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  • feedwordpress 08:01:41 on 2018/09/25 Permalink
    Tags: 100 dollar bill, AM/FM Debate, cash, , economics, , Franco Modigliani, , life-cycle hypothesis, ,   

    “It’s All About The Benjamins”*… 

     

    Hundred-Dollar-Bill

    A funny thing happened on the way to a world of cryptocurrencies and mobile payments. Cash became more popular than ever. The main reason? The one hundred dollar bill.

    In 2017, for the first time ever, the one hundred dollar bill became the most popular US bill in circulation, beating out the one dollar bill. It is quite the turn of events for Benjamin Franklin-faced banknote. Just 10 years ago, it was less common than both the $20 and the $1.

    The share of US dollars in circulation as a share of GDP rose from about 6% in 2010 to 9% in 2018, according to the Federal Reserve. Increased use of $100 bills has been the primary driver…

    Why cash is king: “There are now more $100 bills than $1 bills in the world.”

    * Puff Daddy

    ###

    As we contemplate currency, we might spare a thought for Franco Modigliani; he died on this date in 2003.  An economist, he originated the life-cycle hypothesis, which attempts to explain the level of saving in the economy, suggesting that consumers aim for a stable level of consumption throughout their  lifetime (for example by saving during their working years and then spending during their retirement)– for which he was awarded the Nobel Prize in Economics in 1985.

    Among his other accomplishments, he initiated the Monetary/Fiscal Debate when he (and co-author Albert Ando) wrote a scathing critique of an early 1960s paper by Milton Friedman and David Meiselman.  Freidman and Meiselman had argued (in effect) that monetary policy was the only effective tool in managing an economy; Modigliani and Ando pointed out flaws in their analysis and made the case for fiscal measures (effectively, government spending) as equally-effective tools.  The debate– known by the antagonists’ initials as the AM/FM Debate– rages to this day.

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  • feedwordpress 08:01:49 on 2018/09/16 Permalink
    Tags: Adam Tooze, , economics, , Galleanists, , , , ,   

    “The prevailing ideology of the modern west – which is political economy – is in the doghouse”*… 

     

    recession

     

    This weekend marks the 10th anniversary of the collapse of Lehman Brothers (the largest bankruptcy in U.S.history) and the start of the Great Recession.  We took a look at the crisis, it’s dimensions, and its aftermath last month (“Not every business cycle has a financial crisis. Frequently they do“); but there’s so much to remember– and so many may smart folks from whom to learn…

    In “From Trump to Trade, the Financial Crisis Still Resonates 10 Years Later,” Andrew Ross Sorkin thinks about the consequences of the crash still unfolding.  In “Can We Survive the Next Financial Crisis?,” Bloomberg’s Yalman Onaran, considers both the ways in which the system that led to the last crisis has become safer and also the pockets of risk that have grown since 2008.  (Keep your eyes on CLOs– collateralized loan obligations– this decade’s version of the CDOs that tanked the economy in 2008…)

    The always-illuminating Matt Levine, considering John Cassidy’s review of Adam Tooze’s new history of the financial crisis/crises, Crashed, highlights Tooze’s central argument: that much of our current geopolitical situation — the nativism and fragmentation and general rejection of decades of stability and elite consensus — is a consequence of the 2008 financial crisis and the flawed response to it.  Levine concludes with a striking observation…

    Finally here is a passage I found interesting from Tooze’s “Crashed,” on quantitative easing, political volatility, and the U.S.’s flirtation with defaulting on its debt in 2013:

    That the astonishing events in Congress in 2013 did not lead to an immediate crisis in the bond market pointed to the resilience of the US Treasurys as the global safe asset of choice. Though the Chinese and Germans might complain and the market blipped, demand for US Treasurys quickly recovered. Ultimately, the market for IOUs drawn on the American taxpayer was underwritten by the Fed. Unlike the ECB, America’s central bank left no doubt that it backed its governments’s debt. QE3 bond purchases provided immediate support, keeping prices up and rates down. This provided at least one point of stability for global investors. But after the events of 2013 questions could no longer be avoided. Was one of the unintended side effects of the stability generated by the Fed to free politics from market constraints and thus enable Republican extremism? Did America’s ability to ride out short-term budget crises like those of 2011 and 2013 lead contemporaries to underestimate the future dangers that the degeneration of American democracy might bring with it? And how long would the Fed’s technocratic interventions compensate for America’s lackluster economic recovery and the shambles in the legislative branch?

    Obviously one can disagree with some of the characterizations there. But one thing that we used to talk about a lot around here was that people were worried that people weren’t worried enough: Financial-market volatility seemed eerily low given the apparent instability of, you know, the world. That worry turned out to be overstated — volatility picked back up without causing any particular crisis — but it really was a bit eerie: Apparent actual volatility in the world kept not causing volatility in asset prices. But an implication of Tooze’s argument is that some of the causality went the other way: Because financial markets were calm in the face of geopolitical instability, they enabled more geopolitical instability. If you don’t have bond vigilantes checking up on you, then you can get up to a lot of weird stuff.

    [image above: source]

    * James Buchan

    ###

    As we try to keep cause and effect straight, we might recall that it was on this date in 1920 that the biggest incidence of domestic terrorism in U.S. history to that date occurred: the Wall Street bombing.  At noon, a horse-drawn wagon passed by lunchtime crowds on Wall Street and stopped across the street from the headquarters of the J.P. Morgan bank at 23 Wall Street, on the Financial District’s busiest corner.  Inside the wagon, 100 pounds of dynamite with 500 pounds of heavy, cast-iron sash weights exploded in a timer-set detonation, sending the weights tearing through the air.  30 people were killed immediately, and another eight died later of wounds sustained in the blast.  There were 143 seriously injured; the total number of injured was in the hundreds.

    Though investigators and historians believe the bombing was carried out by Galleanists (an anarchist group responsible for a series of bombings the previous year), the attack– which was a part of postwar social unrest, labor struggles and anti-capitalist agitation in the U. S.– was never officially solved.

    The aftermath of the explosion

    source

     

     
  • feedwordpress 08:01:47 on 2018/09/11 Permalink
    Tags: , , , economics, , , inequity, offshore, Ricardo,   

    “There are people who have money and people who are rich”*… 

     

    goldfinger

    Every January, to coincide with the World Economic Forum in Davos, Oxfam tells us how much richer the world’s richest people have got. In 2016, their report showed that the wealthiest 62 individuals owned the same amount as the bottom half of the world’s population. This year, that number had dropped to 42: three-and-half-dozen people with as much stuff as three-and-a-half billion.

    This yearly ritual has become part of the news cycle, and the inequality it exposes has ceased to shock us. The very rich getting very much richer is now part of life, like the procession of the seasons. But we should be extremely concerned: their increased wealth gives them ever-greater control of our politics and of our media. Countries that were once democracies are becoming plutocracies; plutocracies are becoming oligarchies; oligarchies are becoming kleptocracies.

    Things were not always this way. In the years after the second world war, the trend was in the opposite direction: the poor were getting richer; we were all getting more equal. To understand how and why that changed, we need to go back to the dying days of the conflict, to a resort in New Hampshire, where a group of economists set out to secure humanity’s future.

    This is the story of how their dream failed and how a London banker’s bright idea broke the world…

    The true story of how the City of London invented offshore banking – and set the rich free:  “The real Goldfinger: the London banker who broke the world.”

    * Coco Chanel

    ###

    As we agree that “fair’s fair,” we might spare a thought for David Ricardo; he died on this date in 1823.  A political economist, he developed a a labor theory of value in his seminal Principles of Political Economy and Taxation, published in 1817; he was instrumental in the development of theories of rent, wages, and profits; and at a time of mercantilist sentiment, he introduced the theory of competitive advance and advocated free trade.  Indeed, most economists rank Ricardo as the second most influential economic thinker working before the 20th century, after Adam Smith.

    220px-Portrait_of_David_Ricardo_by_Thomas_Phillips source

     

     
  • feedwordpress 08:01:34 on 2018/09/09 Permalink
    Tags: , , economics, , , , , small business,   

    “A buyer with disproportionate power”*… 

     

    Chickens are seen at a poultry farm at Hartbeesfontein, a settlement near Klerksdorp, in the North West province

    Imagine the farm that raised the chicken that produced the meat that sits in your sandwich: a few workers, thousands of birds, tens of thousands of pounds of white and dark meat, work that starts before dawn and ends after dusk, uncertain revenue, slim profits. There are thousands of these small farms in the United States, and they benefit from millions of dollars of taxpayer support each year.

    Chicken is America’s favorite protein, after all. Family farms are one of its most prized institutions. And farming is tough business. According to one estimate, a new, hangar-like chicken house costs something like $300,000 to build, and more to maintain and upgrade. “A farmer has to invest over $1 million just to get set up—a lot of debt to carry when you’re paid on average between 5 cents and 6 cents per pound of chicken produced,” Sally Lee of the Rural Advancement Foundation International-USA has found. Even when a chicken-growing operation is established, financial success is far from a sure thing. Given those realities—and given the American love for and support of the family farm—generous taxpayer subsidies seem not just sensible, but vital.

    But a government report released this spring calls into question whether all those family chicken farms are really family chicken farms, and whether those taxpayer dollars might be better spent elsewhere. The Small Business Administration’s inspector general looked at poultry growers, and found that many of them are tied-and-bound contractors—so controlled by their agreements with giant food corporations that they no longer act like independent entities. Why offer them taxpayer support meant for the little guy?…

    What your chicken dinner says about wage stagnation, income inequality, and economic sclerosis in the United States: “The Rise of the Zombie Small Businesses.”

    For a consideration of the effects of corporate concentration on wages: “More and more companies have monopoly power over workers’ wages. That’s killing the economy.”

    * Monopsony: 1) (economics) A market situation in which there is only one buyer for a product; also, such a buyer. [from 1930s] 2) (economics) A buyer with disproportionate power.  -Wiktionary

    ###

    As we cogitate on (real) competition, we might recall that it was on this date in 1947 that fabled computer scientist Grace Hopper (see here and here), then a programmer at Harvard’s Harvard’s Mark II Aiken Relay computer, found and documented the first computer “bug”– an insect that had lodged in the works.  The incident is recorded in Hopper’s logbook alongside the offending moth, taped to the logbook page: “15:45 Relay #70 Panel F (moth) in relay. First actual case of bug being found.”

    This anecdote has led to Hopper being pretty widely credited with coining the term “bug” (and ultimately “de-bug”) in its technological usage… but the term actually dates back at least to Thomas Edison…

    bug

    Grace Hoppers log entry

     

     
  • feedwordpress 08:01:44 on 2018/09/08 Permalink
    Tags: currency crisis, economic crisis, , economics, , , SEATO,   

    “You know what’s truly weird about any financial crisis? We made it up. Currency, money, finance, they’re all social inventions.”*… 

     

    napoleon curency

    First Argentina. Now Turkey. The next country to face a financial crisis could be any one of a slew of emerging-market economies that have grown dangerously dependent on borrowing in dollars and other foreign currencies.

    As of the end of 2017, corporations in emerging markets owed $3.7 trillion in dollar debt, nearly twice the amount they owed in 2008, according to the Bank for International Settlements. Analogies to 1997’s Asian financial crisis and Mexico’s “Tequila” crisis of 1994 abound. But the roots of emerging-market crises lie further back in the history books. In The Volatility Machine: Emerging Economics and the Threat of Financial Collapse, finance professor Michael Pettis urges us to look to Europe in the early 1800s, just after the end of the Napoleonic Wars. The financial conditions and innovations that gave rise to the first truly global crisis, in 1825, are in many ways similar to the conditions that have led Turkey and Argentina to their current precarious states…

    Learning from the past: “The global financial crisis of 1825 foreshadowed the problems of emerging markets today.”

    * Bruce Sterling

    ###

    As we contemplate cryptocurrencies as an alternative, we might recall tat it was on this date in 1955 that the Manilla Pact was signed, creating the Southeast Asia Treaty Organization (SEATO).  Intended as “an Asian NATO,” SEATO was a collective defense agreement aimed at stopping the advance of communism in the region.

    Despite its name, SEATO mostly included countries located outside of the region but with an interest either in the region or the organization itself: Australia, France, New Zealand, Pakistan (including East Pakistan, now Bangladesh), the United Kingdom and the United States; only the Philippines and Thailand were actually in the region.

    While SEATO-funded cultural and educational programs some long-standing effects in Southeast Asia, the alliance is largely considered a failure, as its military/defense mission never gelled.  In June of 1977, after many members had lost interest and withdrawn, SEATO was dissolved.

    220px-Flag_of_SEATO.svg

    The official flag of SEATO

     

     
  • feedwordpress 08:01:08 on 2018/07/29 Permalink
    Tags: , , economics, , , , , ,   

    “Apparently I lack some particular perversion which today’s employer is seeking”*… 

     

     

    Instead of looking at only the most common job in each state, I found the top five for a slightly wider view. You still see the nationally popular occupations — drivers, cashiers, and retail workers — but after the first row, you see more regional and state-specific jobs.

    The sore thumb in this picture is Washington, D.C., whose top five ordered by rank was lawyers, management analysts, administrative assistants, janitors, and, wait for it, chief executives…

    From Flowing Data: “Most Common Jobs, By State.”

    * John Kennedy Toole, A Confederacy of Dunces

    ###

    As we struggle to add the gainful to employment, we might recall that it was on this date in 1870 that America’s first asphalt pavement was laid in front of City Hall in Newark, N.J.  Edmund J. DeSmedt, the Belgian chemist who oversaw the work, had received a U.S. patent for this asphalt paving method two months earlier. Later that year, DeSmedt became the inspector of asphalt and cements for the District of Columbia, and oversaw wide application there.

    DeSmedt’s crews at work in D.C. in 1876

    source

     

     

     
  • feedwordpress 08:01:51 on 2018/07/10 Permalink
    Tags: , economics, Hand Rosling, , , Meghnad Desai, ,   

    “In a country well governed, poverty is something to be ashamed of. In a country badly governed, wealth is something to be ashamed of.”*… 

     

    moving-mountains

     

    In America, average income has been basically flat for five decades as economic gains increasingly go to a tiny minority at the top of the income bracket. But American wage stagnation is only a small part of a larger global story — one that is summarized in a fascinating new graph. Swedish statistics professor Michael Höhle put together a fascinating visualization of the distribution of incomes, adjusted for inflation, in Africa, the Americas, Asia and Europe between 1950 and 2015.

    It’s rare to find a data visualization with so much information in it. You could watch this over and over and over again and notice a new thing every time. Two big trends, for instance, are the increase in population in Asia over time, and the huge improvements in real income for Asians since 1950. Another less obvious trend is that European incomes more or less stopped gaining ground in the 1990s. Then there’s the disturbing thickening of African incomes on the left side of the graph starting around 2000, representing so many people who’ve been left behind by global economic growth…

    Höhle is visualizing date from Factfulness, the last book from the late (and dearly missed) Hans Rosling (see here, here, and here).  Read more at “A Fascinating Visualization Of How Income Has Changed Around The World Since 1950” and learn more of Höhle’s method here.

    * Confucius

    ###

    As we deliberate on distribution, we might send inclusive birthday greetings to Meghnad Jagdishchandra Desai, Baron Desai; he was born on this date in 1940.  An Indian-born U.K. economist and Labour politician, he is the first non-UK born candidate to stand for the position of Lord Speaker in the British House of Lords.

    220px-Official_portrait_of_Lord_Desai_crop_2 source

     

     
  • feedwordpress 08:01:02 on 2018/07/07 Permalink
    Tags: bitcoin, blockchain, cryptocurrency, economics, , Mike Maples, , , tragedy of the commons,   

    “Organizing is a process; an organization is the result of that process”*… 

     

    28265398367_88db0c4057_z

    19th century railroad stock offers were the cryptocurrencies of their time: confusing, risky… but with the promise of converting “old” wealth (mostly land riches) into the wealth of the future

     

    Many crypto enthusiasts are looking at blockchains as a way to correct the sins of the past (government over-reach, lack of sound money, expensive middlemen, centralized businesses, etc.)

    The truly important question should be way bigger than this: How can crypto-powered businesses create new types of abundance? How will blockchains drive our standard of living forward exponentially? How will we see the creation of tens of trillions in new value like we did with the stock market in the last 150 years?

    The answer lies in how crypto can transform the tragedy of the commons into the wealth of the commons…

    “Midas List” V.C. Mike Maples traces the provenance of cryptocurrencies and the blockchain from the railroad IPOs of the 1870s (which helped launch an explosion of global economic growth) through the work of Nobel laureate Elinor Ostrum to argue for crypto’s promise as a remedy to the Tragedy of the Commons: “Crypto Commons.”

    [Readers looking for an on-ramp to understanding crypto-tech and the blockchain may want to start with Steven Johnson’s blissfully-clear “Beyond the Bitcoin Bubble.”]

    * Elinor Ostrum

    ###

    As we address asset allocation, we might recall that it was on this date in 1936 that Henry F. Phillips received several U.S. patents for the Phillips-head screw and screwdriver– a system in which a matching driver with a tapering tip conveniently self-centers in the screw head.  Phillips founded the Phillips Screw Company to license his patents, and persuaded the American Screw Company to manufacture the fasteners.  General Motors was convinced to use the screws on its 1937 Cadillac; by 1940, virtually every American automaker had switched to Phillips screws.

     source

     

     
  • feedwordpress 08:01:08 on 2018/07/05 Permalink
    Tags: economics, , financial markets, , , , ,   

    “Optimism is highly valued, socially and in the market; people and firms reward the providers of dangerously misleading information more than they reward truth tellers”*… 

     

    43073849241_23eaff519b_z

     

    It’s been 10 years since the beginning of the Great Recession…

    Some of the more pessimistic commentators at the time of the credit crunch, myself included, said that the aftermath of the crash would dominate our economic and political lives for at least ten years. What I wasn’t expecting – what I don’t think anyone was expecting – was that ten years would go by quite so fast. At the start of 2008, Gordon Brown was prime minister of the United Kingdom, George W. Bush was president of the United States, and only politics wonks had ever heard of the junior senator from Illinois; Nicolas Sarkozy was president of France, Hu Jintao was general secretary of the Chinese Communist Party, Ken Livingstone was mayor of London, MySpace was the biggest social network, and the central bank interest rate in the UK was 5.5 per cent.

    It is sometimes said that the odds you could get on Leicester winning the Premiership in 2016 was the single most mispriced bet in the history of bookmaking: 5000 to 1. To put that in perspective, the odds on the Loch Ness monster being found are a bizarrely low 500 to 1. (Another 5000 to 1 bet offered by William Hill is that Barack Obama will play cricket for England. I’d advise against that punt.) Nonetheless, 5000 to 1 pales in comparison with the odds you would have got in 2008 on a future world in which Donald Trump was president, Theresa May was prime minister, Britain had voted to leave the European Union, and Jeremy Corbyn was leader of the Labour Party – which to many close observers of Labour politics is actually the least likely thing on that list. The common factor explaining all these phenomena is, I would argue, the credit crunch and, especially, the Great Recession that followed…

    The always-illuminating John Lanchester ponders what happened, why, and what we have– and haven’t– learned: “After the Fall.”

    [image above: source]

    * “However, optimism is highly valued, socially and in the market; people and firms reward the providers of dangerously misleading information more than they reward truth tellers. One of the lessons of the financial crisis that led to the Great Recession is that there are periods in which competition, among experts and among organizations, creates powerful forces that favor a collective blindness to risk and uncertainty.”   – Daniel Kahneman, Thinking, Fast and Slow

    ###

    As we do our best to learn from our mistakes, we might wish a spectacularly happy birthday to Phineas Taylor (“P.T.”) Barnum; he was born on this date in 1810.

    A sharp observer of the human condition, Barnum wrote and spoke frequently of characteristics that made “promotions” of the sort in which he specialized both possible and profitable:

    Nobody ever lost a dollar by underestimating the taste of the American public.

    There’s a sucker born every minute.

    In what business is there not humbug?

    Barnum came by his wisdom the round-about way: he founded and ran a small business, then a weekly newspaper in his native Connecticut before leaving for New York City and the entertainment business.  He parlayed a variety troop and a “curiosities” museum (featuring the ‘”Feejee” mermaid’ and “General Tom Thumb”) into a fortune…  which he lost in a series of legal setbacks.  He replenished his stores by touring as a temperance speaker, then served as a Connecticut State legislator and as Mayor of Bridgeport (a role in which he introduced gas lighting and founded the Bridgeport hospital)… It wasn’t until after his 60th birthday that he turned to endeavor for which he’s best remembered– the circus.

    “I am a showman by profession…and all the gilding shall make nothing else of me.”

    source: Library of Congress

     

     
  • feedwordpress 08:01:11 on 2018/06/28 Permalink
    Tags: economic impact, economics, , , interlocking alliances, military expenditures, , ,   

    “If we desire a society of peace, then we cannot achieve such a society through violence”*… 

     

    42909027092_7ace61a7cc_z

    We use data from the Global Peace Index 2018 report, which tries to put a figure on the expenditures and economic effects related to “containing, preventing and dealing with the consequences of violence”.

    According to the report, the economic impact of violence to the global economy was $14.76 trillion in 2017 in constant purchasing power parity (PPP) terms. This is roughly 12.4% of world gross domestic product (GDP), or $1,988 per person.

    While those figures themselves are quite staggering, how it all breaks down is even more interesting…

    42909027012_0bb016fb9f_z

    More chilling data at “The Economic Impact of Violence.”

    * Bayard Rustin

    ###

    As we pine for ploughshares, we might recall that it was in this date n 1914 that Archduke Franz Ferdinand of Austria and his wife Sophie were assassinated in Sarajevo… which precipitated Austria-Hungary’s declaration of war against Serbia… which triggered a series of interlocking alliances (that’s to say, which led the Central Powers, including Germany and Austria-Hungary, and Serbia’s allies to declare war on each other)…  starting World War I.

    42909027112_8423ea8028_o

    Franz Ferdinand, ca. 1914

    source

     

     
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