pushing on a string

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pages: 287 words: 81,970

The Dollar Meltdown: Surviving the Coming Currency Crisis With Gold, Oil, and Other Unconventional Investments by Charles Goyette

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bank run, banking crisis, Ben Bernanke: helicopter money, Berlin Wall, Bernie Madoff, Bretton Woods, British Empire, Buckminster Fuller, California gold rush, currency manipulation / currency intervention, Deng Xiaoping, diversified portfolio, Elliott wave, fiat currency, fixed income, Fractional reserve banking, housing crisis, If something cannot go on forever, it will stop, index fund, Lao Tzu, margin call, market bubble, McMansion, money: store of value / unit of account / medium of exchange, mortgage debt, oil shock, peak oil, pushing on a string, reserve currency, rising living standards, road to serfdom, Ronald Reagan, Saturday Night Live, short selling, Silicon Valley, transaction costs

Borrowing can become prohibitively expensive even at zero percent interest as dollars borrowed this year must be paid back in next year’s dollars that are more dear. Consumers quit consuming when they discover that the dollar they don’t spend today buys more tomorrow. The situation is often likened to trying to “push on a string.” The Federal Reserve can monetize debt, purchase government bonds, and make reserves available to the banking system. But it can’t force businesses to borrow. If no one borrows, there is no stimulative effect in the economy. Deflation is a subject of special interest to many economists including Ben Bernanke, the current Federal Reserve chairman, who has written extensively about it. In a widely noted speech in 2002, Bernanke sought to answer the “pushing on a string” case for deflation, saying that the Fed and the government have sufficient means to ensure that any such interlude would be mild and brief. Bernanke provides a parable to illustrate the power of the printing press: Today an ounce of gold sells for $300, more or less.

For example, the Fed’s inflationary capacity is not limited by the stock of U.S. government debt. It can now monetize (buy) foreign government debt. Already the Fed is buying short-term corporate debt in the commercial paper market. It can even buy mortgages. Bernanke discusses several other means of countering deflation and concludes that the monetary and fiscal authorities “would be far from helpless in the face of deflation. . . .” Still this does not quite answer the “pushing on a string” argument of deflationists. What can the Fed do to be sure of generating public spending with its monetary policies? The answer: whatever it takes. The Fed will use any tool at its disposal to stop a threat of deflation. It will create new tools and assume heretofore unseen authority if need be. It is in this spirit that the Fed chairman won his nickname, “Helicopter Ben.” Anticipating Obama’s tax cuts, Bernanke suggested that a broad-based tax cut financed by inflation would almost certainly be effective.

See Gold coinage; Silver coinage Collectibles, precious metals as Command economy as anti-American bank nationalization currency controls features of financial behavior, reporting and poverty shortages and rationing wage and price controls Commodities as investment exchange-traded funds (ETFs) exchange-traded notes (ETNs) Rogers International Commodity Index (RICI) Consumer Price Index (CPI), core inflation rate as alternative Consumption, decline and deflation Core inflation rate Corzine, Jon Cost-push inflation Counterfeit, gold coins Countrywide Financial “Crack-up boom,” Credit, artificial and malinvestment Credit crisis Credit Suisse Currency controls, and monetary breakdown foreign. See Foreign currency as investment hard currencies DB Commodity Services LLC, Debt, federal. See Federal debt Debt securities exchange-traded notes (ETNs) U.S. government. See Treasury bonds Deflation bailout, effects on economic impact of myths about “pushing on a string” argument De Gaulle, Charles Deng Xiaoping Digital gold currencies GoldMoney Dollar as currency reserves deterioration, and oil-pricing alternatives devaluation and Fed overseas holdings Dollar standard benefits to U.S. global dumping of Economic collapse, signs of Economic crisis (2008- ) bailouts command economy threat credit crisis and dollar standard federal debt government actions.

 

pages: 330 words: 77,729

Big Three in Economics: Adam Smith, Karl Marx, and John Maynard Keynes by Mark Skousen

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Albert Einstein, banking crisis, Berlin Wall, Bretton Woods, business climate, David Ricardo: comparative advantage, delayed gratification, experimental economics, financial independence, Financial Instability Hypothesis, full employment, Hernando de Soto, housing crisis, Hyman Minsky, inflation targeting, invisible hand, Isaac Newton, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, Joseph Schumpeter, laissez-faire capitalism, liquidity trap, means of production, microcredit, minimum wage unemployment, open economy, paradox of thrift, price stability, pushing on a string, rent control, Richard Thaler, rising living standards, road to serfdom, Robert Shiller, Robert Shiller, rolodex, Ronald Coase, Ronald Reagan, school choice, secular stagnation, Simon Kuznets, The Chicago School, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, Tobin tax, unorthodox policies

Even Yale's James Tobin, a friendly critic, recognized its greatness: "This is one of those rare books that leaves their mark on all future research on the subject" (1965, 485). Friedman had a twofold mission in researching and writing Monetary History. First, he wanted to dispel the prevailing Keynesian notion that "money doesn't matter," that somehow an aggressive expansion of the money supply during a recession or depression cannot be effective, like "pushing on a string." Friedman and Schwartz showed time and time again that monetary policy was indeed effective in both expansions and contractions. Friedman's work on monetary economics became increasingly important and applicable as inflation headed upward in the 1960s and 1970s. His most famous line is "Inflation is always and everywhere a monetary phenomenon" (Friedman 1968, 105). Friedman Discovers the Real Cause of the Great Depression That money mattered was an important proof, but the research by Friedman and Schwartz revealed a deeper purpose.

One startling sentence in the entire 860-page book changed forever how economists and historians would view the cause of the most cataclysmic economic event of the 20th century: "From the cyclical peak in August 1929 to the cyclical trough in March 1933, the stock of money fell by over a third" (Friedman and Schwartz 1963, 299). For thirty years, an entire generation of economists did not really know the extent of the damage the Federal Reserve had inflicted on the U.S. economy from 1929 to 1933. They had been under the impression that the Fed had done everything humanly possible to keep the depression from worsening, but like "pushing on a string," were impotent in the face of overwhelming deflationary forces. According to the official apologia of the Federal Reserve System, it had done its best, but was powerless to stop the collapse. Friedman radically altered this conventional view. "The Great Contraction," as Friedman and Schwartz called it, "is in fact a tragic testimonial to the importance of monetary forces" (Friedman and Schwartz 1963, 300).

 

pages: 488 words: 144,145

Inflated: How Money and Debt Built the American Dream by R. Christopher Whalen

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Albert Einstein, bank run, banking crisis, Black Swan, Bretton Woods, British Empire, California gold rush, Carmen Reinhart, central bank independence, conceptual framework, corporate governance, cuban missile crisis, currency peg, debt deflation, falling living standards, fiat currency, financial deregulation, financial innovation, financial intermediation, floating exchange rates, Fractional reserve banking, full employment, global reserve currency, housing crisis, interchangeable parts, invention of radio, Kenneth Rogoff, laissez-faire capitalism, liquidity trap, means of production, money: store of value / unit of account / medium of exchange, moral hazard, mutually assured destruction, non-tariff barriers, oil shock, payday loans, Plutocrats, plutocrats, price stability, pushing on a string, quantitative easing, rent-seeking, reserve currency, Ronald Reagan, special drawing rights, The Chicago School, The Great Moderation, too big to fail, trade liberalization, transcontinental railway, Upton Sinclair, women in the workforce

Meltzer added in the same portion of his landmark book that Eccles was not an apologist for deficits generally, but only to offset deficits in investment spending. He observes that despite the prominence of Keynes’s work at the time, Eccles claimed never to have read his books nor to have derived any of his own views on deficit spending from Keynes main work.61 Meltzer documents how Eccles came to be associated with the term “pushing on a string” in 1935 during testimony before the House Committee on Banking and Currency. He knew that monetary expansion did not work in the Depression because people were unwilling to spend or borrow. But Eccles went further than many of his contemporaries and attributed the excess of savings to inequitable income distribution. “Eccles differed from his predecessors in his belief that government had to take responsibility for the economy,” wrote Meltzer.

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Novak, Robert O’Driscoll, Gerald Offshore market, dollar deposits Oil companies, asset choice Oil industry, deregulation Oil prices, shocks Oklahoma bank, FDIC assistance Open market operations control, centralization Orwell, George (1984) Outstanding consumer debt, increase Owen, Robert proposal Paine, Thomas Panic of 1873 Panic of 1893 Panic of 1897 Panic of 1901 Panic of 1907 social/economic effects Paper currency emission, Lincoln precedent legal tender acceptance manufacture, establishment value, speculation (tactics) Paper dollars, gold (relationship) Paper money American opposition market dynamic post-Civil War supply contraction, assumption preference supply, increase suspicion Paper notes, interest-free debt Past earnings, significance Patton, George Eisenhower opposition Paul, Ron Peace insurance Pearl Harbor, Japan attack Pecora, Ferdinand Pemex, oil monopoly Penn Central, bailout Penn Square Bank, collapse inevitability Pennsyvania Steel Trust, control Peter the Hermit (Crusades) Philippines, acquisition (Hobart involvement) Phillips, Kevin Ping, Luo Platt, Orville Platt, Tom business interests Plaza Accord Pollock, Alex Pomerene, Atlee Populist movement, rise Positive liberty Post-Civil War price deflation Post-War economy, increase Post-WWII periods, segments (Morga) Pre-WWI America, libertarian world view Price deflation (post-Civil War) Private banks notes, printing paper issuance, suspicion U.S. government, relationship (change) Private businesses, bankruptcy (1873) Private debt financing level, peak (1929) usage Private gold, confiscation Private investment rate, decline Private parties, foreign lending (problem) Private sector debt levels rise economy, depression public sector, relationship Production, promotion Progressives disappointment movement impact marginalization Prohibition, repeal (Smith support) Protectionism, attraction Protestant silverites, characterization Public debt financing Public debt, Hamilton advocacy Public-private partnership, creation Public sector debt, growth private sector, relationship Pujo, Arsene P. Pujo Committee focus investigation reopening political context report, publication Purchasing power, promotion Pushing on a string Railroads asset choice banks/commercial companies, comparison collapse dominance, cessation post-Civil War debt Railway Labor Act, Supreme Court (upholding) Rainsford, W.S. Rand, Ayn (Greenspan disciple) Raskob, John J. Rayburn, Sam Raynes, Sylvain Reading Railroad bankruptcy corporate instability, cause debt, interest (payment) Reagan, Ronald deregulation promise supporters White House entry Reaganomics Real economic growth, average (Reagan years) Real estate bust (2007) Real wages, impact Recession Reconstruction, financial opportunity Reconstruction Finance Corporation (RFC) authorization Baruch prediction Federal Reserve System, relationship government policy implementation Hoover creation intermediate credit facility control lending powers loans, usage Mills perspective operations, expansion parastatal corporation, Jones control role, importance Red Scare (1919-1920) Reed, John Reeves, Richard Reform, politics (Roosevelt/Wilson impact) Reinhart, Carmen (This Time It Is Different) Reis, Bernard J.

 

pages: 524 words: 143,993

The Shifts and the Shocks: What We've Learned--And Have Still to Learn--From the Financial Crisis by Martin Wolf

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air freight, anti-communist, Asian financial crisis, asset allocation, asset-backed security, balance sheet recession, bank run, banking crisis, banks create money, Basel III, Ben Bernanke: helicopter money, Berlin Wall, Black Swan, bonus culture, Bretton Woods, call centre, capital asset pricing model, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, central bank independence, collateralized debt obligation, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, currency peg, debt deflation, deglobalization, Deng Xiaoping, diversification, double entry bookkeeping, en.wikipedia.org, Erik Brynjolfsson, Eugene Fama: efficient market hypothesis, eurozone crisis, Fall of the Berlin Wall, fiat currency, financial deregulation, financial innovation, financial repression, floating exchange rates, forward guidance, Fractional reserve banking, full employment, global rebalancing, global reserve currency, Growth in a Time of Debt, Hyman Minsky, income inequality, inflation targeting, invisible hand, Joseph Schumpeter, Kenneth Rogoff, labour market flexibility, labour mobility, liquidationism / Banker’s doctrine / the Treasury view, liquidity trap, Long Term Capital Management, margin call, market bubble, market clearing, market fragmentation, Martin Wolf, Mexican peso crisis / tequila crisis, moral hazard, mortgage debt, new economy, North Sea oil, Northern Rock, open economy, paradox of thrift, price stability, private sector deleveraging, purchasing power parity, pushing on a string, quantitative easing, Real Time Gross Settlement, regulatory arbitrage, reserve currency, Richard Feynman, Richard Feynman, risk-adjusted returns, risk/return, road to serfdom, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Reagan, savings glut, Second Machine Age, secular stagnation, shareholder value, short selling, sovereign wealth fund, special drawing rights, The Chicago School, The Great Moderation, The Market for Lemons, the market place, The Myth of the Rational Market, the payments system, The Wealth of Nations by Adam Smith, too big to fail, Tyler Cowen: Great Stagnation, very high income, winner-take-all economy

Keynesians argue that when short-term rates are close to zero, monetary policy is no longer very effective. Certainly, apparently reasonable monetary growth, measured by M2, did not generate a vigorous recovery, though it almost certainly stopped a far deeper recession. The difficulty, as we saw in Chapter Five, is that the economy suffers from a savings glut – desired savings exceed desired investment, despite the extremely low interest rates. In the well-known expression: money is pushing on a string.47 Moreover, though the short-term rate may be near to or at zero, it is impossible to bring the long-term rate that low, because of ‘liquidity preference’: at negligible long-term rates, the downside for holders is large (since investors would lose a fortune if yields returned to normal) and the upside negligible. So people will not hold the long-term bonds if the yield falls below a certain level.

M2 consists of (1) currency outside the US Treasury, Federal Reserve Banks, and the vaults of depository institutions; (2) travellers’ checks of non-bank issuers; (3) demand deposits; (4) other checkable deposits (OCDs), which consist primarily of negotiable order of withdrawal (NOW) accounts at depository institutions and credit-union share-draft accounts; (5) savings deposits (which include money-market deposit accounts, or MMDAs); (6) small-denomination time deposits (time deposits in amounts of less than $100,000); and (7) balances in retail money-market mutual funds (MMMFs). Definitions are available at http://research.stlouisfed.org/fred2. 47. http://en.wikipedia.org/wiki/Pushing_on_a_string. 48. See, among many other things, Hyman P. Minsky, Stabilizing an Unstable Economy (New Haven: Yale University Press, 1986), and ‘Financial Instability and the Decline (?) of Banking: Future Policy Implications’, Working Paper No. 127, October 1994, The Jerome Levy Research Institute of Bard College, http://www.levyinstitute.org/pubs/wp127.pdf. 49. See ‘Chartalism’, http://en.wikipedia.org/wiki/Chartalism. 50.

 

pages: 444 words: 151,136

Endless Money: The Moral Hazards of Socialism by William Baker, Addison Wiggin

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Andy Kessler, asset allocation, backtesting, bank run, banking crisis, Berlin Wall, Bernie Madoff, Black Swan, Branko Milanovic, Bretton Woods, BRICs, business climate, capital asset pricing model, corporate governance, correlation does not imply causation, credit crunch, Credit Default Swap, crony capitalism, cuban missile crisis, currency manipulation / currency intervention, debt deflation, Elliott wave, en.wikipedia.org, Fall of the Berlin Wall, feminist movement, fiat currency, fixed income, floating exchange rates, Fractional reserve banking, full employment, German hyperinflation, housing crisis, income inequality, index fund, inflation targeting, Joseph Schumpeter, laissez-faire capitalism, land reform, liquidity trap, Long Term Capital Management, McMansion, moral hazard, mortgage tax deduction, naked short selling, offshore financial centre, Ponzi scheme, price stability, pushing on a string, quantitative easing, RAND corporation, rent control, reserve currency, riskless arbitrage, Ronald Reagan, school vouchers, seigniorage, short selling, Silicon Valley, six sigma, statistical arbitrage, statistical model, Steve Jobs, The Great Moderation, the scientific method, time value of money, too big to fail, upwardly mobile, War on Poverty, Yogi Berra, young professional

The expansion of credit might be controlled some by those at the helm of the Fed, but the animal spirits of those who would lend and borrow are equally important, as was proven back in the times when there was no Fed and gold was the monetary base. If the horse has been run too hot (as it was in the 1920s), loosening the reins may not be enough to entice it to speed up again after the race is over. To borrow from an old saying, the Fed governors could not “push on a string.” Fiat money, electronic or paper currency that is not redeemable into a hard asset, has dominated the modern financial era. Cultural and political change has trended against prudent management of credit growth for nearly a century. As a consequence, outside a few doomsayers, libertarians, and boldly curious economists or money managers, most observers in our time have little more than a theoretical conception of why a fiat currency system could come under stress, and whether the current crisis might be handled effectively or deepen to the point that the political demand for an alternative form of money 74 ENDLESS MONEY would emerge.

Those who rooted for the deflationist camp looked to the depression years and saw a consumer heavily laden with debt and a highly leveraged banking system wherein over half of its loans relate to real estate.6 They saw interest rates at generational lows already, with the Fed discount rate near zero by year-end 2008. With loan demand sated and a need for banks and consumers to deleverage, they saw any Fed action to inject reserves into the monetary system as “pushing on a string,” to use the phrase invented by the monetarist Friedman in his analysis of the Great Depression. From within the Fed in the days that the policy of quantitative easing became official, Philadelphia Federal Reserve Bank President Plosser alerted us that “(recent economic statistics) prompted some commentators to suggest that the United States is facing a threat of sustained deflation, as we did in the Great Depression or as Japan faced for a decade.

 

pages: 278 words: 82,069

Meltdown: How Greed and Corruption Shattered Our Financial System and How We Can Recover by Katrina Vanden Heuvel, William Greider

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Asian financial crisis, banking crisis, Bretton Woods, capital controls, carried interest, central bank independence, centre right, collateralized debt obligation, conceptual framework, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, declining real wages, deindustrialization, Exxon Valdez, falling living standards, financial deregulation, financial innovation, Financial Instability Hypothesis, fixed income, floating exchange rates, full employment, housing crisis, Howard Zinn, Hyman Minsky, income inequality, kremlinology, Long Term Capital Management, margin call, market bubble, market fundamentalism, McMansion, mortgage debt, Naomi Klein, new economy, offshore financial centre, payday loans, pets.com, Plutocrats, plutocrats, Ponzi scheme, price stability, pushing on a string, race to the bottom, Ralph Nader, rent control, Robert Shiller, Robert Shiller, Ronald Reagan, savings glut, sovereign wealth fund, structural adjustment programs, The Great Moderation, too big to fail, trade liberalization, transcontinental railway, trickle-down economics, union organizing, wage slave, Washington Consensus, women in the workforce, working poor, Y2K

Massive losses piled up at places like Citigroup, Coun-trywide, Merrill Lynch and Morgan Stanley, and cascaded back into the insurance companies. At the end of February, the huge insurer American International Group reported the largest quarterly loss, $5 billion, since the company started in 1919. After some delay, the Federal Reserve Board last summer started lowering interest rates on loans to the banks. But in a phrase from the bank crisis of the 1930s, it was like “pushing on a string.” The bankers’ problem was not that money was too expensive to lend out; it was that they were afraid they wouldn’t get their money back. When they did lend, they jacked up the rates to compensate for the higher perceived risks—even to solid customers. The Port Authority of New York and New Jersey suddenly had to borrow money at 20 percent. The State of Pennsylvania couldn’t finance its college student loan program.

 

pages: 225 words: 11,355

Financial Market Meltdown: Everything You Need to Know to Understand and Survive the Global Credit Crisis by Kevin Mellyn

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asset-backed security, bank run, banking crisis, Bernie Madoff, bonus culture, Bretton Woods, collateralized debt obligation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, cuban missile crisis, disintermediation, diversification, fiat currency, financial deregulation, financial innovation, financial intermediation, fixed income, Francis Fukuyama: the end of history, global reserve currency, Home mortgage interest deduction, Isaac Newton, joint-stock company, liquidity trap, London Interbank Offered Rate, margin call, market clearing, moral hazard, mortgage tax deduction, Northern Rock, offshore financial centre, paradox of thrift, pattern recognition, pension reform, pets.com, Plutocrats, plutocrats, Ponzi scheme, profit maximization, pushing on a string, reserve currency, risk tolerance, risk-adjusted returns, road to serfdom, Ronald Reagan, shareholder value, Silicon Valley, South Sea Bubble, statistical model, The Great Moderation, the payments system, too big to fail, value at risk, very high income, War on Poverty, Y2K, yield curve

The boom in housing that was based on cheap mortgages allowed people to make up their losses in the tech bubble burst that preceded it. So, even when effective, the availability cheap money is always dangerous. However, sometimes the problem is deeper, and even very cheap money doesn’t restore market confidence. Low interest rates are like a string the central bank can use to draw entrepreneurs and investors back into taking the kind of risks that produce jobs and generate wealth. As has often been noted, you can’t push on a string. Flooding the market with cheap money is totally ineffective if risks outweigh any obvious opportunities to make money. Cheap money is useless if nobody wants to use it or if those who want to use it no longer should have it because of the risk they represent. It is like pumping more and more air into a balloon that has burst. Unless you can find a way to patch it, you are wasting time and energy.

 

pages: 201 words: 64,545

Let My People Go Surfing by Yvon Chouinard

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air freight, business process, clean water, Donald Trump, Doomsday Book, Mahatma Gandhi, pushing on a string, Ralph Waldo Emerson, urban sprawl

We do know that nature has already been disrupted, on a grand scale worldwide, in the form of global warming and climate change. However ingeniously adaptive and self-healing nature may be, human industry, especially during the past century, wreaks change far more quickly than nature can deal with it. Where we tip the balance, we yield desert, and at some point we may tip the balance planet-wide. At that point all mitigating human effort becomes, in Keynes’s memorable phrase, “like pushing on a string.” We are the last generation that can experience true wilderness. Already the world has shrunk dramatically. To a Frenchman, the Pyrenees are “wild.” To a kid living in a New York City ghetto, Central Park is “wilderness,” the way Griffith Park in Burbank was to me when I was a kid. Even travelers in Patagonia forget that its giant, wild-looking estancias are really just overgrazed sheep farms.

 

pages: 310 words: 90,817

Paper Money Collapse: The Folly of Elastic Money and the Coming Monetary Breakdown by Detlev S. Schlichter

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bank run, banks create money, British Empire, capital controls, Carmen Reinhart, central bank independence, currency peg, Fractional reserve banking, German hyperinflation, global reserve currency, inflation targeting, Kenneth Rogoff, Long Term Capital Management, market clearing, Martin Wolf, means of production, moral hazard, mortgage debt, open economy, Ponzi scheme, price discovery process, price mechanism, price stability, pushing on a string, quantitative easing, reserve currency, rising living standards, risk tolerance, savings glut, the market place, The Wealth of Nations by Adam Smith, Thorstein Veblen, transaction costs, Y2K

This is bound to change as the channels through which money is injected broaden, and as more sectors become recipients of the central banks’ flow of money, either by directly receiving money from the central bank or by receiving central bank funded state transfers. The response of broader price level indices to this money printing will be more in accordance with what standard economic theory predicts: there will be rises in standard inflation measures. For some time inflationary policy may appear like “pushing on a string,” but there will be a point at which it will gain traction. The decline in money’s purchasing power will accelerate when the public realizes to what extent income streams, asset prices, and the solvency of the banks and state institutions rest on the ongoing printing of money. The rush out of paper money will then accelerate dramatically. Second, as ever-larger sections of the economy depend on low rates and ongoing money creation it will be politically ever more difficult for the central bank to change policy, to slow the flow of money or even stop it entirely.

 

pages: 261 words: 86,905

How to Speak Money: What the Money People Say--And What It Really Means by John Lanchester

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asset allocation, Basel III, Bernie Madoff, Big bang: deregulation of the City of London, bitcoin, Black Swan, blood diamonds, Bretton Woods, BRICs, Capital in the Twenty-First Century by Thomas Piketty, Celtic Tiger, central bank independence, collapse of Lehman Brothers, collective bargaining, credit crunch, Credit Default Swap, crony capitalism, Dava Sobel, David Graeber, disintermediation, double entry bookkeeping, en.wikipedia.org, estate planning, financial innovation, Flash crash, forward guidance, Gini coefficient, global reserve currency, high net worth, High speed trading, hindsight bias, income inequality, inflation targeting, interest rate swap, Isaac Newton, Jaron Lanier, joint-stock company, joint-stock limited liability company, Kodak vs Instagram, liquidity trap, London Interbank Offered Rate, London Whale, loss aversion, margin call, McJob, means of production, microcredit, money: store of value / unit of account / medium of exchange, moral hazard, neoliberal agenda, New Urbanism, Nick Leeson, Nikolai Kondratiev, Nixon shock, Northern Rock, offshore financial centre, oil shock, open economy, paradox of thrift, Plutocrats, plutocrats, Ponzi scheme, purchasing power parity, pushing on a string, quantitative easing, random walk, rent-seeking, reserve currency, Richard Feynman, Richard Feynman, road to serfdom, Ronald Reagan, Satoshi Nakamoto, security theater, shareholder value, Silicon Valley, six sigma, South Sea Bubble, sovereign wealth fund, Steve Jobs, The Chicago School, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, trickle-down economics, Washington Consensus, working poor, yield curve

Economists and people who speak money argue all the time about things like inflation, not just in terms of what to do about it and its practical consequences but actually in terms of the very essence of what it is and how it works and how best to define it. Here is the range of views, as summarized by Wikipedia: Some economists maintain that high rates of inflation and hyperinflation are caused by an excessive growth of the money supply, while others take the view that under the conditions of a liquidity trap, large injections are “pushing on a string” and cannot cause significantly higher inflation. Views on which factors determine low to moderate rates of inflation are more varied. Low or moderate inflation may be attributed to fluctuations in real demand for goods and services, or to changes in available supplies such as during scarcities, as well as to changes in the velocity of money supply measures—in particular the MZM (money zero maturity) supply velocity.

 

pages: 497 words: 150,205

European Spring: Why Our Economies and Politics Are in a Mess - and How to Put Them Right by Philippe Legrain

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3D printing, Airbnb, Asian financial crisis, bank run, banking crisis, barriers to entry, Basel III, battle of ideas, Berlin Wall, Big bang: deregulation of the City of London, Bretton Woods, BRICs, British Empire, business process, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, Celtic Tiger, central bank independence, centre right, cleantech, collaborative consumption, collapse of Lehman Brothers, collective bargaining, corporate governance, credit crunch, Credit Default Swap, crony capitalism, currency manipulation / currency intervention, currency peg, debt deflation, Diane Coyle, Downton Abbey, Edward Glaeser, Elon Musk, en.wikipedia.org, energy transition, eurozone crisis, fear of failure, financial deregulation, first-past-the-post, forward guidance, full employment, Gini coefficient, global supply chain, Growth in a Time of Debt, hiring and firing, hydraulic fracturing, Hyman Minsky, Hyperloop, immigration reform, income inequality, interest rate derivative, Irish property bubble, James Dyson, Jane Jacobs, job satisfaction, Joseph Schumpeter, Kenneth Rogoff, labour market flexibility, labour mobility, liquidity trap, margin call, Martin Wolf, mittelstand, moral hazard, mortgage debt, mortgage tax deduction, North Sea oil, Northern Rock, offshore financial centre, oil shale / tar sands, oil shock, open economy, price stability, private sector deleveraging, pushing on a string, quantitative easing, Richard Florida, rising living standards, risk-adjusted returns, Robert Gordon, savings glut, school vouchers, self-driving car, sharing economy, Silicon Valley, Silicon Valley startup, Skype, smart grid, smart meter, software patent, sovereign wealth fund, Steve Jobs, The Death and Life of Great American Cities, The Wealth of Nations by Adam Smith, too big to fail, total factor productivity, Tyler Cowen: Great Stagnation, working-age population, Zipcar

As early as March 2009, the Bank of England cut the interest rate at which it lends to banks to a record low of 0.5 per cent. By 2011 inflation averaged 4.5 per cent, so real interest rates were minus 4 per cent. One might have expected such exceptionally generous borrowing terms to have sparked a recovery. But they didn’t, because when banks, households and companies all want to hoard money not part with it, monetary policy becomes largely ineffective. In a liquidity trap, it is like pushing on a string. Normally, when the Bank of England cuts its bank lending rate, the rate at which banks can borrow more generally also falls.428 Banks then tend to lend to people and companies more cheaply, which generally encourages both to borrow more and in time to spend or invest more. Lower interest rates also tend to push up the prices of shares, bonds, property and other assets, making investors feel wealthier and therefore more likely to spend.

 

pages: 504 words: 143,303

Why We Can't Afford the Rich by Andrew Sayer

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accounting loophole / creative accounting, Albert Einstein, asset-backed security, banking crisis, banks create money, Bretton Woods, British Empire, call centre, capital controls, carbon footprint, collective bargaining, corporate social responsibility, credit crunch, Credit Default Swap, crony capitalism, David Graeber, David Ricardo: comparative advantage, debt deflation, decarbonisation, declining real wages, deglobalization, deindustrialization, delayed gratification, demand response, don't be evil, Double Irish / Dutch Sandwich, en.wikipedia.org, Etonian, financial innovation, financial intermediation, Fractional reserve banking, full employment, Goldman Sachs: Vampire Squid, high net worth, income inequality, investor state dispute settlement, Isaac Newton, James Dyson, job automation, Julian Assange, labour market flexibility, laissez-faire capitalism, low skilled workers, Mark Zuckerberg, market fundamentalism, Martin Wolf, means of production, moral hazard, mortgage debt, neoliberal agenda, new economy, New Urbanism, Northern Rock, Occupy movement, offshore financial centre, oil shale / tar sands, patent troll, payday loans, Plutocrats, plutocrats, predatory finance, price stability, pushing on a string, quantitative easing, race to the bottom, rent-seeking, Ronald Reagan, shareholder value, short selling, sovereign wealth fund, Steve Jobs, The Nature of the Firm, The Spirit Level, The Wealth of Nations by Adam Smith, Thorstein Veblen, too big to fail, transfer pricing, trickle-down economics, universal basic income, unpaid internship, upwardly mobile, Washington Consensus, Winter of Discontent, working poor, Yom Kippur War

The banks used the opportunity to ‘deleverage’, that is, pay off debts and build up reserves, while of course keeping themselves in the manner to which they were accustomed as regards pay and bonuses. They failed to increase their already low level of lending for productive investment by businesses. Meanwhile, aggregate demand was depressed by austerity policies, rising unemployment and people cutting back on spending to pay off their debts. From the point of view of economic regeneration, the bailouts were about as successful as ‘pushing on a string’.135 Governments that had to fund substantial bailouts put themselves at risk. Stagnant or shrinking economies also mean increased government debt, because revenues from taxes decline and welfare expenditure goes up as unemployment rises, all of which increase the risk of default. When this predictably resulted in a worsening of the credit rating of those countries, the financial elite demanded more cuts, particularly cuts borne by ordinary taxpayers.

 

pages: 494 words: 132,975

Keynes Hayek: The Clash That Defined Modern Economics by Nicholas Wapshott

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airport security, banking crisis, Bretton Woods, British Empire, collective bargaining, complexity theory, cuban missile crisis, Francis Fukuyama: the end of history, full employment, Gordon Gekko, greed is good, if you build it, they will come, Isaac Newton, Joseph Schumpeter, liquidationism / Banker’s doctrine / the Treasury view, means of production, Mont Pelerin Society, mortgage debt, New Journalism, Northern Rock, price mechanism, pushing on a string, road to serfdom, Ronald Reagan, Simon Kuznets, The Chicago School, The Great Moderation, The Wealth of Nations by Adam Smith, Thomas Malthus, trickle-down economics, War on Poverty, Yom Kippur War

Meanwhile, the Federal Reserve continued buying back government bonds to keep long-term interest rates low, causing the dollar’s value to diminish. Adding to the nation’s supply of money when companies were already awash with cash only confirmed the admonition by Marriner Eccles, Franklin Roosevelt’s Federal Reserve chairman, about the impotence of monetary policy as a stimulus; “You cannot push on a string,” that is, however much money you make available, you cannot force businesses to make investments. EIGHTEEN And the Winner Is . . . Avoiding the Great Recession, 2008 Onward So, eighty years after Hayek and Keynes first crossed swords, who won the most famous duel in the history of economics? For a number of decades Keynes appeared to emerge from the scuffle a little battered but triumphant, yet it was hardly a decisive victory.

 

pages: 461 words: 128,421

The Myth of the Rational Market: A History of Risk, Reward, and Delusion on Wall Street by Justin Fox

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Albert Einstein, Andrei Shleifer, asset allocation, asset-backed security, bank run, Benoit Mandelbrot, Black-Scholes formula, Bretton Woods, Brownian motion, capital asset pricing model, card file, Cass Sunstein, collateralized debt obligation, complexity theory, corporate governance, Credit Default Swap, credit default swaps / collateralized debt obligations, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, discovery of the americas, diversification, diversified portfolio, Edward Glaeser, endowment effect, Eugene Fama: efficient market hypothesis, experimental economics, financial innovation, Financial Instability Hypothesis, floating exchange rates, George Akerlof, Henri Poincaré, Hyman Minsky, implied volatility, impulse control, index arbitrage, index card, index fund, invisible hand, Isaac Newton, John Nash: game theory, John von Neumann, joint-stock company, Joseph Schumpeter, libertarian paternalism, linear programming, Long Term Capital Management, Louis Bachelier, mandelbrot fractal, market bubble, market design, New Journalism, Nikolai Kondratiev, Paul Lévy, pension reform, performance metric, Ponzi scheme, prediction markets, pushing on a string, quantitative trading / quantitative finance, Ralph Nader, RAND corporation, random walk, Richard Thaler, risk/return, road to serfdom, Robert Shiller, Robert Shiller, rolodex, Ronald Reagan, shareholder value, Sharpe ratio, short selling, side project, Silicon Valley, South Sea Bubble, statistical model, The Chicago School, The Myth of the Rational Market, The Predators' Ball, the scientific method, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Thomas Kuhn: the structure of scientific revolutions, Thomas L Friedman, Thorstein Veblen, Tobin tax, transaction costs, tulip mania, value at risk, Vanguard fund, volatility smile, Yogi Berra

Keynesianism was more a tweaking of Marshall’s neoclassical teachings than a complete overturning of them. Through the 1920s, Keynes and Irving Fisher had been on a similar economic wavelength, sharing the belief that misguided monetary policies caused most economic problems. During the Depression, Keynes took things a step further. The remedy Fisher prescribed was to print more money. Keynes despaired that this would amount merely to “pushing on a string,” and argued that government needed to spend money to get the economy moving again. As a matter of economic policy, this was a big difference. In terms of economic theory, not so much. The doctrine that took Keynes’s name came to consist of the mathematical economics of rational individual choice (that is, Fisher’s economics), combined with a few less-than-elegant additions that attempted to represent the maladies of the national economy known as recession and depression.17 “This was not a perfect bicycle,” recalled one of the young Keynesians, Paul Samuelson, “but it was the best wheel in town.”18 The perfect bicycle that was mathematical equilibrium economics remained intact.

 

pages: 708 words: 196,859

Lords of Finance: The Bankers Who Broke the World by Liaquat Ahamed

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Albert Einstein, anti-communist, bank run, banking crisis, Bretton Woods, British Empire, capital controls, central bank independence, centre right, credit crunch, currency manipulation / currency intervention, Etonian, full employment, German hyperinflation, index card, invisible hand, Lao Tzu, large denomination, Long Term Capital Management, margin call, market bubble, Mexican peso crisis / tequila crisis, mobile money, moral hazard, new economy, open economy, Plutocrats, plutocrats, price stability, purchasing power parity, pushing on a string, rolodex, the market place

At the stroke of a pen the gold shortage was lifted, allowing the Fed to embark on a massive program of open market operations, injecting a total of $1 billion of cash into banks. The two new measures combined—the infusion of additional capital into the banking system and the injection of reserves—allowed the Fed finally to pump money into the system on the scale required. But Meyer had left it too late. A similar measure in late 1930 or in 1931 might have changed the course of history. In 1932 it was like pushing on a string. Banks, shaken by the previous two years, instead of lending out the money used the capital so injected to build up their own reserves. Total bank credit kept shrinking at a rate of 20 percent a year. Bankers and financiers, the heroes of the previous decade, now became the whipping boys. No one provided a better target than Andrew Mellon. In January 1932, a freshman Democratic congressman from Texas, Wright Patman, opened impeachment hearings for high crimes and misdemeanors against the man once hailed as the “greatest Secretary of the Treasury since Alexander Hamilton.”

 

pages: 593 words: 189,857

Stress Test: Reflections on Financial Crises by Timothy F. Geithner

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Affordable Care Act / Obamacare, asset-backed security, Atul Gawande, bank run, banking crisis, Basel III, Bernie Madoff, Bernie Sanders, Buckminster Fuller, Carmen Reinhart, central bank independence, collateralized debt obligation, correlation does not imply causation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, David Brooks, Doomsday Book, eurozone crisis, financial innovation, Flash crash, Goldman Sachs: Vampire Squid, housing crisis, Hyman Minsky, illegal immigration, implied volatility, London Interbank Offered Rate, Long Term Capital Management, margin call, market fundamentalism, Martin Wolf, McMansion, Mexican peso crisis / tequila crisis, moral hazard, mortgage debt, Nate Silver, Northern Rock, obamacare, paradox of thrift, pets.com, price stability, profit maximization, pushing on a string, quantitative easing, race to the bottom, RAND corporation, regulatory arbitrage, reserve currency, Saturday Night Live, savings glut, short selling, sovereign wealth fund, The Great Moderation, The Signal and the Noise by Nate Silver, Tobin tax, too big to fail, working poor

But the financial system is the conduit between the Fed and the economy, and the financial system was broken. In an epic financial crisis that followed a major credit boom, easy money had much less power. Interest rates were already effectively zero; most banks had little ability and even less desire to lend; businesses had little desire to borrow; and consumers already had too much debt. As central bankers say, it felt like the Fed was pushing on a string. It had begun the first round of quantitative easing, or QE1, buying GSE mortgage bonds to help reduce the cost and increase the availability of mortgages. This was an innovative way to do monetary stimulus at a time when short-term rates were as low as they could go; the Fed would later expand the program to Treasuries to try to drive down long-term rates more generally. It was helpful at a time when the economy was still struggling, but it would not be enough on its own.

 

pages: 992 words: 292,389

Conspiracy of Fools: A True Story by Kurt Eichenwald

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Asian financial crisis, Burning Man, estate planning, forensic accounting, Long Term Capital Management, margin call, Negawatt, new economy, oil shock, price stability, pushing on a string, Ronald Reagan, transaction costs, value at risk, young professional

If Enron had to return the money when prices dropped, so be it. Its finance team would deal with that later. In early January 2001, Skilling and Baxter stood on the ground level of an Enron parking garage, smoking. Baxter dropped the butt to the ground, crushing it with his foot. He was cranky and frustrated, like he’d been most days in the months since the end of Project Summer. Every other sales effort had bombed out. “This is like pushing on a string, Jeff,” he said. “I’m not getting anywhere.” “We’re going to have to keep plugging,” Skilling replied. The international projects had to be sold. Baxter shook his head. “You don’t need me to do this,” he said. “I’m not having any fun doing this.” He breathed deeply. “Jeff, I think it’s probably time for me to go,” he said. “I want to spend more time with my family, just do something new.”