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Is information insensitivity a factor here? Most high rated bonds are dominated by the single variable of interest rates. Not so for blue chip equities. ETFs have helped equities here though. An asset with higher information insensitivity should command a higher price due to being more liquid. Long run returns don't matter one iota if the market is not forward looking enough, which in general it isn't, because if it was it would have priced
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"Yes. But interestingly, from what my commenters here tell me, there is no market in which Canadian dollars are traded for Australian dollars. First you sell your Canadian for US dollars, then you sell your US for Australian dollars. So the US dollar is itself a money to all the other monies." I very much doubt you couldn't sell canadian for GBP and then from there to AUS. If thats the case then what we have is a network graph in which not all nodes are connected and in which the US is more highly connected than others.
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"scepticus: it's always good to read someone really bright, who's coming at the old stuff from a totally different angle." Thanks:) I like to focus on really old stuff, just to put the really new stuff into perspective... That said, if that's my angle defined, how would you define yours? Either way, some counterpoints below: "1. Unlike other goods, it does not have a unique market of it's own. In a monetary exchange economy, *every* market is a market for money, and one other good. That's the medium of exchange aspect. 2. Unlike other goods, it *usually* does not have a price of its own. Other goods are usually priced in terms of money. That's the medium of account aspect. "This is somewhat complicated by having many monies (national currencies) isn't it? All monies today tend to be quoted in terms of other monies. "3. Unlike nearly all other goods, the benefits we get from holding a given quantity of money depend solely on the real quantity. i.e. what matters is M/P, not M. If you double the stock of money, and double all prices (i.e. halve the price of money), the benefits I get from holding it are exactly the same. That is because it's *only* use is as a medium of exchange. That's where the quantity theory of money comes from." Not if you have fixed income liabilities (or rather, fixed outgoing liabilities?) "4. Unlike nearly all other goods, and even though we talk about the benefits of "holding" money, if you only held it, and could never spend it, the benefits would be zero. " Not if you can earn a real rate of interest. Even if you never spend it before you die having more of it increases the feeling of security and one can pass it on to ones progency, so there's a biological imperative to it. "That's not true for other assets like houses and refrigerators. Again, that's because it is a medium of exchange. The benefits of holding an average quantity of money are like the benefits of holding an average inventory. The stock lets you have a different time-pattern of flows in and flows out." Might I suggest its actually because houses and refigerators have permanent negative carrying costs and money (here I am talking about bank deposits not paper cash) generally (according to popular opinion) does not. "5. The promise to pay money can itself sometimes be money." For sure, especially when it is guaranteed. I think a lot about the difference between so called base money and so called broad money if both are mostly nominal risk free thanks to FDIC. "There is no conceptual difficulty in paying either positive or negative rates of interest on paper money. (I'm not talking about paying interest on loans of money, I'm talking about the issuer of money paying positive or negative rates of interest to those who hold money)" Oh but there is, since negative real rates are widely loathed, and negative nominal rates are (as yet) simply beyond the pale. There is plenty of historical evidence for negative real rates, but none AFAIK fo rnegative nominal. Goods however all pay negative nominal rates due to carrying costs, but paradoxicslly can pay positive real rates at the same time. There is no such case for money AFAIK.
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Hey Nick, thanks for taking the time to read my scrawlings. That said, I'm not here to promote my blog so a question directly related to your post if I may. I realise its a metaphor, but lets stick with it. If the rabid greens really want a smooth steady GDP, surely they'd need to attach expiry dates to the permits? You want each months quota neatly consumed that month, or year, or whatever. I think you are saying that paper money can provide a high quality simulacrum of a real good, given appropriate conditions. Goods have carrying costs, shelf lives and so forth, so if you hold that paper money can successfully simulate a good by design or by and accident of mass human psychology, does that mean you think negative nominal rates, demurrage and so on are all very valid things for paper money? The heavy weight placed on the ZLB does make me wonder whether most economists believe their own models, or not.
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Nick, ledger entries are not goods, they are information, since there is no limit to the amount of ledger entries that can be made but there is a practical limit to the amount of goods and services that can exist. You have jumped from a case of 'the most marketable good' in a selection of physical goods, to 'paper money', which is just information, without acknowledging this fundamental alteration in the nature of money.
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Its a stretch to call our current form of money 'a good' when it is in fact just a piece of data. The data/goods distinction is important, money which is just data on electronic balance sheets is unlikely to behave in the same way as physical specie. [disclaimer - I'm not making value judgments here like a goldbug would, just pointing out something important] Regarding ripple, its not a standard monetary system because it has no money. It may have one or many units of account (in fact possibly as many units of account as there are arcs between nodes), but goods are transferred between parties which don't directly trust one another without any money changing hands. Basically, you and your friend grant each other a line of mutual credit up to some limit, and a network is built from said credit lines between trusted parties. Now goods can be exchanged between any two nodes which trace a path via trusted connections, like linkedin or something. After the goods have been exchanged the seller and buyer will have had their net credit/debit positions (e.g. their aggregated balance summed over all their connections) altered, and all the intermediary nodes will have simply adjusted the distribution of debt and credit between their connections without any net change in aggregate balance. Its quite simple really, and requires precisely no money to clear debts because money to clear debt between two trusting parties who know each other (like you and your mum) is not required, and debts only accumulate between pairs of trusting peers. So,not barter, but no money either.
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""Barter". I swap my apples today for your bananas tomorrow." Well, that's a case of swapping apples for a banana-note which is in theory tradeable. Then, there's ripple (http://en.wikipedia.org/wiki/Ripple_monetary_system) which doesn't fit your description of barter, but neither does it use money.
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"Bonds aren't as convenient for doing the shopping, so you have to pay a higher (real) rate of interest to get people to hold bonds. " I think that's at least partly wrong, since they (bonds) are more convenient for saving compared to cash or bank deposits. If you have a very large sum to deposit, say a few tens of million, cash is a very bad deal and bank deposits are not insured above a few tens or hundreds of K. Given that the average dollar remains immobile most of the year that suggests to me that saving convenience wins in aggregate over shopping convenience. Further, I can quite easily sell all my bonds tomorrow - they are totally liquid. If they are all short duration I likely won't be in any danger of major loss due to changing inflation expectations. In any case, the danger of loss is compensated by the fact I can earn a multi-year duration interest rate but still sell out whenever I like.
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"What are the implications of monetary exchange for the equilibrium level of employment? Compared to what?" There is a level between barter and money, which is debt. If barter is defined as direct exchange of goods with no deferred payment, then what do we call direct exchange of goods *with* deferred payment and not using money? Tally sticks existed long before people made exchanges using gold. I think the answer depends very much on the extent to which a single medium of exchange encompasses large numbers of people and the degree to which those people's skills are interchangable. Monetary exchange is not a binary function - you have it, or not. Its a continuum from localised debt/barter/rent/money relationships such as found in the manorial system of the high middle ages (and of course much earlier), right through to today. Network effects, basically. Scale free or linear? I guess I see money as a process (a social one) that arises from social networks and social change, not as a force that shapes them. I reckon the demographic issues stacking up over the next few decades will validate this view. How far back in time must one go until one finds no lack of AD?
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"*Any* theory that tries to explain unemployment as resulting from deficient aggregate demand *has* to recognise the central role of monetary exchange, in my opinion. " One could take a different angle on the same problem and speculate what the implications of permanent full employment would be on an economy using money for exchange.
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I'm not sure why a central bank would particularly want a non-zero interest rate. I don't think a non-zero interest rate is compatible with deposit insurance over the long run. Various economists and commentators have made this key point. If a CB had to choose between deposit insurance and a non-zero interest rate, I would imagine they'd pick the former. And they have! If the only way to have a zirp equilibrium is a peak debt situation, then so be it.
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It seems to me what matters in the new/old dollar debate is the debt that is denominated in the two that is held by the private sector. Really for government issued fiat to have value in a peacetime situation the private sector needs to have a good deal more total debt in that currency than the government has. I'm not sure you could easily introduce a new currency into a situation in which total private debt is very low. Hypothesis: There are no examples of hyperinflations that occurred when the private sector was much more indebted to itself than the government was indebted to the private sector regardless of percentage-of-gdp values? I suspect but don't have any evidence that zimbabwe, argentina and hyperinflations in earlier centuries probably fit this hypothesis.
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The problem with currency reform is that you really can't do it unless all the other nations also do it, at least if one plans to keep freely floating exchange rates without very significant capital controls. After all, when the FED prints dollars it doesn't just affect demand in the US does it? Perhaps all fiat currencies are destined to end up at zirp and if so then I would say that at that point they'd all merge more or less into one, but with many hands on the printing press. And if we're talking capital controls and all that jazz, then its not just currency reform is it...
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You can download his book 'Phenomenon of Man' here: The blurb: "The Phenomenon of Man (Le Phénomène Humain, 1955) is a non-fiction book written by French philosopher, paleontologist and Jesuit priest Pierre Teilhard de Chardin. In this work, Teilhard describes evolution as a process that leads to increasing complexity, culminating in the unification of consciousness. The book was finished in the 1930s, but was published posthumously in 1955. The Roman Catholic Church considered that Teilhard’s writings contradicted orthodoxy and prohibited their publication. With the development of a complex Internet-based global society, some have argued that The Phenomenon of Man contains many insights that have proven prescient.[1]" Of course, there is also a wikipedia page: http://en.wikipedia.org/wiki/Pierre_Teilhard_de_Chardin
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Not all recent visions of the future are dystopian. Are you familiar with Pierre Teilhard de Chardin? Not a question for a serious economist of course, but maybe one for a science fiction fan.
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Jodi, what are your views on the notion of the bicameral mind views of Julian Jaynes and McGilchrist in relation to the type of thought you express here: "Each believes what he or she says. It's harder to fight against an adversary who believes in their cause--and I think that is what we are up against." What do zizek and Lacan have to say about the bicameral mind?
Toggle Commented Jan 18, 2011 on Who's cynical, anyway? at I cite
Walter et al, all life has tendency towards centralism. That is what life is. Life temporarily defies entropy by a process that we could term as centralism, but is better described as an attempt to persist. An entity, either a single biological entity or a collection of the same is not going to persist versus entropy by decentralising. And for the avoidance of doubt, reproduction is not decentralisation. If gravity is actually an expression of entropy, as leading physicists are now suggesting, then gravity's centralising tendency is both the reason for life to exist and also threatens its ultimate extinction (following which, by the logic of Einstein, it would be born again). A reduction in the degree of separation due to an increase in network connectivity seems to me to permit more distinct/distinguishable central nodes to exist. But the decrease in centralisation that implies is offset by the increase in centralisation represented by the network as a whole. Isn't a decline in symbolic efficiency equivalent to a rise in the number of relevant central nodes/attractors?.
I take your point about technology and psychology, ultimately culture, collective psychology and technology have a recursive relationship. Sometimes culture might lead technology and sometimes vice versa. In this case, a very sudden increase in communication bandwidth and latency leads to a cultural response. It can happen the other way round too. As for what's just, perhaps you could suggest to whom asset yields should be due, and what would prevent the sector this chosen from selling their assets, thereby leading to a sustained price increase in said asset until the yield be as close to zero as the carrying costs and risk premium allows?
Jodi, I would say that HFT is a phenomenon of technology, not psychology. If you connect market players together with high bandwidth (and crucially, low latency) communication technology then HFT is the obvious result. But ultimately, HFT is a red herring. The natural outcome of markets left to themselves is to ensure that yields are depressed as near to zero as they possibly can be, which is achieved by price increases of the assets being traded such that the income they provide as a fraction of their face value is minimised. It is also an outcome of increased volume and participation, which is mostly provided by the pension and insurance industries. So with or without HFT, markets in conjunction with credit mechanism, will always depress yields and increase prices to the maximum degree that is afforded to them by the technology in place. Ultimately this is a just and fair outcome (at the equilibrium point if not on the approach to it), since assets only have high yields because of the arbitrary scarcity of money or other arbitrary rules that end up conferring a yield/rent on some favoured sector of society. More here: http://liminalhack.wordpress.com/2010/11/02/let-there-be-money/
Hello Jodi, I recently finished reading your Blog Theory - great stuff, communicative capitalism and all that. Pretty much on the mark IMO, apart from your extrapolation of the extant economic status quo into the future. Your points above about income inequality and security are well made, but I don't foresee this state of affairs, essentially transitory in the big scheme of things, as an equilibrium. Perhaps I could provide a few links to explain: http://liminalhack.wordpress.com/2010/11/01/the-fiat-solution/ http://liminalhack.wordpress.com/2010/11/04/water-water-everywhere-not-a-drop-todrink/ http://liminalhack.wordpress.com/2010/11/08/the-philosophers-stone/ http://liminalhack.wordpress.com/2010/11/22/sublimation/ http://liminalhack.wordpress.com/2010/12/22/inversions-1/ Much to read there, though I'll hazard that it's lighter and shorter than Blog theory! I think its important for the leftist professoriat (as I recall some wag recently labelled you) to take a somewhat longer term view of the economic impact (vis a vis returns to labour vs capital and wealth/income inequality) of the distributional impact of population ageing and the phenomenon of peak debt. Peak debt, which is,as I argue in the links above, a stable equilibrium (especially in the context of communicative capitalism), and what's more, an equilibrium that favours reduced inequality, not more. Patience is of course the essence, but patience in the age of communicative capitalism is extremely scarce - even amongst the leftist professoriat it seems. Best, Scepticus
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Jan 13, 2011