Perspectives on the global economic changes

[Austin]

found it on Saurav Jah Blog

Gold its past & future an in-depth analysis

[Austin]

http://money.cnn.com/2015/04/01/news/ec ... index.html

Inclusion in the the IMF's currency basket would lend significant prestige to the yuan, which is being used more and more frequently to execute international transactions and payments.

Christine Lagarde, managing director of the IMF, has struck a more conciliatory tone on the issue, acknowledging during a March visit to China that Beijing would like the yuan to be included in the basket.

"We welcome and share this objective, and we will work closely with the Chinese authorities in this regard," Lagarde said.

[panduranghari]

Austin saar,
What use is SDR? Only for accounting. Not for settlement.

Its like you work for me and I say I will give you 3 plastic pieces. The 3 plastic pieces in my opinion mean 300 Rupees. In your opinion they do not mean anything. So you accept the 3 plastic pieces but at some stage you would want the proper 300 rupees. How long will you be happy with the 3 plastic pieces?

added later- also the west knows their currencies are destined for the dustbin. They need to keep the charade going. The Chinese leadership wants to stay in power in perpetuity. They may go with this if Yuan is accepted into SDR basket. But the time will come when that SDR will mean nothing. We won't be any better off than what we are today.

[chanakyaa]

1.0 March 2015

MONETARY REFORM: A BETTER MONETARY SYSTEM FOR ICELAND

<snip>
Abstract

This report is a study of monetary problems in Iceland and in what part they may be caused by the current monetary mechanism, the fractional reserve system.
There is indication that the fractional reserve system may have limited the Central Bank's ability to control the money supply while giving banks both the power and incentive to create too much money. Indeed, commercial banks expanded the money supply nineteen-fold in the fourteen year period that ended with the banking crisis of 2008.

There is also indication that the fractional reserve system may have been a long term contributing factor to various monetary problems in Iceland, including: hyperinflation in the 1980s, chronic inflation, devaluations of the Icelandic Krona (ISK), high interest rates, the government foregoes income from money creation, and growing debt of private and public sectors.

Economists have long been aware of the problematic nature of the fractional reserve system and proposed various reforms. A program for monetary reform by Fisher et al in 1939 received the support of 235 economists from 157 universities and colleges but was not imple- mented. This report reviews some of the more frequently mentioned proposals for monetary reform: 100% Reserves, Narrow Banking, Limited Purpose Banking and describes in detail the Sovereign Money proposal.

In a Sovereign Money system, only the central bank, owned by the state, may create money as coin, notes or electronic money. Commercial banks would be prevented from creating money.

This report describes how such a Sovereign Money system could be implemented and what steps would be required for a successful transition.
...
</snip>

[Neshant]

[panduranghari]

1.0 March 2015

MONETARY REFORM: A BETTER MONETARY SYSTEM FOR ICELAND

<snip>
Abstract

This report is a study of monetary problems in Iceland and in what part they may be caused by the current monetary mechanism, the fractional reserve system.
There is indication that the fractional reserve system may have limited the Central Bank's ability to control the money supply while giving banks both the power and incentive to create too much money. Indeed, commercial banks expanded the money supply nineteen-fold in the fourteen year period that ended with the banking crisis of 2008.

There is also indication that the fractional reserve system may have been a long term contributing factor to various monetary problems in Iceland, including: hyperinflation in the 1980s, chronic inflation, devaluations of the Icelandic Krona (ISK), high interest rates, the government foregoes income from money creation, and growing debt of private and public sectors.

Economists have long been aware of the problematic nature of the fractional reserve system and proposed various reforms. A program for monetary reform by Fisher et al in 1939 received the support of 235 economists from 157 universities and colleges but was not imple- mented. This report reviews some of the more frequently mentioned proposals for monetary reform: 100% Reserves, Narrow Banking, Limited Purpose Banking and describes in detail the Sovereign Money proposal.

In a Sovereign Money system, only the central bank, owned by the state, may create money as coin, notes or electronic money. Commercial banks would be prevented from creating money.

This report describes how such a Sovereign Money system could be implemented and what steps would be required for a successful transition.
...
</snip>

Uday M saar,

What they are recommending is 100% reserves. How will that work? Won't it lead to bone crushing deflation? Shouldn't money be in unrestricted amount? Not too much and not too little? Can a square peg be fitted into a round hole?

[Austin]

Austin saar,
What use is SDR? Only for accounting. Not for settlement.

Its like you work for me and I say I will give you 3 plastic pieces. The 3 plastic pieces in my opinion mean 300 Rupees. In your opinion they do not mean anything. So you accept the 3 plastic pieces but at some stage you would want the proper 300 rupees. How long will you be happy with the 3 plastic pieces?

added later- also the west knows their currencies are destined for the dustbin. They need to keep the charade going. The Chinese leadership wants to stay in power in perpetuity. They may go with this if Yuan is accepted into SDR basket. But the time will come when that SDR will mean nothing. We won't be any better off than what we are today.

What you say is also true , I doubt US would want Renminbi to be in SDR basket they dont want any more competition beyond Euro but even then US remains miles ahead in international transaction versus Euro if memory serves me right.

China Economy is growing and they have big internal market so eventually if IMF gets SDR right to Renminbi it would become a strong contender to USD surpassing Euro and US would like to delay that as much as possible.

I think among all the probables Gold effectively remains stronger option even if Fiat currency exists in some form in future. It wont do harm countries to keep 40 % of Forex in Gold in their own country

[Austin]

Boom Bust, Fed edition https://youtu.be/Z0u2TzNxVJc
Boom Bust, Fed Edition (Part II) https://youtu.be/edqx_MI1wR8

[panduranghari]

x post

[ldev]

^^^^
Good interview. He has expounded on the basics of running a balanced economy. He says not to rely on FDI given the "coming storm" because of the unresolved global debt overhang but to develop a balanced local economy with the benefit of productivity growth being passed on as wages which in turn will give rise to demand. But the fact is that something has to be interjected to take the consumption > demand > production > investment > wages cycle to a higher level. What China did is create a world factory floor such that domestic demand was increased via those factory jobs and then subsequent investment did not need FDI. In fact China is now the biggest exporter of capital in the world. Also given my belief that we are now at the peak of this global debt supercycle, any tentative domestic virtuous cycle that India has going will be bound to be disrupted long before the country reaches "middle income" status, which is what should be the immediate target. The Chinese strategy was to turbocharge the cycle in the short term and it has worked for them because they began when the global debt supercycle was still in its infancy. Today they could not care less if it bursts or at least it will not hurt them as much as it will hurt India.

But Mr. Mulay definitely understands the macro picture.

I also like his comment where he says that in his opinion, the golden age of capitalism for the US was 1950-70 when increases in productivity were passed on as wages to employees resulting in an increase in consumer demand and creating the mass consumer society that the US became. And changes in electoral laws in 1970 which turned mass capitalism into crony capitalism thereafter and the subsequent decline of US industrial power.

[Neshant]

The only way to prevent the rise of crony capitalism in India as it has risen in the US is to NOT have these guys sitting in ivory towers controlling the monetary system. Inevitably they delude themselves into thinking they know what's going on in the economy and what ails it. They begin fiddling with interest rates (i.e. price fixing) and money printing (i.e. counterfeiting) and that destroys the productive economy.

In the terminal stages of crony capitalism as we see in the US, private banking crooks control politicians and fund their election to power. In return, the corrupt politicians offload the losses of these private banks onto the backs of the productive economy. All along ex-employees of these private banks are packed into govt and the system is then infested with corruption.

The more banking and wise men sitting in ivory towers "guiding" the economy, the worse off the nation will be.

[Austin]

x post

Very Nice Interview , Not the usual MSM type person Apekshit is but has good clarity of thinking and is a Maharashtrian boy

Some of the points I could gather , Not very fluent in Marathi but understand is well enough to make a living in Mumbai

1 ) He is not for Made in India but Make for India giving Ireland as example
2 ) Knows the issue of Debt and warns india not to opt for Growth Model based on Debt ( which makes me wonder if our 120 % Debt is an issue )
3 ) Wants eventually wants our rupee to be backed by Gold
4 ) Mentions 7 years cycle and says 2015 would be the year when market would fall again and this time it would be far bigger then previous crisis.
5 ) Mentions about Repo Rate should not be reduced by RBI as many are demanding
6 ) Call US as CronyDemocracy or was it Corporate-Democracy does not want india to follow that model

[Austin]

The more banking and wise men sitting in ivory towers "guiding" the economy, the worse off the nation will be.

Do you know Banking system of any other country that does not do it ?

[hanumadu]

4 ) Mentions 7 years cycle and says 2015 would be the year when market would fall again and this time it would be far bigger then previous crisis.

The world is barely coming out of recession, heck some countries may be still in recession or very low growth. I wonder what would nations do if there is a recession again this year or next year in spite of all the QEs. More QEs? There must be some consequences for all the QEs. But I don't think there will be a recession though this year because of the low interest rates and the QEs. At least the big names in tech are profitable unlike the dot com bubble. People have saved and not spent much after the last recession. So, there is money to spend. The 7 year cycle might be just a little longer this time.

[Neshant]

Do you know Banking system of any other country that does not do it ?

The US in the late 1800s to early 1900s comes closest to that ideal.

There was no Federal Reserve, no income tax, no scams & schemes of financial goons. That era was the fastest economic growth the US ever experienced.

Electrification, the internal combustion engine, the motor car, the air plane, the telephone, lighting - almost all that we take for granted today occurred then. It created the middle class of America and made it the most prosperous nation in the world.

[Suraj]

There was no Federal Reserve, no income tax, no scams & schemes of financial goons. That era was the fastest economic growth the US ever experienced.

On the contrary:
Black Friday (1869)
Panic of 1873
Panic of 1884
Panic of 1893
Panic of 1896
Panic of 1901
Panic of 1907

[chanakyaa]

MONETARY REFORM: A BETTER MONETARY SYSTEM FOR ICELAND

What they are recommending is 100% reserves. How will that work? Won't it lead to bone crushing deflation? Shouldn't money be in unrestricted amount? Not too much and not too little? Can a square peg be fitted into a round hole?

PH, I agree. My bad with not posting a disclaimer when I posted the original article. The only reason I highlighted the article is to bring out a controversial view point from a country that did not hesitate to take unorthodox approach to fight the ghosts of 2008 crisis.

[Neshant]

There was no Federal Reserve, no income tax, no scams & schemes of financial goons. That era was the fastest economic growth the US ever experienced.

On the contrary:
Black Friday (1869)
Panic of 1873
Panic of 1884
Panic of 1893
Panic of 1896
Panic of 1901
Panic of 1907

Mere mild slowdowns compared to the Great Depression - which occurred when the Federal Reserve was in existence. Real capitalism isn't devoid of down time in the business cycle. However it does ensure that those who gambled and lost end up eating that loss and not passing it onto others. Be they speculators or even depositors in bankrupt banks that were gambling their ass away.

Less than 3% of the banks went bankrupt on the gold standard. Comparing that to today, practically all the major banks were insolvent in 2008 until bailouts & money printing came along. What the cost of bailouts & money printing will be will be and who will eat that loss will be known eventually. Even today they continue to demand the nation remain a bailout backstop as needed. A total scam.

The late 1800s to early 1900s remain the strongest period of economic growth in US history. At no other time did per capita income rise as fast.

[Suraj]

Funnily enough, the Panic of 1873 was called The Great Depression until the one in the 1930s took over that term. A bigger economy will have recession of greater absolute magnitude as well. Take a look at the descriptions of those. Each of them cost 10-20000 businesses to fail. Considering the relative size of the economy of those times, that's a lot. Back when there was a gold or silver standard, there were similar bubbles and crashes driven by supply issues in these metals. The 1873 panic followed the Franco-Prussian war (and the creation of Germany under Bismarck) . The 1884 panic was again driven by depletion of European gold reserves. Ditto for 1893. The 1896 one by a drop in silver reserves. It's all quite funny. Swap paper money for currency backed by a precious metal and you simply swap one set of issues for another - every commodity supply glut or crisis will precipitate an economic crisis. Considering the volatility of commodity prices, that's an excellent recipe for market chaos. The Great Depression would have been over by 1930-31 if they didn't promulgate the Smoot-Hawley Tariff Act, and then faced the dustbowl era that was worsened by the midwest banking collapses.

[panduranghari]

Back when there was a gold or silver standard, there were similar bubbles and crashes driven by supply issues in these metals. .....Swap paper money for currency backed by a precious metal and you simply swap one set of issues for another - every commodity supply glut or crisis will precipitate an economic crisis. Considering the volatility of commodity prices, that's an excellent recipe for market chaos.

link

1. They found one absolute repeating event that shaped the lives of countless individuals. Its effects upon the destiny and life directions of recent society had no equal. That one most striking and frightening observations was of the failure of paper money. With irony, we stood here in the middle of 1988, a time of advanced thinking using higher education for guidance and could easily document that no paper money ever put into use had ever survived. Whether backed by precious metals or in stand-alone form, not one lasted! Yet, we were hip deep in an entire economic world that based and denominated its wealth upon the further extensions of "fiat paper money".

2. The second major observation was in the evolution of what debt is. From the very beginning of time humans have borrowed and owed, from and to each other. During most of history, the period of time between a debt owed and a debt paid was looked upon as "a period of risk". The accepted longline historical concept was that the item borrowed may not be returned to the owner. In addition to this view it was ingrained that the primary real loss came from not being able to replace the "item" lent, not the secondary loss of not receiving the medium of exchange. Yet in today's world (1999), the "thing" that is usually at risk in a debt is the currency. Modern common perception stands that no one should have to accept these losses. In concept, governments nurture these perceptions only because they "can" replace the currency with ease. Yet the actual physical structure of the debt (the economic good that the loan was based upon) is never regained. This engine alone is a major force in the destruction of currency systems. Its effect is to shrink the platform that creates real wealth and expand the financial instruments whose value depends upon that platform's continued function. Indeed, it is a complete conflict to historical, natural human interactions.

[Suraj]

A precious metal standard is not a panacea. Ultimately governments attempt to debase the currency in order to more effectively pay down debt. Basing on a metal standard leads to warfare to control access to the metal. Business cycles are one thing, but successive transatlantic panics every 5-7 years is not a well functioning economic system at work. Nor did the gold standard in the 1880s prevent the rampant overinvestment in railroads, the bursting of that bubble being the primary reason for the Panic of 1893.

This isn't an argument for or against paper currency. Fundamentally any currency will be debased and manipulated by the issuing authority, whether a central bank or otherwise. I'm simply pointing out that the supposed smooth growth of the late 1800s was anything but that, and was in reality characterized by successive economic panics, bank failures and runs, rampant business closures, all on the base of a very small GDP, which ultimately led to the creation of a now-reviled central bank.

There is no equilibrium state. 100 years ago, circumstances compelled the powers that be to create the Federal Reserve, and today various other powers that be, rail against it. It'll simply morph into whatever suits the contemporary political economy best, but there's no fixed solution that works forever, i.e. no equilibrium state.

[Neshant]

There is no such thing as "more effectively pay down debt". Ultimately its a case of robbery dressed up in fancy wording.

The so called panics are all exaggerations - just minor downturns that barely lasted a year or two with speculators eating their losses as they should. As I said the late 1800s saw the fastest growth in living standards and per capita income the US has ever witnessed - meaning all the panics the private bank fiat monopoly advocates keep talking about did not amount to a hill of beans. I'd also add that this was achieved with zero debt.

Nothing compelled the formation of a private bank cartel to monopolize the monetary system other than corruption. Monopolies of any kind are bad as their objective is rent seeking - which is purely parasitic. The free market is supposed to protect the consumer and does not need any self proclaimed oracles who price fix and counterfeit.

[Neshant]

Sounds like a perpetual motion machine where central bank buys govt bonds and pays govt interest on those bonds.

Something isn't right with his theory.

[Gyan]

QE destroyed the Middle Class and Prosperity of Japan by keeping the asset prices high after collapse of 1980s. The West is now murdering the financial status of its own Middle Class in even bigger QE. I really don't understand why speculators should not be allowed to fail as depositors can always be protected by the Govt. The net result of QE is overpriced assets which middle class cannot buy leading to grinding stagnation.

[Suraj]

There is no such thing as "more effectively pay down debt". Ultimately its a case of robbery dressed up in fancy wording.

This has been going on forever. EVERY government loves to debase currency. Particularly so after a war. Best damn way to pay down the cost of all that fighting. Screw the people's savings and lower the value of what you owe. If you think a gold standard helps avoid that, please see the Panic of 1873.

The so called panics are all exaggerations - just minor downturns that barely lasted a year or two with speculators eating their losses as they should. As I said the late 1800s saw the fastest growth in living standards and per capita income the US has ever witnessed - meaning all the panics the private bank fiat monopoly advocates keep talking about did not amount to a hill of beans. I'd also add that this was achieved with zero debt.

Unfortunately, none of that is true, except for high but volatile growth. It's the constant economic instability that led to the creation of the Federal Reserve in the first place. Was it to benefit the common man ? Certainly not. But it was meant to stabilize the monetary system, at at its own cost, did so. Mankind collectively developed far more in the 20th century than any previous period in recorded history, on any socio-economic measure. In the same century as central banking taking hold.

Today, we do not have someone from the 19th and 18th century to tell us if they'd rather live in that time or in today's world, but chances are they'd happily give up their 'central bank free' life for the comforts of the modern world, built as it is upon the accretion of debt.

[Prem]

Indian Rupee, Russian Ruble Are Better Bets than Euro, Yen or Gold
http://www.thestreet.com/story/13107551 ... -gold.html

NEW YORK (The Street) -- Investors wary of catching so-called falling knives in the stock market may also want to steer clear of collapsing currencies like the euro and yen, says Frank Trotter, chairman of EverBank Global Markets.As for currencies, investors may want to play from the long side. Trotter is constructive on the Indian rupee, which is up more than 3% relative to the dollar in the past year as a result of Prime Minister Narendra Modi's economic reforms. Indian stocks, for their part, have surged in the past year, rising more than 24% as measured by the iShares MSCI India ETF (INDA)."Not only has Modi done a good job on the governmental side, but the Indian central bank has done well on the policy side," says Trotter. "And as more money moves into Indian capital markets, we feel even better about the currency."Trotter also suggests speculators seeking to place a bet on specific currencies may want to give the Russian ruble a shot. The ruble has spiked to 52 per dollar on the heels of oil price stabilization and a quieter Ukraine situation, after sinking to as low as 70 per dollar in early February.When it comes to the only truly global currency, however, Trotter predicts gold will go nowhere fast. That is, unless something big happens to put the yellow metal into play."Gold keeps hanging around $1,200 an ounce," says Trotter. "It's not going to help you unless we see a huge crisis, but it's not going to hurt you either."

[vishvak]

One option is to buy Yen when it is down, then negotiate for submarines (plain sub hunter, defensive onlee). That way we can have some more quality subs relatively economical without keeping focus off on strategic projects.

[Austin]

"Another Crisis Is Coming": Jamie Dimon Warns Of The Next Market Crash

[Austin]

On a personal note all the inevitable market crash news makes me nervous.

Can any one tell me if this is a good time to get out of Indian Stock Market if I am exposed to equity ? Although most of my exposure to equity is via SIP and other exposure is to the so called CRISIS AAA rated Bond Market.

Should this be good time to get out or stay exposed till inevitable happens ?

[Austin]

Indian Rupee, Russian Ruble Are Better Bets than Euro, Yen or Gold
http://www.thestreet.com/story/13107551 ... -gold.html

NEW YORK (The Street) -- Investors wary of catching so-called falling knives in the stock market may also want to steer clear of collapsing currencies like the euro and yen, says Frank Trotter, chairman of EverBank Global Markets.As for currencies, investors may want to play from the long side. Trotter is constructive on the Indian rupee, which is up more than 3% relative to the dollar in the past year as a result of Prime Minister Narendra Modi's economic reforms. Indian stocks, for their part, have surged in the past year, rising more than 24% as measured by the iShares MSCI India ETF (INDA)."Not only has Modi done a good job on the governmental side, but the Indian central bank has done well on the policy side," says Trotter. "And as more money moves into Indian capital markets, we feel even better about the currency."Trotter also suggests speculators seeking to place a bet on specific currencies may want to give the Russian ruble a shot. The ruble has spiked to 52 per dollar on the heels of oil price stabilization and a quieter Ukraine situation, after sinking to as low as 70 per dollar in early February.When it comes to the only truly global currency, however, Trotter predicts gold will go nowhere fast. That is, unless something big happens to put the yellow metal into play."Gold keeps hanging around $1,200 an ounce," says Trotter. "It's not going to help you unless we see a huge crisis, but it's not going to hurt you either."

Rupee Yes , Rouble No.

Rupee will grow stronger as our economy grows stronger and forex rises.. there is little reason to see it will get weak.

Rouble is now a full floating currency and its fate depends on the price of Oil , it has some what stabalised compared to last year but now the Central Bank does not defend rouble.

The only advantage Rouble has is its full capital account convertible

[Altair]

On a personal note all the inevitable market crash news makes me nervous.

Can any one tell me if this is a good time to get out of Indian Stock Market if I am exposed to equity ? Although most of my exposure to equity is via SIP and other exposure is to the so called CRISIS AAA rated Bond Market.

Should this be good time to get out or stay exposed till inevitable happens ?

Personally ,All the doom and gloom forced me to think and I took a decision last year. I cashed out 90% of my investments in stocks and invested in agri land with solar fencing and surveillance camera. It has reduced liquidity but has potential to become a bounty in a decade. The savings were anyway for retirement or for kids.

[panduranghari]

Personally ,All the doom and gloom forced me to think and I took a decision last year. I cashed out 90% of my investments in stocks and invested in agri land with solar fencing and surveillance camera. It has reduced liquidity but has potential to become a bounty in a decade. The savings were anyway for retirement or for kids.

Altair saar,
Good on you. I wont advice you anything but I request you to think about (for the sake of your children) about purchasing a few gold bricks. Keep it out of the banking system as well. Good luck.

[Austin]

Personally ,All the doom and gloom forced me to think and I took a decision last year. I cashed out 90% of my investments in stocks and invested in agri land with solar fencing and surveillance camera. It has reduced liquidity but has potential to become a bounty in a decade. The savings were anyway for retirement or for kids.

Well you are lucky that you can do that me being in Mumbai city is not an option. I did started buying gold after spending some time on this thread and reading about it and I plan to buy more.

But Stock remains an attractive option in India if you look at growing your wealth and if you plan to invest into it via SIP for a long time ( 10-15 years ) , you are getting around 25 - 30 % growth if you are into Equity.

Now the million dollar question is to which I have no answer really is what if one moves from equity into mix of Hybrid/Balance Fund ( 30 % Exposure to Bonds , 70 % to Equity ) and Fund with major exposure to bonds ( 70 % Bonds , 30 % equity ) ,Thats a safer option then being 100 % into equity.

The types of fund promised around 12 % return over 10-15 years if you look at past performance or medium term ( 5 - 7 yrs )

I am sure when ever the big collapse happens Gold would certainly rise may be double or triple or may be 5-6 times then what it is , I dont know. But Stock are not going to dissapear. After all the companies have government have to trade and Stock market is the only option for them for larger wealth accumulation.

I feel that no matter what happens investing in this proportion would be a good option if one is looking at Wealth Creation , Balanced by Safety and I am talking in Indian Context.

30 % FD ( Banks/Post office ) , 30 % Gold ( just buy real gold not paper one ) and 40 % Stocks ( invest in 100 % Bonds ( GSEC or mix of Corporate/GSEC high quality paper or Balanced/Hybrid Fund f taking some risk is in your appetite )

[chandrasekhar.m]

On a personal note all the inevitable market crash news makes me nervous.

Can any one tell me if this is a good time to get out of Indian Stock Market if I am exposed to equity ? Although most of my exposure to equity is via SIP and other exposure is to the so called CRISIS AAA rated Bond Market.

Should this be good time to get out or stay exposed till inevitable happens ?

Personally ,All the doom and gloom forced me to think and I took a decision last year. I cashed out 90% of my investments in stocks and invested in agri land with solar fencing and surveillance camera. It has reduced liquidity but has potential to become a bounty in a decade. The savings were anyway for retirement or for kids.

Altair saar,
If you don't mind, could you give some more details, please? If you don't want to reveal here, can you please email me at chandu_miyaaATgoogle.
I want to retire to a farm eventually and have also wanted to buy some agri land since a couple of years. But, am not sure of how to make money after that from it.

For example, what kind of land to buy? What to grow in it? Who will be doing the actual farming, harvesting, selling?
The other question of where is also perplexing. Can it be far away from where we live and work?
My father's brothers have small holdings near Rayachoti, Kadapa in Andhra Pradesh. But, there is never any rain, nor irrigation or ground water. They don't grow anything there now and live on government pension (1000 or 1500 Rs) or money sent by their sons.
Investing in such lands would be ruining whatever little capital I have at this young age.

Sorry for the OT.

[Neshant]

I've said it before and I'll say it again. Banking is a scam not an industry. It produces nothing of value. Since it produces nothing of value, it has to come up with more and more means of stealing from productive society. Unless this cancer is gotten rid of, the economy will eventually succumb to these parasites.

______

Citi Economist Says It Might Be Time to Abolish Cash

Cash therefore gives people an easy and effective way of avoiding negative nominal rates.

Buiter's note suggests three ways to address this problem:

1. Abolish currency.
2. Tax currency.
3. Remove the fixed exchange rate between currency and central bank reserves/deposits.

Yes, Buiter's solution to cash's ability to allow people to avoid negative deposit rates is to abolish cash altogether. (Note that he's far from being the first to float this idea. Ken Rogoff has given his endorsement to the idea as well, as have others.)

Before looking at the practicalities of abolishing currency, we should first look at whether it could ever be necessary. Due to the costs of holding large amounts of cash, Buiter puts the actual nominal rate at which the move to cash makes sense as closer to -100bp. So, in order for a cash abolition to become necessary, central banks would need to be in a position where they wished to set nominal rates much lower than that.

Buiter does not have to go far to find an example of where a central bank may have wanted to set interest rates much lower to -100bp. He uses (a fairly aggressive) Taylor Rule to show that Federal Reserve rates should have been as low as -6 percent during the financial crisis.

http://www.bloomberg.com/news/articles/ ... olish-cash

[TSJones]

Bothersome statistics:

http://finance.yahoo.com/news/chinas-ma ... 23583.html

We will have to see how long this lasts. Maybe not too long. Or......

I will point out that everybody wants to export their goods and services as a way to increase their economy. The problem is, the US consumer is already saturated with cheap goods made overseas. Very little demand growth is predicted for cheap goods exported to the US. Asia had better start their own internal demand growth. Maybe the Chinese alternative to IMF will help out, eh?

[Austin]

World’s biggest economies in 2030

[TSJones]

^^^^^^^ while I respect the USDA at their respective specialty, agriculture and long term climate studies, I would note that past performance does not necessarily predict future performance. Especially for something as nebulous as GDP. Stuff happens, to put it politely. And the larger a GDP grows, the harder it is to grow. This rule applies to the US the same as everyone else.

I will admit that China has a lot of unmet population demand for goods and services. But China has the mindset that they will export their way to meeting their unmet needs which looks like perverse thinking to me. To whom exactly are they going to export their way to greatness?

More troubling stats.

http://www.bloomberg.com/news/articles/ ... ntory-glut

Right now, one of the world's most transparent and willing to import goods and services economies, and at this particular moment the largest economy in the world, is flush. I mean to the brim, man. We're swamped in goods and services with no great increase in demand yet seen.

[svinayak]

Economists Still Think Economics Is the Best
http://www.theatlantic.com/business/arc ... qus_thread

Despite failing to foresee the largest financial crisis since the Great Depression, leaders in the field still fail to look for wisdom beyond its bounds.
MOISÉS NAÍMAPR 14 2015, 7:40 AM ET

Ten years ago, a survey published in the Journal of Economic Perspectives found that 77 percent of the doctoral candidates in the leading American economics programs agreed or strongly agreed with the statement "economics is the most scientific of the social sciences."

In the intervening decade, a massive economic crisis rocked the global economy, and most economists never saw it coming. Nevertheless, little has changed: A new paper from the same publication reveals how economists continue to believe that their science is superior to all other social sciences, such as political science, sociology, anthropology, etc. While there may be budding intentions to appeal to other disciplines in order to enrich their theories (especially psychology and neuroscience), the reality is that economists almost exclusively study—and cite—each other.



The authors of the article, Marion Fourcade, Etienne Ollion, and Yann Algan, looked at the 25 most respected publications in each of three disciplines: economics, politics, and sociology. They found that between 2000 and 2009, The American Economic Review (AER), the most prestigious economics journal, published articles in which 40 percent of the citations referred to the other 24 major economic publications. In contrast, just 0.8 percent of citations referred to political-science peer-reviewed journals and a meager 0.3 percent to sociology publications. (The majority of the citations went to books or publications not among the 25 the researchers included.) This is to say that in all the texts published in the top 50 journals in the other two social sciences in over ten years, economists found only about 1 percent of articles worth mentioning.

A relatively small group of top scholars concentrated in four university departments (MIT, Harvard, Chicago, and Princeton) has an inordinate influence on what gets published.
And there’s more. When asked their response to the statement: "In general, interdisciplinary knowledge is better than the knowledge obtained by a single discipline," the majority (57 percent) of American economics professors disagreed. By contrast, most of their colleagues in sociology (75 percent) and political science (72 percent) agreed that an interdisciplinary approach is preferable.

But economists don’t disdain all other disciplines; the fields of finance and business appear to have plenty of appeal. While economists reference other social sciences less and less, citations to articles published in academic journals about finance have skyrocketed. And when examining where the majority of authors published in AER were employed, Fourcade, Ollion, and Algan found that in the 1950s only 3.2 percent of the authors worked as business school professors. But in the decade following the year 2000, that percentage rose to 18 percent.

Luigi Zingales, a respected economist and finance professor at the University of Chicago’s Booth School of Business quoted in the AER paper, worries that the proximity of his economist colleagues to the business and finance worlds will threaten their independence and shape their agenda, conclusions, and recommendations. Zingales found, for example, that when academic authors are not employed in business schools, their writing is significantly less likely to justify high executive compensation, and in fact will more often find fault with it. Of those surveyed, two-thirds of sociologists and one-third of economists believe that private company executives receive excessive pay. Few finance professors agree.

The world is still living with the effects of the most recent economic crisis, and the inability of economists to offer solutions with a significant degree of agreement shows how urgently their discipline needs to be disrupted by an injection of new ideas, methods, and assumptions about human behavior. Unfortunately, there are powerful obstacles to this disruption: elite control and lack of gender diversity. Fourcade and his co-authors show that a relatively small group of top scholars concentrated in four university departments (MIT, Harvard, Chicago, and Princeton) has an inordinate influence on what gets published, which research methods are acceptable, and who gets the most coveted jobs. As for the pool of candidates for those jobs: Economics ranks near the bottom of the percentage of doctorates awarded to women in selected disciplines between 1966 and 2011. Only in the physical sciences have women earned a smaller share of the doctorates than in economics.

Ten years ago, I suggested that economists would “be well advised to trade in their intellectual haughtiness for a more humble disposition.” That's advice that has yet to be heeded.

[Austin]

Jim Rickards Interview throws scarry statistics