private inflation sellers with inflation buyers. Retailers who benefit from rising prices pay inflation to savers who buy a bond. Sovereigns also theoretically benefit from inflation because nominal tax receipts should increase, all things being equal. If breakeven private inflation swap rates get too far away from target, the central bank should buy or sell inflation swaps to pin the breakeven rate. . Savers are buying insurance against inflation rising above an implied, or breakeven, rate from the price of the inflation-linked financial product. The central bank can hedge inflation in private markets but instead of relying on tax money, it just prints it. --- If you accept inflation as a constraint, you are part of the economic orthodoxy. The view that inflation is no constraint because we can print money faster than prices rise is so heterodox that it violates the orthodox claim that "everyone agrees inflation is a constraint." Thus my real heterodox view must be silenced, to preserve the view that Modern Monetary Theory, for example, is heterodox, despite MMT's acceptance of an inflation constraint. The orthodoxy defines what is heterodox, and my view is so far beyond the orthodox model of heterodoxy that I must be ignored, silenced, marginalized, ridiculed, trolled ... --- Why inflation swaps mean we can stop worrying and just print money to fund a generous basic income Inflation swaps are an [existing private sector market](https://www.ecb.europa.eu/paym/groups/pdf/bmcg/191120/2019-11-20_-_BMCG_-_Item_2a_-_Market_and_survey-based_inflation_expectations_-_EFAMA.pdf) to isolate and transfer inflation risk. The ECB uses an inflation swap breakeven as a good way to forecast inflation expectations. After all the [obfuscatory details](https://www.jpmorgan.com/cm/BlobServer/II-SWAPS-KNOW.pdf?blobcol=urldata&blobtable=MungoBlobs&blobkey=id&blobwhere=1320547486818&blobheader=application%2Fpdf&blobheadername1=Content-Disposition&ssbinary=true&blobheadervalue1=inline;filename=II-SWAPS-KNOW.pdf) are stripped away, inflation swaps can be modeled as price makers selling inflation insurance to price takers. Below the breakeven rate (say 2%), the price taker pays inflation insurance premiums to the price maker. The premiums themselves are linked to inflation. Above the breakeven rate, the price maker pays an inflation-based payout to the price taker. The price maker might be a retailer, or producer, who benefits more from rising prices than they pay out in inflation insurance payments, should inflation rise above the breakeven rate. These inflation insurance sellers benefit from premiums paid to them if inflation stays below the breakeven rate. The Fed is the ultimate price maker: the Fed sets the price of the world's best money. Thus the Fed can manipulate breakevens to 0% so that price takers (consumers) get free inflation insurance. If inflation goes up, the Fed should treat inflation as just another problem in the payments system, and do the same thing they do to solve other other payment system problems: supply more liquidity than the market demands. (The September 2019 repo hyperinflationary spike was treated with a promise of meeting repo funding demand to lower funding prices.) (The Fed can also raise the price of money to try to force inflation back down; but since the Fed is mandated to work in the public interest, it has no need to balance its books in a way that a private bank might be expected to operate. The Fed can print the world's best and most in-demand money faster than demand for it increases. Thus there is no need to raise either taxes or interest rates to fight inflation: real purchasing power can be maintained even as prices rise unboundedly. Inflation swaps are one existing private-sector-evolved way of keeping real purchasing power stable even under inflation.) --- The problem is that in the real world supply chains are payment chains in reverse, i.e. payments come before production. Money production precedes real production; and money production is arbitrary, administered. Option volumes are greater than their underlyings. Derivatives are more liquid than the stocks they are derived from. The financial economy is the dog, the real economy is the tail. . The above story is inherent in Piketty's observation that r > g, but I guess economists are unwilling to confront the implications of that statement. --- https://raw.githubusercontent.com/crhallberg/json-against-humanity/latest/full.md.json --- LJC: there is still a problem with too much rejected energy from wind, hydro, and solar, which are much higher efficiency than gas or coal plants, and which can supply almost half of the electricity demand. Compare a flowchart for Germany: http://www.sankey-diagrams.com/energy-flows-germany-2018/ German transmission losses are about 20% and overall efficiency of final energy consumption to primary energy consumption is 62% or about double US efficiency. Thus potential energy efficiency is much higher than the US chart shows. A lot of electricity must be being sent to ground. I see windfarms turned off; I read reports of large consumers such as Microsoft getting paid to burn off electricity. Decoupling policies explicitly disconnect supply and demand forces for retail energy prices. Energy prices not infrequently go negative (see https://www.next-kraftwerke.com/energy-blog/negative-electricity-prices). Surplus electricity generation mote than makes up for the rising energy cost of energy that you reference. Energy availability is not much of a constraint on anything ... --- Dear ______: I propose to borrow $5 million to trade lumber futures in such a way as to guarantee enough profit to buy logging contracts and not log, thereby preserving older trees and forest habitat. --- [–] 2 hours ago reply i would like racists to listen to https://www.youtube.com/watch?v=NHKhRrm6yGA and tell me what key(s) it's in [–] 2 hours ago reply i figure it starts in Bb and moves to Ab for the vocal, then i think it moves back to Bb? [–] 2 hours ago reply the point being, this nigger band produced very sophisticated music, hard to reproduce [–] 2 hours ago reply and fun to play along with [–] 2 hours ago reply if the racists really listened thickly to nigger music i think they would understand that you can share feelings even if skin color happens to be different [–] 2 hours ago reply if they could replicate the music they would expand their minds i bet [–] 1 hour ago reply i think racists tell a little story in their head and ignore abundant evidence that contradicts their narrative [–] 1 hour ago reply ppl tell little stories about the music, imagining feelings in the performers [–] 1 hour ago reply but when you try to play along and fit your sound into theirs, i think you get to test your stories [–] 1 hour ago reply so i tell a story of switching keys but maybe another tells a different story but if our sound is well blended, it doesn't matter [–] 1 hour ago reply but the racist story you have to tell kind of evaporates as you realize you have to think about sound not race to play with them [–] 1 hour ago reply the sound takes on a life of its own [–] 1 hour ago reply the music has a time for itself as sidney bechet said [–] 1 hour ago reply race is transcended [–] 1 hour ago reply sound triumphant [–] 1 hour ago reply like the Indian philosophical belief that God first created sound and the universe arose from it [–] 1 hour ago reply sound is primary [–] 1 hour ago reply music is a better language [–] 1 hour ago reply you can tell a false note without needing logic [–] 1 hour ago reply you just have to learn to hear [–] 1 hour ago reply birds have it naturally [–] 1 hour ago reply hu-mans used to be more musical [–] 1 hour ago reply but we've degenerated [–] 1 hour ago reply grunts now predominate [–] 1 hour ago reply muh urghs [–] 1 hour ago reply but if you listen to louis armstrong you'll harken back to a more musical day and learn his musical language and he's very inviting so it's fun [–] 1 hour ago reply whites saw that back in the 1920s and bought race records in high volumes [–] 1 hour ago reply armstrong outsold [–] 1 hour ago reply that proved niggers were smart [–] 1 hour ago reply racists forget that [–] 1 hour ago reply armstrong swung the whole world for a decade at his prime [–] 1 hour ago reply his sound dominated [–] 1 hour ago reply and he did not let it go to his head [–] 1 hour ago reply he remained little louis from The Battleground, New Orleans [–] 1 hour ago reply truly inspirational life [–] 1 hour ago reply whatever color you may be [–] 1 hour ago reply and he started playing in storyville where they stopped enforcing laws [–] 1 hour ago reply anarchy led to a very musical culture [–] 1 hour ago reply our best equivalent is trolling [–] 1 hour ago reply we've degenerated in musical ability [–] 1 hour ago reply synth? oh my god [–] 1 hour ago reply trolling is our equivalent of music to sidney bechet growing up with armstrong in new orleans [–] 1 hour ago reply we are approaching peak troll [–] 1 hour ago reply we need to ramp it up --- Unregulated financial markets are figuring out how to insure against "unstable combinations where the whole is more than a mechanical sum of parts". Derivatives fit that description; more money emerges from securitization than goes in. Most of the time these emergent, privately-created IOUs trade at par with Federal Reserve dollars but in a crisis the Fed will buy the privately-created IOUs directly and redeem them at face value (or close), creating new Fed dollars as needed. . Once we understand this dynamic, we can use the Fed to insure us all against panics. --- Admittedly, my story assumes a stable relationship between the Fed and the world's preferred unit of final settlement. My claim is that someone will always fulfill the role of world's top bank, and the Fed just has to have an unlimited currency swap line with whatever bank that might be. But currently the Fed's relation to the world's reserve currency is more sure than anything claimed by mainstream economists. Sell-side research (i.e. big bank research departments) at least are aware of the Fed's status and trade accordingly. We too can take advantage of the Fed's twice-market-tested unlimited liquidity to give each of us an unconditional basic income ... --- "The only way to defend such an endeavour is to restrict oneself to prove things in closed model-worlds. Why we should care about these and not ask questions of relevance is hard to see." . Technology promises ever-more-life virtual realization of such closed worlds, into which we may retreat at will for fun, and to learn, and to fix emergent bugs ... --- https://www.zerohedge.com/markets/father-modern-finance-inflation-totally-out-control-central-banks Fama ignores volatility ETFs. His market efficiency is to within a factor of two, as Black said in Noise, or even to within a factor of ten. When Fama says central bank asset purchases are neutral, he ignores the accounting fact that banks get rid of the associated liabilities of the assets they unload on the Fed. After a sale, bank reserves are balanced by an increase in Net Worth liabilities; before the sale, the assets for sale are balanced with interest payment liabilities. --- Derivatives are not debt instruments. The Bank of International Settlements has a separate category because derivatives take on a market price that represents a net asset. The asset booked for the derivative is greater than any associated liabilities. . As the saying goes: “Privately issued money nets to nothing”. . Incorrect. Dollar-denominated assets net to Net Worth, which is hidden on the liability side of the balance sheet. . I agree with a recent tweet by Cullen Roche: . "That's the whole point! The transactions and money creation mostly starts in the banking system and reserves settle the deposits after the fact. But in MMT the reserves are introduced to the banking system via fiscal policy. The whole circuit is backwards and wrong!" . And another by Val Popov: . "I am simply arguing that the private sector can save even in the absence of public deficits." . MMT has a big blind spot on this issue. . Bill Mitchell thinks currency swaps are unnecessary: "Other suggestions to engage in currency swaps with central banks elsewhere are also fraught (they introduce exchange rate risk before the swap is reversed) and are unnecessary (why bother?)." (from http://bilbo.economicoutlook.net/blog/?p=42291) . https://www.newyorkfed.org/markets/international-market-operations/central-bank-swap-arrangements provides documentation of the RBA using Fed dollar currency swaps. . MMT is painfully ignorant about what is really going on in finance. Currency swaps are a big tool, but Bill Mitchell ignores this. Australia needs US dollars because Australian banks have created dollar-denominated assets and they promise to provide US dollars if the Net Worth account that balances the assets is drawn on. --- Twitter blocked my account but I can still manually follow some accounts such as @stimpyz1, @ghburnscfa, @volatilityvix for what is really going on in the world. @dandolfa is good for seeing just how wrong one man can be. @numismatics9 was a live tweeting bond vigilante who posted screenshots of restricted sell-side research reports, but he's gone protected, probably since I kept getting him in trouble by reposting the classified research to back up my claims that, for example, financial flows far eclipse real goods trade flows for dollar funding of emerging markets. Citi Research had my personal website shut down until I removed a jpeg screenshot of one of their restricted-access reports ... . Lars Syll is the most open-minded of the economists. Dillow lets his comments section run wild which is refreshing ... --- Inflation is what really separates orthodox from heterodox in economics. . Black called inflation noise. If markets are only efficient to within a factor of two, inflation could be twice as high due to noise. And the factor of two itself is arbitrary, probably more like ten. . MMT is frightfully orthodox when it comes to inflation. CBO estimates of inflation have been wildly wrong in the past, as has their orthodox predictions that Treasury yields always rise leading to significantly overstated forecasts of the growth of the national debt. . True heterodoxy treats prices as arbitrary (to within a factor of ten, say). If prices are that noisy, inflation is best treated by Cost of living adjustments, Treasury inflation protected securities (to protect savings), and inflation swaps to neutralize inflation in private contracts. . MMT's proposal to tax inflation away is tone-deaf. Higher taxes on top of inflation is just more inflationary. Reagan won on that platform and others will continue to win on that platform. Reagan cut taxes while inflation was still high, and inflation still fell. --- To the DNR: What is the best way to stop the upcoming auctioning and logging of two parcels of second growth in Capitol Forest? The parcels in question may even have some old growth. Many trees are well over two feet in diameter, at breast height. How can I best persuade Board members not to approve the sale of these two particular parcels? I believe the value of the standing trees far exceeds the money from a timber sale. The trees are a carbon sink, the older the more effective, and thus are aliggned with the climate change mitigation policies of the state of Washington. The state would make more money than this sale affords if a state bank, say, borrowed $100 million from the Fed's new Municipal Liquidity Facility at 1% and invested in safe assets returning 2%. We can replace lost revenue from timber sales with safe, risk-free financial trades executed by a state bank. The trees in these parcels provide many opportunities for learning. Students can study nature and observe the climate in an unpolluted environment. The parcels are worth more to students left as they are, than turned into a stump field for a couple million dollars that you could easily make in financial markets using perfectly-hedged trades. There are trails for exercising, and many species of birds pass through. You can learn a lot by standing among the 200-year-old trees and listening to the bird calls. Students can learn about nature and experience natural carbon sinks in person. I ask the Board to consider the vast potential for revenue from using these parcels as collateral in financial trades that are guaranteed to net you more than the simple timber sale. Schools will thus benefit twice: they get more money, and students get a natural space to pursue knowledge in. Thank you, Robert S Mitchell --- Price stability assumes ergodicity: it assumes everyone experiences the same average price inflation. In reality, some benefit from inflation or it would not occur. Inflation swaps are a way for inflation makers to harvest inflation insurance premiums so that inflation takers are assured prices won't rise above their tolerance level. Inflation swaps are the market's way of handling the non-ergodicity of prices. . Employment is also ergodic. The average wage is not the median. The well-being of those with employment is often so far below the expected average well-being that people with good jobs commit suicide, self-medicate, etc. . It is surprising that a non-ergodic economist nevertheless is marries to ergodic phenomena such as employment and price stability. . "In the aggregate plus and minus have to balance." . Except rehypothecation means the same asset appears on two or more balance sheets. Finance makes money emerge ... --- I don't like taxes because they reduced my first paycheck, wholly unexpectedly. It felt so unfair. There are better ways. Taxes are spent on things I do not approve of. Thoreau was right to refuse to pay his taxes because he did not support the wars they were used to fund. C. H. Douglas is right to point out the passive-aggressive nature of taxation in "Dictatorship by Taxation." . There are better ways than taxes to handle land speculation: create financial instruments with a higher return, that do not need land as an underlying. If the Vancouver land speculators could invest in volatility products with a guaranteed higher rate of return, they could satisfy their money demand without interfering in physical resources such as land ... --- Antireifier: "I understand inflation to be a measure of that part of the price that does not add value to the goods or services being provided." . Once again, I cite Fischer Black who wrote that markets were efficient to a factor of two, 90% of the time. . How efficient do you believe market prices to be? If Black is right, our inflation measures should have wide error margins. . The current inflation measures are ergodic as you depict: one can experience inflation while a neighbor does not. Currently, reported food price inflation in the US is higher than I experience because my basket of groceries does not include meat. . preft asked: "would any of you cross a bridge where the physics and engineering was in any way up for or close to this kind of discussion?" . Bridge engineers include safety factors of two or more. They build for twice the specs. If economists doubled the poverty level calculation out of safety, it would be refreshing ... --- Bruce said: "It is a reasonable task for a theory of money to both analyze the cost of inflation with regard to the loss of a measurement standard and to explain how stability in the unit of account is to be achieved, technically." . https://www.nber.org/papers/w0303 is a 1978 paper by Stanley Fischer and Franco Modigliani that tries hard to find costs for fully inflation-proofing an economy, but ends up with "menu costs" as the chief objection. But our technology makes menu costs negligeable compared to 1978. . Stability in the unit of account is achievable by denominating prices in terms of real income purchasing power, and using COLAs to keep nominal incomes rising at the same rate as prices. Prices will thus remain the same percent of income, even as nominal prices may rise. . TIPS provide savings and portfolio insurance. Hoping the fuzz doesn't come down on me again, here is a big bank research report portfolio chart for all scenarios: http://subbot.org/misc/econ/portfolio.jpg . In high inflation times, TIPS replaces regular government bonds. Spreads on top of TIPS are the same as spreads over regular Treasuries. . Inflation swaps also allow firms to sink costs while locking in an inflation rate they can live with for the term of their loans. If the firm wants inflation they can sell inflation swaps and harvest premiums while inflation remains below their desired level. . The Fed can ensure liquidity and price continuity in inflation swap markets, thus providing inflation insurance to both those who fear inflation and those who fear deflation. . Inflation is a solved problem as the portfolio chart attests. COLAs insure non-portfolio incomes. Inflation swaps lock in preferred inflation rates for private contracts. . So instead of trying to manage inflation we can simply adjust to it, using technology to seamlessly index incomes to rising prices so that real purchasing power remains stable. The Fed could also manipulate inflation swap breakevens through open market operations rather than the more indirect interest rate setting. . Thus inflation should be no constraint on public policy ... --- If radical uncertainty is pervasive, aren't prices arbitrary and therefore inflation mere noise as well? . The innovation of finance is ways of hedging bets so that arbitrary price movements still net you profit. You can make directionless bets: the stock can move up or down but if you exit within your defined range, you'll profit either way. . Counterparty default risk is assumed by clearinghouses and ultimately the Fed. . I think economists are unaware of financial trades that clearly define risk and allow you to perfectly hedge. Lars certainly never mentions options or butterflies, which are financial methods designed to minimize uncertainty. Big banks don't make trading profits by trading on noise, they define risk and hedge so that they win no matter what uncertainty manifests in prices. . Keynes can possibly be excused because finance has evolved so much since his day. But modern economists who disregard financial methods of handling uncertainty seem to be missing a very important part of how the world really works ... --- Henry, . See https://www.e-education.psu.edu/ebf301/node/536 for examples how an oil producer can set a price at which they know they can profit, and lock in that price using perfect hedges so that no matter what happens, they will get their profit. . Thus too farmers can use financial goods to lock in profitable prices before the harvest is sold. . You might say there is uncertainty in the farmer's calculation of a profitable price. If they have a bad yield, the price point may not make them a profit. But the uncertainty is not in the hedge; it is in the yield, and the farmer can insure against bad crops (and factor insurance costs into the profit price point). . Long story short, because you can hedge in different markets, you can guarantee profits. . See also this twitter thread: https://threadreaderapp.com/thread/1142997842803351552.html . "Because of their different approaches in managing the risk, it is possible for both sides of the trade to hope that the price goes the same way going into settlement." . I take from this that both counterparties to a trade can book a profit, thus leading to an emergence of money in the financial system. . The assumption that financial bets must net to zero is as much a myth as Savings = Investment. Investment can easily enough create its own new savings ... --- Kingsley: . The Modigliani-Miller theorem is about the irrelevance of how you get initial capital. I could borrow, issue stock, or use savings to start a Green Hedge Fund; it doesn't matter. Then I use the money to invest in defined-risk and perfectly-hedged trades. The hedging and trading is how I generate new value. . "The M&M propositions remind us that it is corporate strategy that produces value" (from http://pages.stern.nyu.edu/~adamodar/New_Home_Page/articles/MM40yearslater.htm ). The hedging is the corporate strategy. The financial innovations are the firm's business; they are why you raised capital in the first place. . Thus, Modigliani-Miller is somewhat irrelevant to my point. Financial innovations create new value, no matter how you financed the original capital. . Kingsley also said: . "It might help me if you could give simpler more authoratitive references. I find that your links are difficult to understand and that your interpretation of them seems to be based on a peculiar understanding of business finance." . I think you owe it to yourself to try to understand the links without relying on "argument from authority". See for example Jeff Snider's latest ( https://alhambrapartners.com/2020/08/18/part-2-of-june-tic-the-dollar-why/ ): . > Within the old paradigm, the one that still operates as convention, people including all the "experts" operating within it can’t understand nor appreciate this significance; collateral is just shadows dancing on the wall of the cave to them. Forever blind by adhering to that old way of interpreting the world, even some really smart people will end up appearing as bumbling, incoherent idiots. . @ billinscd who said: "Why should the Fed back up the counter party default risk?" . Because the Fed thinks that things will be much much worse if they don't. In 1929 they let banks fail; Bernanke learned the lesson and turned on the money printers in 2008. Powell learned from Bernanke, and ramped up the printers even more. I hope one day they learn that they can print a universal basic income while using indexation and inflation swaps to neutralize nominal inflation's unwanted effects. --- To Governor Inslee: Please help me to save two parcels in Capitol Forest from being auctioned off for their timber. The parcels are listed on maps as "Allegedly U3" and "Sauerkraut U3". They will come up for auction approval by the DNR Board this fiscal year. I have spent time among the trees to be logged; they are robust second-growth including some trees that are likely old growth. Many of the trees exceed two feet in diameter at breast height. The standing trees are a significant carbon sink. Protecting them aligns with Washington State's climate change goals. The trees are also a wealth of information. Instead of cutting them to provide funds for schools, kids could go out to study the existing forest ecosystem as is. The "wood wide web" is a fascinating source of knowledge. It is also far healthier to walk around the trees as they stand now, than to cut them down to make enclosed disease traps. Better to exercise in nature than in a gym ... The trees are worth more standing than logged: I could use the logging contracts as collateral to borrow money from the Fed's new Municipal Liquidity Facility and invest it in proven risk-free trades that return higher than the borrowing costs. In a short amount of time, DNR could make more money from financial trading than from the timber auctions. I can show you specifics. The trees have a spiritual and knowledge value uncaptured by timber market prices. Please help preserve the highly significant trees in these two parcels, while replacing the revenue with financial trades. These two parcels are a sanctuary for the poor, landless people of Washington state. Please don't turn the significantly wonderful old standing trees into a stump field. There is more value in letting them stand to reduce climate change, while using the market value of the timber as collateral to generate much higher revenue for education. The trees as they stand now afford wonderful educational opportunities for students and members of the general public alike. Come with me for a walk amongst these trees (or go yourself) and I will show you! I learn new things every time. Moss gives more to the environment than it receives; isn't observing altruistic moss in its own natural setting a good lesson for kids? Due to Covid, mills are at less capacity so logged timber is just piling up in limber yards now anyway. Why not leave the trees standing and replace the revenue through mining of financial markets? Climate change goals will be much easier fulfilled. Old growth resists fire better, too. There are so many good reasons to leave these trees standing ... I forgot to mention animal habitat: there is a woodpecker there, doves, a grosbeak, stellar jays, juncos and robins and song sparrows, I saw a barred owl catch a mouse once, Swainson thrushes with their uplifting upwards spiraling calls, and so many others ... Thank you, Robert Mitchell --- Friday August 28 2020 Campsite near Southpoint Trail off Forest Road 20 off Highway 12 east of Randle For my birthday, I stayed another night at this campsite. I have been here before. I recorded my submissions for the Jazz Improvisation MOOC here. I have come here two or thres times before after fights with Tracie, feeling suicidal. Then the beauty of tge stream and forest gets to me, and I don't feel depressed. Today I hiked up the Southpoint trail, but failed to summit. It was near sunset and I wanted to get down before it got too dark. I thought of Jim, running up the trail, running down. Maybe he would have summitted. I took it slow. I imagined him running up, summiting, and running down past me. I didn't care. I had fun enjoying the forest trail at my pace, stopping to get high in the setting sun, observing the trees and terrain that I was passing. It would have been fun to hike with Jim even if he did run ahead ... --- Kingsley and Bruce, thanks for forcing me to clarify my thoughts. My goal is to write a prospectus for a Green hedge fund and pitch it to the Bezos Earth Fund and local governments, so this practice is invaluable. . My strongest reaction is like Solow's in the quotation Lars keeps reposting: I'm getting drawn into a discussion of cavalry tactics at the battle of Austerlitz when I really want to challenge the efficiency of markets. If prices aren't efficient in the real world, what enforces the theory that derivatives must be zero sum? . Second, even if you allow that a single derivative trade must be zero sum, that does not preclude the possibility of several derivatives being combined into a trade in such a way that all counterparties can book a profit. If you are hedging delta risk and a counterparty is hedging gamma risk, or some other derivative risk measure, you can both book trading profits on the ensemble of the derivative trades. . An analogy: bits are singly binary, but you can combine bits into programs that execute non-binary logic. Although single derivatives are zero sum, combinations of derivatives can add up to a net positive. . Kingsley's quotation contains phrases such as "the value of the firm remains unchanged", which I challenge. Such reasoning takes market efficiency as a given. But real market agents know that price is a liar. . "In the capital market, the value of the two cash flows are the same." This may be trivially true, but ignores the psychological signaling involved in paying a lower borrowing rate. If you are good enough credit risk to get such a low rate, you can get even better terms from another lender. You can thus psychologically leverage a low rate which you got in a zero sum swap, into even lower cost of capital on a subsequent loan. If you are getting a low rate, you can mark up the asset as being low-risk. In a market where the Fed's administered prices dominate, any notion of efficient markets must be abandoned. The balance sheet valuation of assets becomes a highly subjective exercise, which allows for lots of free lunches and emergent money. . Bruce said: "A so-called Hedge fund may be a counterparty to a business firm’s investment in a risk-reducing hedge." . It gets worse because they can both be part of the same parent firm, and they can make the parent firm money even if one seems to be losing ... --- Financial innovation allows individuals to invest in ensemble averages. Individual losers can still profit by buying shares in a market index like SPY, QQQ etc.Your individual stock picks might lose money but the ensemble average rises if just a few big players go up. We're seeing this currently: about five stocks are dragging the S&P 500 index (SPY, or SPX in trader terminology) up to record levels. You don't have to pick those winners; you simply buy the ergodic ensemble average and take advantage of whatever winners emerge. . The only uncertainty is how large a Fed intervention will be in a psychological panic. But this is purely psychological uncertainty, not real world uncertainty about physics. The Fed can choose to stay out of it (as in 1929 or 2000) or the Fed can choose to supply liquidity on demand (2008, 2020). This kind of policy uncertainty depends on the personalities that are on the Fed board. . The Fed is slowly learning that it can end financial uncertainty. Finance is constantly innovating new instruments to end financial uncertainty too but they make mistakes sometimes and rely on the Fed to bail them out. The Fed can end this bail-out uncertainty by doing things like selling panic insurance upfront so financiers can better hedge against psychological panics ... --- I think the best strategy is to give finance enough rope to hang itself, while insuring the rest of us, via an inflation-proofed basic income, from the mistakes financial innovators make. We can show financiers by our own example how to live a better life learning to need less, and let them come around at their own pace. In the meantime we can sandbox finance in a virtual world of its own. Stocks are already effectively disconnected from the real economy. If anything causation starts with stock market euphoria or panic, and spreads to the real economy. But if the real economy can simply provision, while income comes from the Fed and financial markets, everyone can win. Pareto-optimality can be broken in the sense that public finance can improve everyone's lot at once ... --- "the ‘Look before you leap’ principle demands that one envisage every conceivable policy for the government of his whole life (at least from now on) in its most minute details, [...]" . Markets simplify this because you can represent all possible future market states in a matrix, A. Then you define a vector, call it b, that represents your minimum desired payout for each state. Then you use linear algebra to solve Ax = b, to derive a portfolio x that maximizes your payout b for each state represented in the matrix X. . Financial models, in other words, are where theories are tested against the real world. Finance represents states of the market with observable numbers (stock prices), and constructs models that are tested in real time. . Financiers make mistakes (they hadn't figured out the insurance piece fully in 2008), but the Fed is there to backstop them so they can continue to learn and adapt their trading models. . The Fed should backstop me too ... --- Kingsley, the problem with a negatively-sloped trade-off between consumption today and consumption tomorrow is that Reagan was not making that trade-off in the 1980s. Reagan consumed as many military goods as he desired, yet consumption today has not suffered. Indeed, the cost of borrowing today is much lower than Reagan paid. So there was no negatively-sloped concave trade off for Reagan: he consumed as he wanted, and the US continues to consume as it wants several decades later. On what time frame is the negative concave trade-off supposed to manifest? . Note: Reagan in the 1980s used economists as props to justify cutting social spending which he really wanted to do for ideological reasons. Today Trump, who seems less ideologically driven to cut welfare, has found other economists to justify consuming way beyond our means, yet again. There is no consequence to kicking the can down the road, which violates the idea of a negatively-sloped concave trade-off between consumption today and consumption tomorrow. . Without that foundation, a lot of the reasons for not printing money for a basic income disappear. We can keep printing money faster than prices rise, as long as we are the reserve currency; and we can solidify central bank unlimited currency swap lines to ensure that we can continue getting whatever currency supplants the dollar, if that should happen. The Bank of England today has an unlimited currency swap line with the Fed, thus giving it guaranteed access to the reserve currency that replaced Sterling ... --- "It is even utterly beyond our power to plan a picnic or to play a game of chess in accordance with the principle, even when the world of states and the set of available acts to be envisaged are artificially reduced to the narrowest reasonable limits." . But we've solved chess, and finance is using advanced math to solve Ax=b. Since market prices are observable and maximizing money balances is the goal, you can represent all possible future market states in a matrix, A. b is a vector of your minimum acceptable payout in each state. Linear algebra optimization allows you to derive x, which is the optimal portfolio. . "Many of the ‘small-world’ model assumptions standardly made by mainstream economics are restrictive rather than harmless" . Agree there, but only as far as public policy and political debate goes. Finance firms are using their own models and testing them every day. The strong survive, and buy up the rest ... --- Lars P. Syll said: According to one model the chance of sunny weather is perhaps somewhere around 10% and according to another – equally good – model the chance is perhaps somewhere around 40%. We cannot put exact numbers on these assessments. We cannot calculate means and variances. There are no given probability distributions that we can appeal to." . Finance deals with this problem by selling options. A risk dealer prices options on sunglasses. You can buy an option for the sunglasses for a fraction of the full price. If it rains, you let the option expire worthless and lose the (small) amount of money you spent to buy it. If it's sunny, you get the sunglasses. . In 2008, a spreading psychological panic suddenly repriced many assets considered high-quality just a few days before. The uncertainty was not physics-related, but wholly psychological. Risk dealers were caught having sold options that suddenly required massive payouts at the same time as the assets they were using to guarantee payouts were devalued by the spreading panic. Even collateral that really was still good was contaminated by the irrational panic. But the Fed stepped in to make good on the insurance claims, thus stabilizing the payments system and preventing a much greater spillover into the real economy. . In short, the only real uncertainty in 2008 was psychological, not physical. If one Mortgage Backed Security went bust, traders irrationally assumed they all were going bust. But the Fed bought enough MBS to reflate their value, and it turned out the panic-induced devaluations were wrong. . In 2020, a physical fact about the world (Covid-19) caused a psychological response that locked down most countries. But there is no necessity that we add financial stress onto the real physical uncertainty and make everything worse. So the Fed once again acted as ultimate insurer and has printed money at an unprecedented rate (even faster than in 2008) to ease financial pressures caused by the response to the real-world pandemic. . To get back to sunglasses: say you insured against sunny weather by buying an option on sunglasses, then it was sunny, but the dealer could not make good on the sunglasses. It's not that there is a scarcity of sunglasses so much as a scarcity of money at the dealer to supply the promised sunglasses. But the Fed has infinite money and so buys sunglasses, and you get your insurance payout (a pair of sunglasses) even if the dealer had initially mispriced the options. --- “Some of the statistical models used by financial institutions to value derivative securities based on mortgages just before the recent financial crisis provide a case in point.” . The financial models did not account for a wide, spreading, irrational panic among traders. Or one might say that they implicitly counted on the Fed to act as ultimate insurer against such panics. The Fed should sell panic insurance upfront so finance firms can explicitly hedge against panics ... . Panics are irrational and arbitrary, not a physical "fact". 4rth-degree derivatives such as volatility indices give you some insight into trader moods; finance models use VIX contango to generate trading signals. This is a constantly evolving model ... --- Simply put, the real economy is like shadows on the cave wall in Plato's classic Cave Allegory. Economists are prisoners seeing only the shadows, ignoring the fire and the figures on the road behind them which originate the shadows. Finance comprises the real figures on the road creating the shadows that are the real economy. . @ Henry: Finance models can allow contradictions (they can be hidden in linear algebra matrices, for example); and story models allow contradictions. Simple mathematical models that economists typically use ban contradiction because of a fetishization of consistency, and therefore fail to be complete (cf. Godel's Incompleteness Theorem). There are true facts that the orthodox math models cannot reach through deduction alone. --- > it does measure the flow of money quite nicely No, GDP is over half imputed and ignores the financial economy. Insurance is a mystery to GDP because GDP completely ignore the fact that most insurance companies make their profits by investing premiums, not from the premiums themselves. Thus GDP is useless for budgeting because it ignores key sources of financial income that drive real economy activity. GDP can't see the financial forest for real economy trees. > It's a promise that x% of the nations productivity is shared between everyone. Financial productivity is far more relevant, and GDP completely ignores that. GDP should be abandoned entirely when making public policy. GDP is a political value-laden measure. But basic income challenges the idea that more is always necessarily good, because you can consume savings products that GDP does not measure adequately. > You won't get the damn UBI in any case if it's suddenly 40-50% of GDP because it survived the GDP drop. And yet in the recent pandemic, which saw a huge drop in GDP, the government funded a lot of stimulus in the form of direct payments. > The benefit of the GDP indexing is that it's quite reasonable for all 3. What do you do in stagflationary times? People fear inflation much more than they care about GDP. In the 1970s, your GDP-indexed basic income would have failed to keep up with inflation. > the wreckage will be quite horrific. No, we are experiencing your third scenario right now and the dollar is still very, very strong. > Why not just avoid that fight? Indexation to inflation avoids the fight in a better way. --- @ larspsyll.wordpress.com blog: Say we call real economy widgets "the underlying" and derive some physical production function for them, using energy, materials, and labor inputs. We might call stock in the widget-producing company a first-order derivative of the underlying. (Already, the production function for company stock is removed from actual production: Tesla, for example produces an order of magnitude fewer cars than Toyota, yet its market capitalization, or value of stock, is greater than Toyota's.) A stock index, such as the S&P 500, is a second-order derivative (an ergodic ensemble average of the individual stocks in the index). Futures contracts on the S&P 500 index constitute a third-order derivative. A volatility index such as the VIX is a fourth-order derivative of the underlying widget production function ... . Traders today are trading such fourth-order derivative products, and such trades have a feedback effect on real prices. House buyers see house prices go up, yet are still able to afford them because their investment income from fourth-order derivative trading is rising even faster. . Production functions for derivatives involve a lot of subjective, arbitrary valuations by parties with clearly conflicting interests. Yet they rely on the Fed as ultimate insurer, and we can too in the service of justice ... . Note: An article recently said that defaulted mortgages are up near levels that resulted in a financial panic in 2008, but interest rates are at all-time lows and refinances are climbing. The financial insurance on mortgage backed securities has learned since 2008. The system today can tolerate much higher default rates without straining liquidity. Of course the Fed's implicit promise to backstop MBS and other market-created securities plays a big role in stabilizing the financial insurance industry. Again, we should use the Fed's power of unlimited liquidity to finance public spending such as on basic income ... --- https://www.zerohedge.com/markets/inflation-deflation-other-fallacies This is an informative article detailing the views of anti-inflation fanatics. It is important to present persuasive opposing arguments. The author, "Alasdair McCleod via GoldMoney.com", defines a toy model economy: >>> As a starting point we must assume there is no inflation of money and credit and the quantity of money is fixed. That being the case, and assuming no change in the statistical make-up of GDP, nor in the quantity of hoarded cash, and assuming no change in the balance of external trade, there can be no increase in nominal GDP, because whatever people make, sell and consume amounts to the same total expressed in money terms compared with the previous period. It is an accounting identity. Whether savings increase or decrease is immaterial, because GDP is the total of final goods and intermediate goods, so if an economy evolves from being consumer to savings driven or vice-versa, GDP must remain unchanged. The split between profit and costs is immaterial as well, the sum of the two being contained within the GDP total. But variations in the rate of economic progress will always be reflected in the individual prices and quantities of goods and services produced without the total monetary value of all transactions changing. A progressive economy will see more and better goods and services at lower prices, while for a failing economy the opposite is be true. <<< What enforces the accounting identity? Credit can be created. Even giving such restrictive assumptions that could only be maintained with the force of a state, GDP will change if there is a stock market, because finance drives the real economy. >>> The next step should not be beyond the understanding of anyone. If a fairy godmother magically created some extra money for the people in an economy to spend, it must simply be added to the GDP total, whether they spend it or save it - as long as they don’t hoard it. Saving circulates, because it is money made available for investment. Hoarding is taking money out of circulation, which is why in our model we must assume the quantity of money hoarded does not change. <<< The point McCleod is making here is that GDP may increase with money printing but "it is impossible to judge the degree to which it is used to economic advantage." I agree that GDP growth does not necessarily mean individual welfare growth. But I do not agree that money printing precludes individual welfare growth, because hoarding money can provide welfare in and of itself. >>> It matters not whether he or she is a demand or supply-sider; both categories of macroeconomic emphasis wrongly believe in targets for GDP outcomes, which are meaningless except for the purpose of maintaining government revenue. <<< GDP growth targets are bad for many reasons. The "maintaining government revenue" reason is minor and often not present. Reagan increased growth faster than government revenue, for example. >>> For the state the absence of monetary inflation is a loss of a growing and important source of revenue at a time of escalating welfare and other costs. <<< This is not true because the state can print money faster than producers can raise prices. Unless producers say "we refuse to accept your money", at which point you have a psychological problem not a physical resource scarcity problem. In such an extreme case, the government must obtain whatever money producers want to hold, or open up land to usufruct so consumers can produce their own goods. In the case of Weimar Germany, the government obtained access to US dollars due to the Dawes Plan. To be continued ... --- Basic income is supposed to simplify. VAT needlessly complicates it, in the mistaken belief that budget neutrality should be a public policy goal. Isn't it simpler to challenge the assumptions of mainstream economics than to try to tailor a basic income to a theory whose assumptions make basic income impossible or unnecessary in the first place? --- Real purchasing power stability is more important ... Prices are not stable anyway. See housing, oil, education, asset prices. All have very wide swings. Stable prices are clearly not very important in the real world. Grocery items regularly double or halve in price given sales or arbitrary markups. Prices today are not stable. Statistics are carefully crafted to mask the wide instability of prices in an individual's experience. --- Reagan got elected in 1980 saying "we are told high taxes are good for us, as if the government spending our money is somehow less inflationary than us spending our money." Has raising taxes to fight inflation ever been tried? Or is it too unpopular because taxes are immediately inflationary to the individual paying higher bottom line prices? --- Sure, Lars (perhaps unconsciously) retreats to models when it serves his gut instincts. When he says employment and stable prices should be the primary goals of public policy, he is relying on orthodox models of income and inflation. --- "prices always win in the end." You mean like Covered Interest Parity has been violated for over a decade, with all the derivative fair pricing formulas based on them rendered arbitrary as a result? How long is this "in the end"? After you're dead and we can't call you on it anymore? --- Hayek believed knowledge was efficiently encoded in price signals, so governments simply have to buy the best-performing stock to choose the winners that prices have already selected. "prices always win in the end." You mean like Covered Interest Parity has been violated for over a decade, with all the derivative fair pricing formulas based on them rendered arbitrary as a result? How long does "in the end" stretch out for? After you're dead and we can't call you on it anymore? --- The innovation of finance is that you can price options on futures and fully hedge your sunglasses exposure. . Recently, Softbank has been in the news for a "costless collar" that reportedly netted them $4 billion, or a 100% profit on $4 billion spent on call spreads. . The strategy is (warning: financial jargon ahead): you buy stock and then buy out-the-money puts and sell calls at whatever strike price balances the puts price. Hence, the "costless" nature of the option-chain "collar". The dealers that sell you the puts delta-hedge by buying the stock you bought from you. Softbank did these trades in enough size that they moved markets as they expected, and profited. They likely sold both puts and underlying stock at 100% markups. . A recent twitter thread (quoted in https://www.zerohedge.com/markets/your-money-gone-all-gone-how-softbanks-gamma-whale-strategy-led-catastrophic-results-thread ) purports to debunk the "costless" nature of such trades by describing a similar strategy that failed in 2008, because the financial stocks used by that failed firm collapsed after Lehman Brothers failed. . But the Fed is your ultimate insurance. What if the Fed had rescued Lehman in 2008? Would today's Fed let another Lehman collapse? . The only financial uncertainty is psychological: will the Fed print enough money? Real-world uncertainty exists, but finance is figuring out how to abstract away financial uncertainty so we need not worry about money when real-world uncertainty strikes. . The question is whether ending financial uncertainty encourages real-world reckless behavior resulting in increasing uncertainty: a system spinning out of control. . I think you should use words alone to change behavior you see as undesirable. You should not create financial scarcity by committee based on a model of human behavior. You should allow financial security for all individuals, and seek to teach by your own example how to live a calm life that does not spiral out of control, despite insured financial risk. --- The innovation of finance is that you can price options on futures and fully hedge your sunglasses exposure. . Recently, Softbank has been in the news for a "costless collar" that reportedly netted them $4 billion, or a 100% profit on $4 billion spent on call spreads. . The strategy is (warning: financial jargon ahead): you buy stock and then buy out-the-money puts and sell calls at whatever strike price balances the puts price. Hence, the "costless" nature of the option-chain "collar". The dealers that sell you the puts delta-hedge by buying the stock you bought from you. Softbank did these trades in enough size that they moved markets as they expected, and profited. They likely sold both puts and underlying stock at 100% markups. . A recent twitter thread (quoted in https://www.zerohedge.com/markets/your-money-gone-all-gone-how-softbanks-gamma-whale-strategy-led-catastrophic-results-thread ) purports to debunk the "costless" nature of such trades by describing a similar strategy that failed in 2008, because the financial stocks used by that failed firm collapsed after Lehman Brothers failed. . But the Fed is your ultimate insurance. What if the Fed had rescued Lehman in 2008? Would today's Fed let another Lehman collapse? . The only financial uncertainty is psychological: will the Fed print enough money? Real-world uncertainty exists, but finance is figuring out how to abstract away financial uncertainty so we need not worry about money when real-world uncertainty strikes. . One question is whether ending financial uncertainty encourages real-world reckless behavior resulting in increasing uncertainty: a system spinning out of control. . I think you should use words alone to change behavior you see as undesirable. You should not create financial scarcity by committee based on a model of human behavior. You should allow financial security for all individuals, and seek to teach by your own example how to live a calm life that does not spiral out of control, despite insured financial risk. . Another question is whether the Fed will remain top bank, but the world central bank unlimited currency swap network provides a framework for cooperation and support; currency risk is essentially insured. --- Blissex said: "It is difficult to disagree with that, and its "flaw" is that it is a fairly anti-capitalist message, as even business schools teach that most markets eventually reduce to just 2-3 dominant and colluding suppliers under capitalism." Then Hayek was wrong about the real world, and trying to use tangential quotes of his to passive-aggressively needle conservatives is merely pedantic. Fischer Black thought that prices are efficient to within an arbitrary factor of two, 90% of the time. I'd go with a factor of ten, but Black's more conservative estimate still allows inflation of hundreds of percent due to noise and thus destroys orthodox inflation models ... --- > providing a UBI for everyone does indeed require considerably higher taxation; I don't buy suggestions of other sources for funding UBI. Why should I buy taxation? You have to find other sources of funding basic income, because higher taxation will not pass. Note that higher taxation was not needed to pay for Quantitative Easing and central bank currency swaps, which are ongoing amidst the pandemic never having been tightened as much as expected after the 2008 crisis. How long does it take for you to realize the Fed can print money for the world, and the dollar only gets stronger? --- > Levitz noted that “RAND’s innovative methodology — which involved constructing a new metric for inequality that compares income growth to GDP, and then using that metric to gauge changes in the income distribution across every U.S. business cycle since 1975 — allowed it to translate the abstractions of macro-level income shares into something much more tangible.” GDP is more than half made up, and should have error bars of plus-or-minus 100% at least. Anything scaled by GDP multiplies error bars, causing any results to have confidence levels so wide as to be useless for public policy. > “Between the mid-1970s and 2018, per capita GDP growth in the U.S. increased by 118 percent [...]" Meanwhile the S&P grew by 2000% even after adjusting for inflation. The rich simply invested their money in financial instruments, which have seen far higher returns than real goods. r > g, as Piketty has observed. --- Your question is unfair, because you are setting the conditions. In the real world, my ballot has many choices and a write-in. I can express my disapproval of the choice you would force on me. I am free to nonviolently noncooperate with the system. Nonviolent noncooperation is the biggest threat to any system. Nonviolent noncooperation is the most powerful weapon. --- Why should policy be coherent when prices aren't? (The more debt governments accumulate, the lower interest rates get, for one example.) Nature isn't coherent. Consistency is the hobgoblin of small minds. Reagan ran huge deficits because he knew they did not matter, preaching austerity for show as he used economists as a convenient tool to justify an incoherent ideological desire to cut social spending ... --- To quote former Fed governor Bill Dudley in the September 16, 2008 FOMC transcript: "We give them Treasuries, they give us other stuff." Thus do banks transform bonds that the market has determined are worthless into the world's safest financial asset. We should fund basic income through the market-tested power of the Fed's unlimited liquidity. --- Financial investments also allow businesses to work with smaller markups. . @ Bruce Wilder: "it is when firms lack the power to pursue any alternative to simply raising prices that inflation begins to accelerate." . Inflation swaps provide the power to insure against inflation. The Fed can buy and sell inflation swaps, as part of open market operations, to manipulate inflation breakevens to what it likes. . "A simple example of how this works is building a railroad in the 19th century." . A modern example is Tesla, whose income comes mainly from selling regulatory credits and other purely financial instruments, such as their stock. Options and derivatives also provide a revenue stream. Selling cars is almost incidental to Tesla's market value. --- Yes. That is how the rich do it: they create money via finance faster than even asset prices rise. In September 2019, repo rates experienced hyperinflation. The Fed responded by supplying liquidity to bring repo rates down by selling new money at well below market rates. Repo rate hyperinflation was a simple breakdown in the payments system. The Fed fixed it by supplying liquidity on demand. Real economy inflation should be treated as just another breakdown in the payments system. The Fed should treat real economy inflation just as it treated repo rate inflation: by printing as much money as is needed to satisfy demand for money. --- The least public policy can do is allow camping on public land and provide garbage removal. Stop policing sleep on what little is left of the commons, and help us remove the garbage that is an inevitable consequence of wasteful private sector practices regarding single-use packaging ... --- Money has increased at a much faster rate than inflation. Even the Austrians at zerohedge have to acknowledge that the more dollars there are, the stronger the dollar gets. See https://www.zerohedge.com/markets/what-happens-when-dollar-really-starts-rise for example --- https://www.zerohedge.com/geopolitical/pistol-dollar-petro-dollar-pharma-dollar "The Empire has been losing its wars but paying its bankers trillions and trillions for that privilege - beyond the capacity of anything the Empire can produce." The flaw in this reasoning is that seeing a green up arrow on your trading account is reward enough. Financial goods are delinked from real goods. Bill Gates has all the cars he needs, so he buys stocks. The Empire produces infinite innovative financial goods, and investors see green arrows on trading accounts. I agree with the first half of the article, mostly. > This embargo created the impression of a global oil shortage—which although there was none, could not be overcome without violating the power of the oil cartel. While the OPEC embargo formally restricted the sale of crude oil to Israel’s sponsors, there was no real oil shortage since oil supplies to Europe and the US have always been in the hands of the majors (now super-majors), then known as the “seven sisters”. OPEC’s announcement of an embargo at the well had no impact on the enormous upstream reserves held by the mainly American majors. However it did provide the pretext for massive price increases at the pump– presented as shortage-induced. Hence inflation is not a sign of real scarcity. > It is essential to recall that every crime is simply the unauthorised version of an activity otherwise deemed legal. The difference between marriage with dowry and prostitution is simply the statute book. The difference between war and murder is the sovereign authorisation. Seagram (Bronfman) produced whiskey in Canada that was legal and sold it more profitably in the US during Prohibition where it was illegal. The leading pharmaceutical companies are the brothers of the heroine, cocaine and synthetics pushers. And between all these folks who are all just merchants, there is the State– the armed bureaucracy that regulates these businesses in accordance with the most powerful to permit each side of these businesses to extract the maximum profit– yes, from us. This is pretty good. > Why in a global system dominated by the religious ideology of Business and the absolute priority of “the economy” have we seen the leading authorities, autocratic and bureaucratic, suspend the “economy” and disregard Business because of a new, improved version of the seasonal influenza? Fair question. > all meaningful organisational decisions are made in secret by those who have the most power in the organisation– whether it is the classroom in which you send your child to be bullied (or bully) or the workplace you freely attend to earn money to pay the bank for the privilege of living in whatever house they let you buy. If you work in a big enough company or institution your boss and the bank know what your credit future will be like before you do. But never mind this bit of mundane reality. The point is simply nothing of any importance is ever decided in public where you have anything to say about it. True enough. But then T. P. Wilkerson goes off on a Nixon tangent (the Illuminati found a pretext to eliminate him because he was getting uppity, or something). I take from this piece that inflation is psychological, not a sign of scarcity. --- Dear Andy Stahl: I ask for your help in saving a parcel of robust second growth, including some never-logged patches of old growth, in Capitol Forest in Washington state. The "Sauerkraut U3" parcel is set to be auctioned this year, and the "Allegedly U3" parcel appears to have been surveyed for auction as well. I would like to prevent the logging of these two parcels, because their environmental value far exceeds the board feet value. Ideally, I would like a statement from you that older trees are better in line with Washington state's explicit climate change goals: standing old trees are better carbon sinks and resist wildfires better. The state will gain an environmental benefit that exceeds the value of the board feet in these parcels. I hope you can contribute a brief expert statement that I can present to the Board when the timber auctions come before them. I was motivated to write to you after reading your comment on Cliff Mass's blog ( https://cliffmass.blogspot.com/2020/09/did-global-warming-play-significant.html ): <> I think that statement could be applied to the specific parcels I want to protect. May I use that, if you don't think you can provide anything more specific to the parcels in question? Thank you, Robert S Mitchell --- Why not simply pay everyone an inflation-proofed $5000 per month, and let those who want to continue business as usual? > the one-time event that is corona Fed interventionnin 2008 was supposed to be a temporary, one-time thing. Yet the balance sheet was never wound down, and has almost doubled, with no signs of strain (the EU is experiencing deflation). What if your ideas of reasonable limits on central bank money printing are irrationally low, given the experience of the last decade? --- @ billy blog: "While tax revenue does not fund government spending it does represent a reduction in the purchasing power of households and corporations, which means it frees up real resources that may have been deployed within the non-government sector with increased purchasing power." This completely ignores the financial sector's ability to create new spending power. Far more money is spent on pure financial goods than on real goods. MMT ignores the financial reality that gross financial flows far eclipse, and determine, real goods flows. --- @ larspsyll.wordpress.com: Bank for International Settlements economists have recently used a DSGE model to describe an equilibrium where gross financial flows determine real economic variables. This of course devalues the traditional economic focus on real goods while ignoring financial goods. It's funny to me that staid old DSGE modeling replete with a production function based on labor and land can disprove many MMT assertions such as "Exports mean that we have to give something real to foreigners that we could use ourselves - that is obviously an opportunity cost" (Bill Mitchell, http://bilbo.economicoutlook.net/blog/?p=39282 ). Contrast B. Mitchell's bald assertion with "US households do not finance current account deficits with foreigners' physical saving, but with digital purchasing power, created by banks that are more likely to be domestic than foreign", from the new paper's abstract, quoted in full below: Abstract of "How does international capital flow?" https://www.bis.org/publ/work890.pdf Understanding gross capital flows is increasingly viewed as crucial for both macroeconomic and financial stability policies, but theory is lagging behind many key policy debates. We fill this gap by developing a two-country DSGE model that tracks domestic and cross-border gross positions between banks and households, with explicit settlement of all transactions through banks. We formalise the conceptual distinction between cross-border saving and financing, which often move in opposite directions in response to shocks. This matters for at least four policy debates. First, current accounts are poor indicators of financial vulnerability, because in a crisis, creditors stop financing debt rather than current accounts, and because following a crisis, current accounts are not the primary channel through which balance sheets adjust. Second, we reinterpret the global saving glut hypothesis by arguing that US households do not finance current account deficits with foreigners' physical saving, but with digital purchasing power, created by banks that are more likely to be domestic than foreign. Third, Triffin's current account dilemma is not in fact a dilemma, because the creation of additional US dollars requires dollar credit creation by US and non-US banks rather than US current account deficits. Finally, we demonstrate that the observed high correlation of gross capital inflows and outflows is overwhelmingly an automatic consequence of double entry bookkeeping, rather than the result of two separate sets of economic decisions. I guess even a DSGE model can be primed to produce predictions in line with the staggeringly large gross capital flows that the BIS regularly reports on. A stopped clock can be right at times, and even bridge building permits many wacky theories because engineers include a safety factor of two (my bridge-building theory's predictions could be 100% wrong ...) --- 72241541 --- Basic income is the answer. Then, if you want toilets cleaned and the elderly cared for, you have the time to do it yourself. You can design better self-checkout software that needs no humans. . As it is, I clean all the toilets I use anyway. It would be easier if public toilets left some brooms and mops and bleach to use ... --- The funny thing for me is that the recent BIS DSGE model in https://www.bis.org/publ/work890.pdf disproves some assertions by traditional supporters of DSGE such as Simon Wren-Lewis (see https://mainlymacro.blogspot.com/2016/09/economics-dsge-and-reality-personal.html ). . In https://mainlymacro.blogspot.com/2018/02/academic-knowledge-about-economic.html SWL says: "Gravity equations do not come from theory but from the data: countries are much more likely, even today, to trade with near neighbours than far away countries after allowing for other factors." . But the BIS DSGE model belies gravity equations, because virtual financial goods dwarf real goods trade. Did SJW even look at financial flows? . I think the BIS economists looked at huge volumes of cross-border financial flows, and updated their clunky DSGE model to accommodate such data. SWL and most traditionalists simply exclude financial trading from their models. . Mainstreamers who uphold DSGE models, while at the same time making policy arguments based on real trade, should experience a lot of cognitive dissonance when reading the new BIS paper; either DSGE modeling is wrong, or their precious trade theories are wrong. . I eagerly await SWL's admission that the gravity theory of trade (and consequently his predicted effects of Brexit) is disproved by the new BIS model .. --- MMT still maintains the rotten building is fine, though. MMT is (rottenly) orthodox in its inflation theory, for example: inflation for MMT is a signal that too much money is chasing too few goods. But what goods were scarce in the 1970s? Oil was plentiful but its supply was throttled for political reasons. . Fischer Black's inflation model (inflation is noise) is a much firmer foundation than MMT can provide ... --- "it can be tackled by directly regulating those capitalists." . Much better policy: fully index the economy. Cost of Living Adjustments ensure real income purchasing power stability; Treasury Inflation Protected Securities protect savings; inflation swaps eliminate inflation risk in private contracts. . Regulation too often misfires, because regulators are either clueless about what is going on, or are part of what is going on. Example: Liquidity Coverage Ratio regulations caused a repo rate crisis in September 2019. --- "Model explanations are at best conjectures, and whether they do or do not explain things in the real world is something we have to test." . JP Morgan's models are tested by their Profit and Loss. . JP Morgan's models explicitly include the Fed: one model predicts that front-running the Fed will be profitable. And their Profit and Loss proves it. . Economic models today must include an exogenous rich uncle standing beside the biggest players in markets, ready to print free money to keep them going ... --- REPLY Tested in markets, of course. "Trading revenue surged 79% to a record $9.7 billion as bond and equities trading exceeded expectations." From https://www.cnbc.com/2020/07/14/jpmorgan-chase-jpm-earnings-q2-2020.html . And yes, the Fed can support any market. A lot of JPM's trading profits probably came from front-running the Fed's purchases. I think zerohedge reported on a confidential JPM research report that recommended this strategy, based on a model that explicitly includes a rich Uncle Sam. Corporate bonds were distressed but the Fed started buying them and their price firmed. JPM traders bought after the Fed's announcement of their intent to buy corporate bonds, and before implementation. Model said Fed will increase private bond prices, and it did. --- Henry, see https://finance.yahoo.com/news/inside-jpmorgan-trading-desk-u-080014057.html for an idea of what goes on at JPM's trading desk. A couple years ago when a JPM-owned ship was caught with cocaine cargo, twitter traders were saying JPM was just cutting out the middleman, shipping the drugs right to their trading floor. JPM traders are doing whatever they want. . A couple more points about your earlier post: . Currency is implicitly backstopped by the unlimited mutual currency swap lines between central banks. The dollar would have appreciated much more against the Euro after 2008 if the ECB had not been able to get as many dollars as they needed. . Horse racing can be securitized. The track sells a bond, the Fed buys the bond or an Exchange-Traded Fund containing the bond, and the horse racing market is supported. (Horse racing is terrible and should not be supported but the Fed can easily do it if it likes.) . Lotteries can be supported by buying instruments too. The Fed's new Municipal Liquidity Facility will buy your IOUs based on lotteries and roll them indefinitely ... --- I thought it was obvious: JPM does principal trading. It also has brokering services. . Screenshots of confidential JPM reports I've seen on twitter and zerohedge.com show recommended trades for their traders, and discuss previous recommendations and their outcomes. They have mathematical models that explicitly include free, exogenous money, representing new reserves created from thin air. Their trading desk uses these models. . JPM reports about $30-40 billion a year in trading profits. That's 30 or 40 thousand Nobel Prizes. If JPM hired 30000 traders, each could earn the monetary reward of a Nobel. . Economists are clueless ... --- "It is the behaviour of profit-seeking firms acting under the ontological condition of uncertainty that is at the centre of post-Keynesian concept of effective demand." . This depends on the subjective irrational individual psychologies of each agent. One agent may reason: I'll advertise and create demand. 1970s OPEC reasoned: we will destroy oil demand; 2000s OPEC reasoned: we will oversupply to drive down prices for anti-competitive reasons. Creating a label distracts from the essentially arbitrary nature of prices, demand, supply, and all other economic variables. And trying to manage it is just as arbitrary. You should all give up telling me how much I should demand, for the good of the economy. Show me by your example how much I should demand, not by arbitrarily restricting the money supply to fight inflation which is just as arbitrary in its causes as all of the other variables economists spend so much time trying to control (ineffectively ...). --- "It is the behaviour of profit-seeking firms acting under the ontological condition of uncertainty that is at the centre of post-Keynesian concept of effective demand." . This depends on the subjective irrational individual psychologies of each agent. One agent may reason: I'll advertise and create demand. 1970s OPEC reasoned: we will destroy oil demand; 2000s OPEC reasoned: we will oversupply oil to drive down prices for anti-competitive reasons. Creating the label "effective demand" distracts from the essentially arbitrary nature of prices, demand, supply, and all other economic variables. And trying to manage it is just as arbitrary. You should all give up telling me how much I should demand, for the good of the economy. Show me by your example how much I should demand, not by arbitrarily restricting the money supply to fight inflation which is just as arbitrary in its causes as all of the other variables economists spend so much time trying to control (ineffectively ...). . Of course, the way economists deal with me usually is by eliminating me from the data. I shouldn't exist therefore they are excused in banning me. I might set a bad example, which they fear is more compelling than the example they offer ... so simply clean me from the data, and their model can be preserved. I object of course, but who cares? --- Henry asked for evidence of JPM's trading revenue. 2019 Annual Report is here: https://www.jpmorganchase.com/content/dam/jpmc/jpmorgan-chase-and-co/investor-relations/documents/annualreport-2019.pdf . "Total Markets revenue of $20.9 billion, up 7%" in 2019. The previous cnbc link I supplied in an earlier post said revenue has increased in 2020, $9.7 billion in the second quarter alone. . "Markets revenue" is mainly principal trades. From the annual report, page 69: . "Principal transactions revenue includes amounts recognized upon executing new transactions with market participants, as well as “inventory related revenue”, which is revenue recognized from gains and losses on derivatives and other instruments that the Firm has been holding in anticipation of, or in response to, client demand, and changes in the fair value of instruments used by the Firm to actively manage the risk exposure arising from such inventory. Principal transactions revenue recognized upon executing new transactions with market participants is driven by many factors [...] the predominant source of principal transactions revenue was the amount recognized upon executing new transactions." . They are doing a lot of trading, this year should be at least $30-40 billion in revenue. . Several Nobels a year for their traders. --- "However, if we add an initial condition that some particles we label "white" and others "black" and set an initial condition where one region is all black adjacent to another that’s all white then we will see a diffusion of blackness into whiteness that is irreversible." . I was just out in the mountains and saw a dark rock with white streaks in it, and also randomly dispersed white crystals. . Assuming your initial conditions, the white and dark rocks mixed and then reformed into white bands within dark rock. . "This new directionality of time arises from the initial data, not from the equations of motion." . You assume a model that does not predict observed phenomena such as rocks that exhibit strange mixing patterns that contra-indicate thermodynamic assumptions about entropy and irreversibility. . (Lars keeps saying that there has to be something real underlying theories, so I go out to study the biggest most natural real things I can find: mountains, deserts, oceans, rivers, canyons, unlogged old growth forests ... and I see so much that simple scientific models do not explain. Typically scientists simply ignore the outliers. But I'll ask in r/geology about this rock to see what stories they come up with. My own story is that the minerals in the rock were re-sorted and aligned by an electrical field. Thus the original segregated colors were mixed thoroughly, then resegregated by natural forces. This natural separation seems to contradict simplistic, naive laws of irreversible entropy.) --- "Albert Michelson —whose famous experiment with Edward Morley refuted the existence of the luminiferous ether— said at the inauguration of the Ryerson Physics Laboratory at the University of Chicago that the great principles had already been discovered, and that physics would henceforth be limited to finding truths in the sixth decimal place." (in 1894) . Lord Kelvin in 1902 said the following in a press interview about the future of aeronautics: “Neither the balloon, nor the aeroplane, nor the gliding machine will be a practical success”. . https://www.bbvaopenmind.com/en/science/physics/lord-kelvin-and-the-end-of-physics-which-he-never-predicted/ . Seems physicists talk a lot of nonsense. According to their own data, current physics is only able to predict 4% of the universe. Dark energy and dark matter are unexplained. Why is the universe accelerating its expansion, when physics predicted it should be slowing down or contracting? --- "Albert Michelson —whose famous experiment with Edward Morley refuted the existence of the luminiferous ether— said at the inauguration of the Ryerson Physics Laboratory at the University of Chicago that the great principles had already been discovered, and that physics would henceforth be limited to finding truths in the sixth decimal place." (in 1894) . Lord Kelvin in 1902 said the following in a press interview about the future of aeronautics: “Neither the balloon, nor the aeroplane, nor the gliding machine will be a practical success”. . https://www.bbvaopenmind.com/en/science/physics/lord-kelvin-and-the-end-of-physics-which-he-never-predicted/ . Seems physicists talk a lot of nonsense. According to their own data, current physics is only able to predict 4% of the universe. Dark energy and dark matter are unexplained. Why is the universe accelerating its expansion, when physics predicted it should be slowing down or contracting? . Also, from Feynman's "Cargo Cult Science": . "Millikan measured the charge on an electron by an experiment with falling oil drops and got an answer which we now know not to be quite right. It’s a little bit off, because he had the incorrect value for the viscosity of air. It’s interesting to look at the history of measurements of the charge of the electron, after Millikan. If you plot them as a function of time, you find that one is a little bigger than Millikan’s, and the next one’s a little bit bigger than that, and the next one’s a little bit bigger than that, until finally they settle down to a number which is higher. . "Why didn’t they discover that the new number was higher right away? It’s a thing that scientists are ashamed of—this history—because it’s apparent that people did things like this: When they got a number that was too high above Millikan’s, they thought something must be wrong—and they would look for and find a reason why something might be wrong. When they got a number closer to Millikan’s value they didn’t look so hard. And so they eliminated the numbers that were too far off, and did other things like that. We’ve learned those tricks nowadays, and now we don’t have that kind of a disease." . Really though? That problem has been rooted out of Physics? We are supposed to take that on faith? --- > given that most of that capital already takes form of goods to start with. :/ :/ :/ This is not true; see [A world awash in money](https://www.bain.com/insights/a-world-awash-in-money/): > What do we mean by "capital"? > Capital takes many forms, from the cash flow generated by the economy’s output of goods and services and the capital equipment used to produce them to the accumulated wealth held as financial assets. As the inverted capital pyramid below describes, real economic activity is the engine that makes possible the accumulation and replenishment of capital assets. The economy’s productive capacity, in turn, spins off financial assets the owners of capital aim to invest in, creating new forms of wealth. When supplemented by leverage and creative financial engineering by banks and other financial intermediaries, the crown of the capital pyramid encompasses all financial assets. The "leverage and creative financial instruments" are dollar-denominated assets on private sector balance sheets. They are matched by deposits. Why don't investors turn hundreds of trillions of dollars of pure monetary assets into real goods, now? > that said cash is **at least** not devaluing at some crazy rate. Stocks are denominated in dollars. They are easily converted to dollars. The stocks inflate much faster than real goods inflation. Please see [a chart comparing pure financial asset inflation to real economy inflation](https://steemit.com/economy/@medicbtom/asset-price-inflation-vs-real-economy-inflation). Note that the S&P 500 has appreciated over 200% while houses have gone up a small fraction of that. Stocks are a form of money balance, and the money increases much faster than real prices rise. > Real purchasing power is "how much stuff does a dollar actually buy" Real income purchasing power is what I mean: if your income goes up in lockstep with prices, you don't notice anything because your real purchasing power remains the same. Social Security uses Cost Of Living Adjustments to protect the real purchasing power of its payments. Savings can be similarly protected using Treasury Inflation Protected Securities, for example. > In the presence of high inflation, money loses its function as a means of storing value through time. I still don't see how that could be a controversial statement. If your money goes up as fast or faster than inflation, you maintain or gain purchasing power. --- "how people act in conditions of uncertainty" . "all the messiness and disorder that this implies." . If I tell you arbitrage conditions persist for decades, allowing free lunches, negative prices, and other ways of gaming the system into producing an ever-increasing supply of credit that central banks coordinate to backstop in irrational panics, are you certain that I am wrong because uncertainty is assumed? . If prices are unavoidably messy in all circumstances, why need inflation be a constraint? Why not adapt to inflation and forget the assumption that inflation signals fundamental scarcity? Does fundamental uncertainty mean that predictions of physical scarcities are too uncertain to trust prices based on those fundamentally messy, disordered, and irrational expectations? --- "Predictions from economic theory are not nearly as accurate as those offered by the natural sciences" . I'll happily be a crank and attack the natural sciences. Epicycles made better predictions than Aristarchus's heliocentric theory, and measurements of parallax were not sensitive enough to disprove geocentrism. But you have to use a more Aristarchus-like model today to engineer spaceflight. In the same way, Newton's gravitational theory predicts locations that are several miles off for Global Positioning Satellite systems. And physics failed to predict the surprising results of stars orbiting faster than gravity should let them, as well as the expanding acceleration of the universe (dark energy). Physics predictions should be viewed as coincidences, really. Physics has no great insight into cause. . When you delve into physics you discover things like the Yakorvsky effect which has to be measured because there is no good model for it allowing predictions. The same is true of water: no equation of state can be derived for water, only observations can provide the phase diagram of water. Water's observed behavior is too irrational to fit into a simple math equation. . Richard Feynman in Cargo Cult Physics claims that social pressures (which led researchers to replicate an error Millikan made for decades) have been rooted out of Physics ("now we don't have that kind of disease"). I think he was optimistic. . Economists (and others) tend to adopt a naive realism that assumes physics has the correct models and economics should strive for the same gold standard. But the naive realism is really a trust in social consensus, not personal experience. In personal experience, entropy reverses itself costlessly every time you zip and unzip a file. Hot air is separated from cold by rolled-up car windows on a sunny day. Chris Dillow and his like may have ignored Aristarchus in the 3rd century BC, but does that make Aristarchus any less right, after the social consensus shifted? . Tl;dr: stop envying physics. They are as clueless as anyone. --- https://www.fastcompany.com/90504789/these-drones-can-plant-40000-trees-in-a-month-by-2028-theyll-have-planted-1-billion "In North America, trees need to grow 10-20 years before they efficiently store carbon" Therefore, old trees should not be cut, according to explicit Washington state climate change policy. "older trees can store much more carbon" Therefore, letting older trees grow is more in accordance with Washington State's Climate Change Policy than cutting them. > The Intergovernmental Panel on Climate Change says that it’s necessary to plant 1 billion hectares of trees - a forest roughly the size of the entire United States - to limit global warming to 1.5 degrees Celsius. Existing forests need to be protected while new trees are planted; right now, that isn’t working well. "There are a lot of different attempts to tackle reforestation," says Flash Forest cofounder and chief strategy officer Angelique Ahlstrom. "But despite all of them, they’re still failing, with a net loss of 7 billion trees every year." Therefore, not cutting old trees will help meet Washington State's climate change policy. --- Why not simply pay people directly? Business owners will get income, even if they can't sell non-essential things. . "The risk of a debt crisis exists but is low." . The risk is entirely psychological and can be solved by the world central banks cooperating through mutual unlimited currency swaps to buy distressed assets as needed. --- Il est parfaitement possible d’aider le consommateur sans aider l’économie, parce que beaucoup d’entre nous préfèrent maintenir des comptes d’argent. Si je mets mon aide gouvernmentale dans un compte Robinhood, l’économie n’est pas aidée. Mais qu’importe? Comment by rsm on 11 Nov, 2020 --- Interestingly, a new DSGE model proves many conclusions I have arrived at independently: . QUOTE . The vast majority of the open economy literature is based on net capital flow models. As explained by Borio (2016), these modeling frameworks do not separately track physical resource flows and monetary financing flows, and therefore implicitly represent physical resources themselves as the medium of exchange. This leads directly to statements such as “foreign saving finances the current account”, which treat two distinct concepts, saving and financing, as identical. Saving is a goods market concept, it denotes output not consumed. Financing is a money market concept, it represents newly created purchasing power in an accepted settlement medium, which in modern economies almost exclusively takes the form of commercial bank money. Financing is required not only for goods trades but also for asset trades, which are a quantitatively far more important component of gross flows. As a result, the magnitudes of net resource flows and stocks and of gross financial flows and stocks are disconnected, a phenomenon that has been labelled the “excess elasticity” of the financial system by Borio and Disyatat (2011). . END QUOTE . Although this model uses horrible assumptions I disagree with, it ends up at the same place I do: that Simon Wren-Lewis's "gravity model" of trade is wrong because cross-border financial gross flows matter much more that net payment flows. . I wonder what SWL would say if he bothered to look at this paper? It uses mainstream models to disprove his mainstream theory ... --- For a purported heterodoxist you certainly have an affinity for figures imputed according to heavily orthodox assumptions built into rigidly orthodox models. You are ignoring confidence intervals and noise. You happily countenance excluding millions of us from your model. We just disappear, invisible to the blind eye you turn on us. --- "seriously bad repercussions on the financial system." . Stocks are at or near record highs. . "The mistake that Viniar of Goldman Sachs exemplified as the credit crunch bit was to believe that a number derived from a “small world” model—a simplification based on a historic data set—is directly applicable to the “large world,” complex and constantly evolving, in which we live." . Defaults in the pandemic have been as high as in 2008, but the financial system has learned how to handle it. Their models include a Fed put. . "The terms risk, uncertainty and volatility are treated as equivalent" . Finance has explicit definitions that allow you to fully define risk beforehand.Volatility is a fourth derivative of --- Physics envy is unwarranted, because planetary motion equations have to change when applied to galaxy rotation. . Financial markets are near or at all-time highs despite defaults approaching, or in some sectors exceeding, 2008 levels. Finance has fixed the 2008 mistake, by making the Fed put more reliable. . Finance has figured out how to sell ergodic averages of stocks to individuals, who can then take advantage of the upward movement due to the out-performance of a few in the average. . For someone so committed to uncertainty, how can you be so certain that derivatives eliminate risk? Derivatives impose an ergodic, rational model on a subset of financial instruments that can then be perfectly predicted. The Fed stands by to buy your mistakes so you survive panics. --- How are you going to check the power-holders? Have the Fed stand by and let another Depression last for a decade while a populist executive vacillates between fiscal stimulus and balanced budget concerns? But Goldman Sachs sends its best and brightest on to run the Fed and Treasury, so how will you confound GS models that include Fed bailouts? . Best to create new wealth instead of redistributing. GS knows new money is how they survive, and a little more money creation for the rest of us won't matter. . Democrats hell-bent on punishing and shaming big banks for nonviolent behavior is holding us back from the money-printing solution that the powerful will accept because no taxes are involved. --- Anyone can buy a government bond through Treasury Direct, or a bond index like TLT, TNX, EDV, ZROZ, etc. . Even if finance was "severely checked" from 1945-1970, did power stop during that time? Power merely exercised itself through redlining, other systemic racism, and war. At least in the dot-com bubble some of us little people got a taste of high salaries (before misguided Fed rate raises popped it). During the 2000s housing bubble a lot of individuals got access to houses regardless of their race, because financial power exercised itself more democratically than redlining government policies during the 1945-1970 period when finance was supposed to be in check. Again the Fed stopped the financial democritization of housing ownership with model-driven rate increases that prompted a panic creating much worse financial conditions for the most vulnerable. . Finance is nonviolent. Tax-based redistribution relies on violence and is hence immoral. Much easier to get power to sign off on creating new money to address unnecessary scarcity, than to try to force the financial genie back into the bottle. Goldman Sachs knows it uses money creation to enrich itself and a little more money creation to help poors won't matter ... --- @ George Carty, thanks for not ignoring me as a crank. I'm trying to figure out how Hitler was able to finance a hugely productive war machine. "Food prices under the Nazis (who subsidized farmers at the expense of the urban population) were considerably higher than on world markets, and one of the most common gripes that ordinary Germans had with the regime (as discovered by the Gestapo) was that they were forced to wear synthetic clothing (because Germany couldn't produce its own cotton)." So Germany had high import tariffs? From wikipedia: "the military eventually came to represent the majority of the German economy in the 1940s.[8] This was funded mainly through deficit financing before the war" "Hjalmar Schacht created a scheme for deficit financing, in which capital projects were paid for with the issuance of promissory notes called Mefo bills, which could be traded by companies with each other.[21] This was particularly useful in allowing Germany to rearm because the Mefo bills were not Reichsmarks and did not appear in the federal budget, so they helped conceal rearmament.[22] When the notes were presented for payment, the Reichsbank printed money." The story then goes that things became unsustainable and Hitler went to war for plunder. However, printing money took Hitler a long way. Hitler also seems to have been funded by US bank loans, which were defaulted on; but J P Morgan apparently was able to create enough credit to offset those defaults. The point: Blissex's hard money story ignores the vast amounts of monetary expansion that had to be going on, if you look under the hood at all. --- Consider an options market. You can buy and sell opposite positions in an underlying stock, for a fraction of the price of the stock itself. The profit curve is well-defined. You labor by setting stops or actively monitoring the price movements and getting out of the positions while still in the profit section of the curve. It's as close to certain knowledge as finance gets, so far, I think, and it is close enough to provide handsome returns when done in volume. . Because you can hedge options with higher derivatives (delta hedging, gamma hedging, and the like), everyone can probably book a profit off the same series of trades. Speculators exist, but may not be necessary. Money emerges from financial markets. . Central banks provide a backstop, implicitly insuring against default risk, panic devaluing risk, funding price spike risk. The backstop is so implicit that it sometimes appears explicitly in models from big financial institutional research departments. --- Real-world-relevant models include the Fed as ultimate insurer of large-volume more-or-less fully-hedged financial bets. . "By expanding and extending the asset-purchase programme, the Riksbank is making it clear that comprehensive monetary policy support will be available as long as it is needed," the Riksbank said in a statement. . https://www.reuters.com/article/sweden-cenbank-rates/update-2-swedish-central-bank-adds-23-bln-to-qe-as-second-pandemic-wave-hits-idUSL8N2IC1TH --- Friday November 27 2020 Opaline died. Opaline came with her younger, healthier mate a few months ago. The pair had been shuffled around several homes. We tried to give her a good home for her final days. She always breathed hard. Her mate loved her and preened her and slept next to her all but the last night when she did not go back in her cage. She would have several hours out-of-cage time each day. She would fly around, looking for safe nest spots. She communicated well. I talked to her. When I asked her to go back in her cage, she understood and usually did. She had a strong, sweet spirit and soft chirps that kept her going these last few months, despite breakdowns in her body. I remember her sitting above the TV watching us (Big Head used to do this too). I remember her expressive chirps, containing a lot of emotion and message in such short bursts. I used to sing to her. She eyed my hands as I was drumming once, and knew how much I listened to music. After she collapsed on the floor of her cage, I held her for a long time in my hands. I took her outside, and she perked up. She spread her wings in my hands as if to fly, so I moved her through the outside air quickly to give her some sensation of flying outside. I think she liked that. Even after her body became stiff and I could detect no breathing, her eyelids seemed to move, and her eyes seemed alive. I put her in a warm box and kept checking for hours, a vigil. --- "If economic regularities obtain they do it (as a rule) only because we engineered them for that purpose." . Stocks always go up because the Fed intervenes to stop panics. Big financial firms have constructed "man-made nomological machines" that include the Fed as a backstop. . "Unfortunately that also makes most of the achievements of contemporary economic theoretical modelling — rather useless." . Look rather to the modeling done by Goldman Sachs, J P Morgan, Citigroup, etc. which assume the Fed put in their predictions. Usefulness is measured by profit, and GS has a long track record of profit in recessions ... . Black swans occur, but the Fed reacts quickly to provide insurance against them. . "Causes have to be set in a contextual structure to be able to operate." . Operating financial firms contextualize their models with unlimited liquidity provisioning from the Fed. . "If models assume representative actors, rational expectations, market clearing and equilibrium," . Big firms can model the largest agents as rational. The Fed guarantees markets will clear. Equilibrium does not seem necessary in the private research models I've seen. --- Here is an example of a journalist's review of a private J P Morgan research report that explicitly models the Fed and makes testable price predictions: https://www.zerohedge.com/markets/titanic-taper-tantrum-jpmorgan-expects-bond-demand-tumble-600bn-2021 . > [...] according to JPM this deterioration in the supply/demand imbalance "implies upward pressure on bond yields next year of just over 20bp based on the relationship between annual changes in excess supply and global agg yields over the past decade, effectively reversing a third of this year’s decline." . So JPM has a mathematical model of bond supply and demand, and the relationship to yield. Their input data are historical statistics. . You might test this prediction by taking a long or short position in Treasury bonds. JPM is saying short bonds. . Of course, JPM has been saying that for awhile. Looking up "how to short bonds" I came across this 2018 article: https://ragingbull.com/large-cap-stocks/how-to-short-the-bond-market-with-etfs/ . > Rather than outright shorting the ETF and expose myself to a lot of risk, I’m in put options. With put options, my risk is limited to my invested premium. In other words, I’m placing a bet on a rise in interest rates and a fall in bond prices. For example, if you expect TLT to fall below $125 within two months, you could purchase put options with a strike price of $125 expiring in two months. Even if TLT starts to rise above $125, you would not be exposed because your maximum loss is the amount you invested. This helps immensly with managing your risk-reward. . TLT is (checks) $157.50 today, so he would have done just fine if he'd simply bought and held. But if one needs immediate income, one might place a bet on bond yields going up by 20 basis points. The lowest premium one might pay and the maximum potential reward can be fully specified up front, and is left as an exercise for the reader. --- https://www.bis.org/publ/work890.pdf is a recent DSGE model that uses production functions: . "Households in each country own the domestic stock of land, which both serves as an input into the production function of domestic value added and as collateral for borrowing from banks. Output is produced using labor in addition to land. Household income consists of land rents, wages and lump-sum profit distributions from manufacturers, unions and banks. Households, both domestic and foreign, are the only retail borrowers from and retail depositors at banks. They consume a CES composite of domestic and foreign goods, and they purchase these goods using a CES composite of domestic and foreign currency deposits, which are created for them by banks through loans." . The math is in the paper, too. . The interesting thing is that the banking sector's influence seems to swamp all the other real sectors. Since banks are self-consciously rational, the irrationality of individual consumers can be assumed away: rational banks overwhelm any irrational behavior by individual agents. At least that is my interpretation, without delving further into the math. . From this DSGE model that explicitly includes banks, the authors derive surprising results (which I came to from simply looking at FRED graphs of money supply and a dollar index): . "the market-clearing relative financial return on a currency is increasing in the relative quantity of that currency." . I think they are basically saying: the more dollars there are, the stronger the dollar gets. . Other interesting results of the model: . "Accommodating FXMR [Foreign Exchange Mismatch Rules] therefore insulates the macroeconomy from even very large currency demand shocks [...] There is therefore a clear trade-off between financial stability and macroeconomic stability." . This appears to say you can save the real economy by bailing out banks. I have also reached this conclusion, without needing the DSGE framework. . The paper goes on to conclude that the "global savings glut" hypothesis is debunked because saving is different from financing: . "domestic households do not finance current account deficits with physical saving provided by foreign households, but with digital purchasing power provided by banks, which are more likely to be domestic than foreign." . I also agree with that conclusion though I did not need a DSGE model to arrive at it. . In sum, I disagree with almost all of the assumptions in this DSGE model, but they manage to arrive at conclusions I agree with. That's interesting ... --- "In physics, we have theories and centuries of experience and experiments that show how gravity makes bodies move." . This is naive realism; physics has to invent invisible undetectable spooky dark matter and energy to account for the movements of the largest bodies in the universe. Either physics models are badly wrong, or you have to have faith in unobservable forces. . "We want to have models that build on assumptions that are not in conflict with known facts and that show how things actually are to be explained." . Why assume only one explanation? Why can't many stories be true, depending on your perspective? . Physics is right from the narrow perspective of lab experiments on earth, but when you apply those models to star velocities in galaxies or relative galaxy movements in the universe, you need to imagine figments that experiments do not prove. . Quantum physicists such as Feynman and Heisenburg ("Heisenberg was an anti-realist, arguing that direct knowledge of what is "real" was beyond the scope of science" - Wikipedia) gave up on showing how particle behavior "actually are to be explained". . Physics envy is unwarranted. . Finance constructs models that can be applied to closed-off sections of markets, yielding certain profits in normal times; the only uncertainty is to what degree the Fed will backstop you in case of a panic ... --- "features and mechanisms that we have warranted and justified reasons to believe in" . The warrants and justifications are based on arbitrary, fickle social consensus. Thus, it's stories all the way down. Quoting Heisenburg again, "When we speak of the picture of nature in the exact science of our age, we do not mean a picture of nature so much as a picture of our relationships with nature." Our relationships with nature are stories ... --- @ Nanikore: I apologize, if my tone sounded a touch impatient. I just think you lot should take advantage of a marvelous opportunity to call upon politicians, economists, journalists, and bloggers alike to acknowledge openly that central banks have within their grasp the power to solve the economic problem. Real production is constrained by financial shocks, not physical resources. We can thus end financial uncertainty. Everyone can be supplied enough money to access vast, persistent surplus. Bank runs are by definition avoidable when one bank is at the top of the hierarchy; the existing central bank unlimited currency swap network acts as a proxy for one world bank issuing the best money. Inflation risk can be eliminated with inflation swaps, which central banks can make markets in as needed to manipulate breakevens to where they want them. We should encumber ourselves with this knowledge and demand an expansion and liberal use of central bank currency and inflation swaps to end financial uncertainty about accessing basic resources. Society now uses artificial scarcity of money to define goals. But this microfoundation's utility and productivity is maximized when it sets its own goals, regardless of what economists think it should be doing. --- "how the actual economy institutionally handles risk and uncertainty" . Central banks are the ultimate insurers in today's out-the-window world, and since central banks are not rational in the sense that they are not seeking profit, the inevitable entailment is that prices are arbitrary and inflation is psychological noise. --- > there are homeless people everywhere because all the money has been sucked to the top. The homeless never had enough money for those at the top to steal. Wealth at the top has increased by trillions more than the poor ever had. The rich create money faster than the poor can. The Fed, however, can even things out by printing and automatically inflation-proofing a basic income. > why not propose a tax of 100% of assets over 999 million dollars. This naively ignores power. The rich make the moral argument that taxes are a violent way to impose restrictions on nonviolent behavior, and intellectually honest voters agree. There is a better way: make taxes voluntary and print the budget. Nominal inflation is solved by Cost Of Living Adjustments, Treasury Inflation Protected Securities (for savings), and inflation swaps. The Fed can use open market operations to buy and sell inflation swaps, so as to manipulate inflation breakevens to where they want them. Inflation expectations can be set by the Fed using existing market mechanisms. Taxes are not needed to fund government. Taxes are about violent control of nonviolent behavior. Remember the Stamp Act, which sought to tax marijuana as a way to control it? Taxes are passive-aggressive. We should make taxes voluntary and use our own lives lived in simplicity as examples for billionaires to follow. Let them self-realize at their own pace; you can give them verbal coaching. Taxes are a lazy way to influence behavior. Use your words. > money is a way to make other people do things that they would not do if it weren't for money. This is one blind man's story as he feels only part of an elephant. Many people enjoy doing things whether they get paid or not. Ran's limited point of view leads to thinking like: obviously we have to pay people to remove garbage from campsites and maintain forest roads, because no one will do it otherwise. But I am willing to donate my labor to clean up garbage and fill in potholes on forest roads that I use frequently. But Ran's style of thinking places barriers in my path. Why can't I check out idled public equipment to collect trash? Because we can only pay people to do that. Ran is perpetuating a very limited view of money that prevents a lot of work from getting done. When I pay for weed, I hope I am paying someone who genuinely likes to grow weed and, if he had a basic income, might even give it away. Money transactions are not always about simply getting someone to do something they don't want to do. That is a naively blinkered view that is holding back progress. --- A US company issues a bond denominated in Sterling. The buyer uses Sterling issued by a private bank or clearinghouse to buy it. Those pounds were not issued by the Bank of England. The clearinghouse debits the buyer's account and credits the seller's account. The BoE need not be involved at all. The bond seller holds the Sterling in the clearinghouse account; if it wishes to spend the pounds, it might buy an asset from another clearinghouse member. Again, the clearinghouse simply debits one Sterling account and credits another; the BoE never issued any Sterling to cover these Sterling-denominated transactions. The Eurosterling can remain in this private system, which is totally outside of the BoE's control, indefinitely. . If, eventually, a holder of Eurosterling wants actual cash banknotes, at that point the clearinghouse or bond issuer can borrow BoE-issued sterling. The BoE will print it after the fact, if necessary. . Imagine a 30-year Eurosterling bond that stays in the private clearinghouse system for 30 years; the seller keeps making Sterling transactions with other clearinghouse customers, so the sterling never has to leave the clearinghouse system. The BoE never issued any sterling, yet the clearinghouse customers are transacting in Sterling that they created. . Maybe after the 30-year bond comes due, at that point the issuer borrows BoE-issued sterling to cover the cash payout. But the BoE can just print new Sterling at that point. The privately-created Eurosterling could have circulated for 30 years without involving the BoE, then when it needs to be monetized in BoE sterling, the BoE can easily expand its balance sheet to make a loan. . See https://ondemand.euromoney.com/the-sterling-bond-market/ . > What is the impact of the Sterling bond market? > On a bank - typically, deposits alone will not be enough to fund lending to retail customers; banks will also need capital in their balance sheet to satisfy regulators that they have enough of a buffer to absorb losses in the event of a crisis. Much of this buffer is typically made up of debt instruments. . Those debt instruments can be privately-created Eurosterling bonds. The BoE never issued the Sterling that they are denominated in. The bank can hold those bonds for a long time, and report them as Sterling assets, and transact within the clearinghouse system in Sterling, without involving the BoE. . MMT completely misses this crucial component of international finance. --- MMT is inconsistent; if the UK is a monopoly issuer of its currency, how can banks issue pounds too? ---- "Try to pay a bus fare with a Eurosterling bond!" . I can get a loan in Eurosterling to buy a house, and the seller can put the money back in the same bank, all without involving the BoE. The shadow bank expands its balance sheet and simply debits one account while crediting another. Thus a real house can be bought with pounds that were not issued by the UK. Thus Eurosterling should be considered part of the Sterling money supply. The problem is, you cannot get an accurate measure. But this just means, again, that the UK is not a monopoly issuer of its own currency, something that MMTers repeat a lot (and which prompted my first comment to this post). . For more on this, see https://seekingalpha.com/article/2961016-the-feds-quandary-with-uncle-ed-eurodollar . > From January 2015, BIS working paper 483: [...] "dollar funding flowed into the U.S. through non-US headquartered banks' balance sheets." . The UK experiences the same phenomenon: Eurosterling funds purchases of real goods (such as houses) and services inside the UK. ---- “Central banks now pay little attention to the growth rates of monetary aggregates, realising that they can really only set the price (typically the overnight interest rate), which has only an indirect impact on the quantity of reserves and the quantity of privately created money – and hence the money supply.” . This quotation is inconsistent with "the UK is a monopoly issuer of its own currency." ---- Sterling can be seen as gold used to be, but when there is a run on Sterling, the BoE has an unlimited supply of "gold" to satisfy the demand. ---- "Crisis bailouts etc. not paid to private companies to help them service their Eurosterling debts." . Yes, they are. Can you prove otherwise? How can you be sure? Cenral bank currency swap lines backstop the Eurodollar and Eurosterling markets. --- No, clearinghouses and shadow banks do not require a UK bank licence. . Quoting Milton Friedman, quoted in the link supplied in my reply to Kingsley above: . "Eurodollar banks are subject to the regulations of the relevant banking authorities in the country in which they operate. In practice, however, such banks have been subject neither to required reserves on Eurodollar deposits nor to maximum ceilings on the rates of interest they are permitted to pay on such deposits." . Eurosterling are likewise not subject to UK laws. . "Why would a bond buyer borrow sterling from a private bank to fund a bond purchase?" . Because it has an attractive return, which is paid in Eurosterling that can be used to buy a house (for example) in the UK. The UK never need issue any sterling used in the purchase. Thus the UK is not a monopoly issuer of its currency, as was claimed in the original post by Professor Syll above ... --- Henry, . Do your own research, if you don't believe me. I have provided several sources. Do a search for Eurosterling and UK regulation. Here is one source I came across: https://books.google.com/books?id=9k9dDwAAQBAJ&pg=PA266&lpg=PA266&dq=eurosterling+creation+and+uk+money+supply+regulations&source=bl&ots=rBVP7thVf1&sig=ACfU3U3nne-dHoDYmXBP4OwDdnyGQ7bu3g&hl=en&sa=X&ved=2ahUKEwjoyJSSp9ntAhVFO30KHdNuAfo4ChDoATADegQIARAC#v=onepage&q&f=false . It clearly says the Euro-sterlng market is unregulated. . The ft.com link I supplied in an earlier post also reinforces this. . Here is another ft.com piece mentioning the UK explicitly: https://www.ft.com/content/21a42afe-f92f-11e6-bd4e-68d53499ed71 . > Today one of the largest users of securitisation in the UK is not a bank. The Northview Group, which writes mortgages under the Kensington brand and is funded through securitisation, describes itself as a nonbank challenger lender. . The point of shadow banks is that they are not regulated by domestic banking laws. . You are right: MMT and other mainstream views that the UK is a monopoly issuer of its currency are made nonsense of by the existence and influence of shadow banks. . See also https://www.globallegalinsights.com/practice-areas/banking-and-finance-laws-and-regulations/united-kingdom . > the UK has chosen not to regulate wholesale/corporate lending, meaning that such lending does not trigger a UK licensing requirement and is not subject to specific conduct of business rules. . Do your own research; Mehrling is also a good source on unregulated shadow banking money creation. . I encourage you not to be like those observers of Galileo's cannon-ball drop experiment who went away convinced that the heavier ball had hit the ground first. Much as it seems counterintuitive, shadow banks create Sterling (and US dollars) without the involvement of the relevant central banks. This has wide-spread implications for policy that MMT and other orthodox economic theories completely miss. --- "Let’s say you’re offered a gamble where on a roll of a fair die you will get €10 billion if you roll a six, and pay me €1 billion if you roll any other number. . Would you accept the gamble?" . This is not how betting works in finance. You have to include futures and options markets, so you pay more like 100 Euros, not 1000 Euros, to win 10 billion Euros. Dealers are pricing options in liquid markets like S&P 500 index funds, and the like. The premium to place a bet decreases so as not to bankrupt you, even if you lose it all. . There are predictable pricing movements in option prices. If the underlying moves by this much, the option price will move by an exact, predetermined amount. Financial innovation has created bets that guarantee you a profit that exceeds your premium paid. There is a profit curve over the underlying's price, with clearly defined, predictable, precisely numerical prices beyond which you will lose the entire premium you paid. You "labor" by watching the price and selling the options before the loss points are reached. . Thus, your betting model should include financial innovations that allow you to make E10 billion if I roll a six, but only pay you an option that is scaled down by a factor of ten or more from the price of the equivalent underlying stock. I buy an option to buy the payoff from financial dealers, paying them E100. If I roll 6, I exercise the option and collect E10 billion. If I roll another number, I lose my E100 premium. The dealer makes money by delta hedging. Everyone involved can insure their bets and get a payout no matter what; I can sell my option as the dice roll and it looks like it won't hit the six. I am guaranteed a price that generates a net profit for me if I sell before the underlying stock moves a certain amount in price. . Options markets have surpassed stock markets in trading volumes. . Your model of betting is archaic. Please study some finance! --- Shadow banks create IOUs (unregulated by states). Intermediaries have always done this. The IOUs circulate at par with state currencies. Central banks backstop the IOUs by printing in panics. . See this recent BIS paper: https://www.bis.org/publ/bisbull34.pdf . 2020 saw over $2 trillion in increased liquidity, representing " the 'elastic' nature of the global banking system (central bank plus commercial banks)". Elastic means the private unregulated shadow banks expanded the dollar supply, backed only partly by central bank currency swaps. . > the global supply of US dollars expands on account of both the Fed’s injection of reserves into the US banking system and the increase in non-resident dollar deposits in US-based banks. In this way, the swap lines leverage on the “elasticity” of the Fed’s and commercial banks’ balance sheets to offset rising demand for dollar liquidity. This “grand dollar overdraft” reflects the Fed’s critical role as a backstop for the dollar-based global financial system. . If you read that carefully, they are saying that private off-shore (unregulated) banks are creating the means of payment, i.e. dollars; the Fed backstops such private dollar creation as needed. . > Such injections of liquidity flow across borders and show up in the form of a rise in cross-border interbank and intragroup claims. These represent the increase in non-resident holdings of the means of payment that helps to stabilise global dollar liquidity conditions. . Translation: the increase in non-resident holdings is mostly shadow-bank created money, with a backing of Fed swap line dollars that they are promising to pay but may never need to pay. . Your "recycle money" model simply cannot account for a $2+ trillion increase in the means of payment in a few months. --- Kingsley, . MMT has the interest-rate focus wrong, as usual. See https://www.wsj.com/articles/interest-rates-wont-work-against-coronavirus-11583766853 (note that this piece was written in March of 2020, before the Fed expanded its balance sheet by $3 trillion in three months): . > The world’s major central bankers and commentators fetishize interest rates. . MMT fetishizes interest rates. . > Interest rates as a gauge of the Fed’s monetary-policy stance were—and are—no better than flying blind. . The Fed dropped interest rates in the Depression, which MMT and mainstream economists think necessary and sufficient. But it didn't work. MMT, and the mainstream, are wrong about interest rates being the only response in panics. . > Monetary policy today has become detached from reality and the needs of markets. It is driven by misleading theories about what interest rates can achieve. Contrary to popular belief and the wisdom of crowds, monetary policy isn’t about interest rates. It is about providing the right amount of funding—the right quantity of money. . This passage testifies to the ignorance of both MMT and traditional economics. . > the Fed needs to supply liquidity to deal with the panic—whether by quantitative-easing purchases of long bonds, by Treasury bill purchases, by repos or, most important, by increasing the amounts of U.S. dollar swaps available to the central banks of Japan, China, South Korea, Taiwan and Hong Kong. This is what the Fed did, along with dropping interest rates. The expansion of the money supply served to monetize previously-created shadow bank dollar-denominated collateral, which was created out of thin air. . The relevant point here is: shadow banks create collateral out of thin air, assign an arbitrary dollar value to the collateral, and monetize it. The money supply expands as needed to meet the arbitrarily assigned collateral values. . Keep trying ... --- Assumptions are conclusions without proof. Conclusions are proven hypotheses; the proofs are based on assumptions. Substituting, we see that proofs are based on conclusions without proof. Hypotheses are proposed proofs without proof. Thus the proposition "Hypotheses are completely different concepts from assumptions" is wrong, because hypotheses assume assumptions, and nothing is ultimately provable. The problem of infinite regress is well-known in Philosophy, but mostly ignored after it is (sometimes) introduced and hand-waved away at the start of textbooks. (Externalities receive the same treatment in Economics: introduce them early, then ignore them.) . "Very often the data only shows a vague blur, or just random noise, or even a completely unexpected relationship." . Consider a model of supply and demand. The more bond supply increases, the less it should be in demand; interest rates should rise, the price of the bond should fall, the cost of issuing debt should rise. History reveals, however, that US bond supply has increased well over 1000% since 1980, while the price of that debt has fallen by 90%. Contrary to the Law of Supply and Demand, bond supply has increased, interest rates have fallen, bond prices have risen, and the cost of issuing debt has fallen. . Econometrics has disproven the Law of Supply and Demand. --- Short answer: they write figures in spreadsheets. . https://mises.org/wire/role-shadow-banking-business-cycle provides a longer answer (despite my prejudice against Austrian economists' conclusions, their analysis is often spot-on): . > The aim of this article is to fill this gap, by showing how shadow banking impacts the credit expansion and, thus, the business cycle. The main findings are that securitization increases the traditional banks’ ability to expand credit, while collateral intermediation additionally enables shadow banks to create credit themselves. . See https://www.federalreserve.gov/monetarypolicy/files/FOMC20080916meeting.pdf for Dudley's explanation: . > We give them Treasuries, and they give us other stuff. . "Other stuff" had been created on shadow bank spreadsheets, as IOUs, before the Fed had to get involved by accepting the arbitrary assigned value to the collateral (i.e., "other stuff"). ---