Pandemics can't be stopped with monopoly bills

2BInTO said:

Government debt is a serious issue. 'Paid' is past tense. This is a discussion about the future. The EU owns their own printing press so they are fiscally sovereign.

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The EU doesn't have an overarching governmental authority over the ECB, so they are not monetarily sovereign. And each country is limited by the terms of the Maastricht Treaty, too. That's why you are hearing about ECB actions to address economic problems, and not so much from the individual governments themselves. It's like when the Fed takes whatever actions it can to help, when what is really needed is for the federal government to deficit spend us through this recession.

Gimmesometruth said:

Good grief....

Monetary and fiscal actions are being implemented to mitigate the recession.

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What recession? We don't know the economic impact. We know people can't work so they can't pay rent and buy food. People need relief. Certain businesses may need relief. Blank checks across the board to corporate america may not be required and short demand shocks should be contemplated by prudent well capitalized companies. Big bailouts drive the debt up and could put strain on the USD- this is a valid issue. Sentiment is the driving force but how far should that go. The stock market should be able to go down not just up.

TheEconomist said:

Any sufficiently liquid asset is money. Depending on where you draw the line for that, you can include more or less stuff.

Of course, all such assets may become illiquid at some point in time, though I wouldn't exactly worry about the USD becoming illiquid anytime soon. For starters, as long as the government collects taxes in dollars, you have at least some use for it. More to the point, we know that in sufficiently harsh times, it is possible to increase the supply of money a lot without causing even mild inflation. That isn't a theoretical conclusion, but an empirical fact: it's possible because it happened about 10-12 years ago. We also know for a fact that if we are disposed to eat our socks, even high inflation rates can be killed because, again, that happened across North America and Europe in the 1980s and 1990s.

But for some reason, there are people who think that there is something "more real" about a lump of gold than about paper money or its digital format. This is incredibly puzzling to me since gold as a medium of exchange would nonetheless rest on a social convention. More to the point, what exactly would make a social convention any less real than something you touch?

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The heart of the economic problem is liquidity. This was the problem at the GFC, this has been the issue with anemic growth since then. Furthermore, inflation was absolutely evident in rapid expansion of the money markets. And taming runaway inflation or even the modest inflation seen in the 70's isn't that easy, austerity sucks. Ask Greece.

Why has China and Russia been huge stores of buying gold? Why are the Chinese and Russians buying oil in currencies other than the USD?

Ahlevah said:

Haven't you heard? Neo-classical economics died when Herbert Hoover left office and Keynesian economics is on its deathbed. All hail MMT! :lol: Japan is the guinea pig for this line of thinking, and so far I'm not impressed. Now we seem to be joining the club. I mean, my stocks are going back up--for the moment, but, yeah, I agree that some day all of this debt is just going to come crashing down on our heads. When that happens is anyone's guess.

A short rundown of the Japanese version of Modern Monetary Theory: Run up huge fiscal deficits building infrastructure and paying pensions to old folks until your national debt exceeds 2.5 times your GDP. Don't worry about the debt, because your Ministry of Finance can just float bonds and sell all of them, if necessary, to the Bank of Japan. The Bank of Japan can then swap the bonds for dollars or issue yen to trade with other central banks for the foreign currency it needs and still have a currency thought by foreign traders/investors to be a "safe haven." Japanese banks dealing with negative interest rates can swap yen for dollars by discounting them and then investing in dollar-denominated assets, AT LEAST until the Federal Reserve pulls the rug out from under them and lowers its Fed funds rate to zero. European and Japanese banks could make money on yen/dollar or euro/dollar interest rate spreads, but that will prove problematic in an environment where a 10-year Treasury pays 0.80% interest. One would think it's more difficult for foreign banks to do much discounting to entice American banks to engage in swaps agreements in such an environment, but then what do I know? I'm not a banker.

In the meantime, the remedy? Possibly even more debt:



I don't see this ending well in the long run. It could, I suppose, go on for many more years, as it has already, with the Japanese economy limping along under the burden of massive public debt. But I wouldn't be a big purchaser of yen at this point. And if foreigners decide to stop buying yen the drop could be steep and swift. Central banks that have tried to manipulate the value of their currencies in the FOREX markets generally haven't succeeded for long, but only time will tell if this time it's different.

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Nice summary. Isn't it strange how heavy hitting traders are betting on Japan though?

TheEconomist said:

But for some reason, there are people who think that there is something "more real" about a lump of gold than about paper money or its digital format. This is incredibly puzzling to me since gold as a medium of exchange would nonetheless rest on a social convention. More to the point, what exactly would make a social convention any less real than something you touch?

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In history, there are a total of zero cases of fiat currency surviving. Just look at the British pound not so long ago. The USD end game is a real concern.

TheEconomist said:

Then, you misread me. I meant to say that absolutely nothing has intrinsic value. You have a market for gold, you have a market for currencies, each with actors making choices from both sides of the market.

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Cute, but what? 'intrinsic': part of something. value as physically part of something. fiat as in something out of nothing.

Cordelier said:

Got news for you... pandemics can't be stopped. Period. All of this isolation business is just to slow the spread of the virus. About 70%+ of the population is going to end up getting this thing. That's already in the cards. What's not in the cards is when we get it. If we all get it at one time, that's obviously going to swamp the healthcare system and a lot of people are going to die who don't have to... but if we can spread it out over a longer time period, then the healthcare system at least has a fighting chance to keep up. Or at least not get swamped any more than it has to.

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With you except, this is a tragic question of perspective. The flu causes 50k deaths annually. Poverty and despair causes death. This is tragically a lives vs lives issue.

JohnfrmClevelan said:

The EU doesn't have an overarching governmental authority over the ECB, so they are not monetarily sovereign. And each country is limited by the terms of the Maastricht Treaty, too. That's why you are hearing about ECB actions to address economic problems, and not so much from the individual governments themselves. It's like when the Fed takes whatever actions it can to help, when what is really needed is for the federal government to deficit spend us through this recession.

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You're being cute. The EU and ECB work in concert. As does the US Fed and US gov't.

2BInTO said:

You're being cute. The EU and ECB work in concert. As does the US Fed and US gov't.

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No, I'm being accurate. The U.S. govt. sits atop the hierarchy, as does the U.K. govt., the Australian govt., the Japanese govt., etc. There is no govt. that can direct the ECB. That's part of the whole unfortunate plan.

A monetarily sovereign nation can decide to run deficits as they please. EU nations cannot.

Wynne Godley * Maastricht and All That * LRB 8 October 1992

2BInTO said:

In history, there are a total of zero cases of fiat currency surviving. Just look at the British pound not so long ago. The USD end game is a real concern.

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Actually, global markets beg to differ with you on account that dozens of such currencies are still in circulation.

2BInTO said:

Cute, but what? 'intrinsic': part of something. value as physically part of something. fiat as in something out of nothing .

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Value is something we, human beings, attribute to objects. Value is not a physical fact, there for all to see. It is a social phenomena, something which arise in markets. You can go take a stroll outside and look as much as you want. The value of a tree will not manifest itself to you until you bring it to a market and see what anyone is willing to give up in order to acquire the tree. As I said, nothing is valuable in itself.

And fiat doesn't mean something out of nothing. A fiat is a formal authorization, a decree. US dollars are traded in markets and they are valuable merely and simply because market participants believe they can use them in transactions. You should notice that in spite of the old age of the social convention surrounding gold, the exact same thing is true of gold. Of course, you can always make jewels out of gold, but you can also always pay taxes in the US out of USD. To be fair, they're not identical: it is hell of a lot costlier for an entire economy to use gold as a numéraire and store of value than it is to use USD. If fiat currencies did not exist and societies worldwide were using only silver and gold, markets would invent them.

As I said, all I see here is someone who has a libertarian bend, complaining because the government controls the supply of money, but not the supply of gold.

2BInTO said:

Furthermore, inflation was absolutely evident in rapid expansion of the money markets.

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Inflation has an unambiguous definition: it's the rate at which prices indexes grow. It's a macroeconomic concept and it refers to an economy-wide phenomenon. If what happens in money markets doesn't show up in price indexes, it's not inflation -- by definition. It's as simple as that. On a broader level, it's also what matters for ordinary Joes and Janes: do groceries cost more? Does gas cost more? Does the rent cost more? The answer is that a basket of those things didn't cost more, even though the monetary base expanded 3 folds. Anyone who predicted rampant hyperinflation should take a colde hard look in the mirror: their theory was off by a very, very large factor.

Notice it didn't shock most economists, in spite of important limitations in the modeling of financial markets in macro-financial models.

JohnfrmClevelan said:

No, I'm being accurate. The U.S. govt. sits atop the hierarchy, as does the U.K. govt., the Australian govt., the Japanese govt., etc. There is no govt. that can direct the ECB. That's part of the whole unfortunate plan. A monetarily sovereign nation can decide to run deficits as they please. EU nations cannot.

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Japan racked up quite the debt. I don't know enough about the details to talk about whether or not there are adverse consequences to it. However, it's pretty damn clear it didn't force the value of japanese fixed income instruments to plummet. As Kurgman would say, the bond vigilentes didn't turn on Japan with almost twice the debt to GDP ratio of the US. Back in the financial crisis, the Federal Reserve Board increase the monetary base about 3 folds and, the inflation rate on the CPI and other related measures, as well on industrial indexes, stayed abnormally low for about 4 years.

If you have a theory that allows neither of these things to happen and you use it to talk about government debt or fiat currency, that's a huge problem.

TheEconomist said:

Actually, global markets beg to differ with you on account that dozens of such currencies are still in circulation.

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Yes but for how long. that is the question

TheEconomist said:

Value is something we, human beings, attribute to objects. Value is not a physical fact, there for all to see. It is a social phenomena, something which arise in markets. You can go take a stroll outside and look as much as you want. The value of a tree will not manifest itself to you until you bring it to a market and see what anyone is willing to give up in order to acquire the tree. As I said, nothing is valuable in itself.

And fiat doesn't mean something out of nothing. A fiat is a formal authorization, a decree. US dollars are traded in markets and they are valuable merely and simply because market participants believe they can use them in transactions. You should notice that in spite of the old age of the social convention surrounding gold, the exact same thing is true of gold. Of course, you can always make jewels out of gold, but you can also always pay taxes in the US out of USD. To be fair, they're not identical: it is hell of a lot costlier for an entire economy to use gold as a numéraire and store of value than it is to use USD. If fiat currencies did not exist and societies worldwide were using only silver and gold, markets would invent them.

As I said, all I see here is someone who has a libertarian bend, complaining because the government controls the supply of money, but not the supply of gold.

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'intrinsic value'. you are not connecting the dots between the two words. it's clear that you understand value. and i can see that google can provide a solid definition first definition of intrinsic but there are several definitions. for instance Websters: 1a: belonging to the essential nature or constitution of a thing eg. the intrinsic worth of a gem. funny how they used a gem as an example isn't it.

Honestly, are you arguing that gold doesn't have intrinsic value in the context of a discussion about gold and fiat currency. i think everyone understood what the poster intended.

TheEconomist said:

Inflation has an unambiguous definition: it's the rate at which prices indexes grow. It's a macroeconomic concept and it refers to an economy-wide phenomenon. If what happens in money markets doesn't show up in price indexes, it's not inflation -- by definition. It's as simple as that. On a broader level, it's also what matters for ordinary Joes and Janes: do groceries cost more? Does gas cost more? Does the rent cost more? The answer is that a basket of those things didn't cost more, even though the monetary base expanded 3 folds. Anyone who predicted rampant hyperinflation should take a colde hard look in the mirror: their theory was off by a very, very large factor.

Notice it didn't shock most economists, in spite of important limitations in the modeling of financial markets in macro-financial models.

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What price index? The S&P 500 is a price index isn't it?

So money markets don't matter to Joe and Jane?

Who said anything about hyper inflation? That's a totally different animal.

TheEconomist said:

Notice it didn't shock most economists, in spite of important limitations in the modeling of financial markets in macro-financial models.

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I can count the number of times economist get it right on one hand.

2BInTO said:

Nice summary. Isn't it strange how heavy hitting traders are betting on Japan though?

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Of course, if the Japanese had to start buying dollars in the Forex markets during this crisis it would probably be a different story, with traders fleeing the yen as it dropped against the dollar. But they have our central bank, the Federal Reserve, as a backstop, willing to supply them as many dollars as they need to prop up their own their own banking system and supply liquidity to their economy. These economists and bankers think they have it all figured out. For the time being, maybe they do. It's what comes later that worries me.

Ahlevah said:

Of course, if the Japanese had to start buying dollars in the Forex markets during this crisis it would probably be a different story, with traders fleeing the yen as it dropped against the dollar. But they have our central bank, the Federal Reserve, as a backstop, willing to supply them as many dollars as they need to prop up their own their own banking system and supply liquidity to their economy. These economists and bankers think they have it all figured out. For the time being, maybe they do. It's what comes later that worries me.

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I don't get it. How does a desperate supply of foreign currency make investing in Japanese business attractive to big fund managers?

2BInTO said:

I don't get it. How does a desperate supply of foreign currency make investing in Japanese business attractive to big fund managers?

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Well, if you know the companies you're investing in will have access to capital and that the currency won't drop like a rock, isn't that favorable for investing in the country?

Asia Stocks Bask in Best Day in 11 Years Buoyed by Fed Move

Ahlevah said:

Well, if you know the companies you're investing in will have access to capital and that the currency won't drop like a rock, isn't that favorable for investing in the country?

Asia Stocks Bask in Best Day in 11 Years Buoyed by Fed Move

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mmm... i guess it can't hurt. some heavy hitting fund managers gave a big thumbs up to japan LAST YEAR. access to capital is important for growth for sure but i don't think that stability is assured in any way. definitely not by a wavering USD anyway. there must be more to it.

2BInTO said:

mmm... i guess it can't hurt. some heavy hitting fund managers gave a big thumbs up to japan LAST YEAR. access to capital is important for growth for sure but i don't think that stability is assured in any way. definitely not by a wavering USD anyway. there must be more to it.

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What heavy hitters are you referring to? If they're publicly-traded funds, I hope they would have given some basis for their thesis for buying Japanese stocks. Most of the commentary I've seen is reflected in the idea that Japanese companies are cheap on a relative, fundamental basis. And there may be some merit in that argument, although we know from history that cheap can remain cheap for years or even decades. But if not for the prospect of coordinated central bank action and various swap arrangements, I wonder how enthusiastic foreigners would be for Japanese stocks.

Morgan Stanley, JPMorgan See Japan Stocks as Cheap, Under-Owned

2BInTO said:

Yes, but for how long. that is the question.

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The thing is that you cannot declare them to have failed as a fact prior to observing the fact.

2BInTO said:

What price index? The S&P 500 is a price index isn't it? So money markets don't matter to Joe and Jane? Who said anything about hyper inflation? That's a totally different animal.

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The S&P500 isn't the kind of price index we have in mind when we talk about inflation. I know that you have some background in economics, so I'm going to assume you have some idea of what a simple DSGE model looks like. Typically, you have a representative household (think about it as modeling what an average household does) and that household consumes a basket of goods (in contemporary models, you have an entire continuum of goods which we aggregate). In that model, the price level is the price of that consumption basket and, the inflation rate, is the rate at which this price level grows.

Now, this is an abstraction and it simplifies a lot of details we find in the real world, just like any theory, including informal theories we don't spell out in as much details as DSGE models. So, what's the closest you can get to measuring something that can reasonably map into the theoretical idea of what is inflation? We have an entire array of price indexes defined on consumption baskets. Unless otherwise stated, that's usually what we use. You could also define the price level implicitly using a Fisher index for measuring real changes production volumes, from which series of real chained dollars production can be obtained. Then, you just note that nominal GDP (GDP at market prices) is real GDP times the price level, so whatever is the missing factor here can be used as price index for the entire economy. That's the GDP deflator.

In short, you need something that bundles enough of what people buy into a single price to be able to get to what is the price level of the economy and the rate of change in that price level is the inflation rate. That's exactly what we mean when we talk about inflation without further qualification. To be entirely fair, you can talk about inflation in the S&P500 market by analogy to how we talk about inflation in the entire economy, but when you read an economist saying "inflation" without qualification, it means economy-wide price increases are concerned.


And the details of what happens in the money market may or may not matter for Joe and Jane. I said that if it doesn't affect what they pay or what they earn, it doesn't matter much to them.

TheEconomist said:

The S&P500 isn't the kind of price index we have in mind when we talk about inflation. I know that you have some background in economics

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I think he is inflating his background in economics. A person claiming to have a degree in economics confuses stock indices with price indices? :bs

Kushinator said:

I think he is inflating his background in economics. A person claiming to have a degree in economics confuses stock indices with price indices? :bs

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yeah, i don't think this commentary is helpful. you have plenty of other outlets to get your laughs.

TheEconomist said:

To be entirely fair, you can talk about inflation in the S&P500 market by analogy to how we talk about inflation in the entire economy,

...

And the details of what happens in the money market may or may not matter for Joe and Jane.

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with respect


are we trying to understand each other? or our we trying to educate others by flexing our brain power? you can display great understanding and you connect with more people when the message is simple and understandable.


think about it

Kushinator said:

I think he is inflating his background in economics. A person claiming to have a degree in economics confuses stock indices with price indices? :bs

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I don't exactly what to respond to that. I realize by your reaction that I might have came off as very condescending. It wasn't my intention. I am not exactly very good with this, but that's on me and I apologize if I polluted the discussion.

For the record, I didn't make a mistake by referring to the S&P500 as a price index. I'm sure you wrote this in a hurry and it happens to everyone, but it's a weighted average of prices on individual stocks. I was talking about the price level and inflation, but 2BInTO talked about the S&P500 and, in all fairness to him, I had to point out it is indeed a price index. Its rate of change is not measuring what we usually mean by inflation, but it is a price index nonetheless.