Crossing the Rubicon – VII

Spaghetti Western World

I meant to talk about the current stock market rally but have been taken aback (and so was the market) by the Italian elections. On election day, stock markets surged on optimism when the first polls said Bersani was going to win and to subsequently invert when actual results failed to declare a winner. The market is, in its way, a voting mechanism. Only instead of the discrete one man one vote rule, it is the continuous weighted average of investors willing to buy or sell at given levels that counts. The important thing to notice was stock markets were fast to act on a projection and slow to recognize reality which gives us a good measure of what is the prevailing sentiment. Continue reading

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Crossing the Rubicon – VI

The Descent of Money

Some time ago I came up with a definition of money. Not that there is anything new or uncommonly brilliant about it. It’s just a reminder of what that, which is considered by many the root of all evil, is. So there goes:

Money is the outcome of a process of entrepreneurial discovery for solutions to the coordination problems of the division of labour: time and space mismatches between production and consumption.

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On Currency Wars

Paul Cézanne, The Card Players (1890-92), Metropolitan Museum of Art, New York, NY

Paul Cézanne, The Card Players (1890-92), Metropolitan Museum of Art, New York, NY

It is usually argued that devaluating a currency increases the value of domestic companies’ foreign profits when they are repatriated. Yet it reduces the attractiveness of repatriating that same capital. Or any other capital for that matter. Higher interest rates are then demanded to make capital investments attractive. But if higher interest rates are paid, then capital might rush in reversing the devaluation. Devaluating a currency subsidizes exports by destroing existing capital. This is replaced by more fragile capital structures.

The benefits of devaluating a currency are so short-termed that, once it starts, there isn’t really much incentive to make it stop.

And now for something completely different: Obanomics.

From the SOTU address:

“But let’s be clear: deficit reduction alone is not an economic plan.”

I couldn’t agree more. Economic plans are a child of totalitarian states.

“It’s not a bigger government we need, but a smarter government that sets priorities and invests in broadbased growth.”

But as we cannot make people smarter than they already are, we are going to make it bigger anyhow.

Crossing the Rubicon – V

How to turn a bad bank into something worse

When economic crisis hit Sweden back in the early 1990’s their government performed a restructuring of the financial system (and of the economy as a whole for that matter), so deep that the paradigm of welfare state became more market orientated than the countries that looked upon the Swedish model with reverence while their leaders cried not enough was being done to be like them. Swedish free-market defendants might object to this view as they still endure high taxes and government intervention but things are better not worse than elsewhere.
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Crossing the Rubicom – IV

Modern banking started in Italy in the early 15th Century. Pinpointing the moment is a bit arbitrary, especially since we know a banker had is head cut in Barcelona during the 13th century for not being able to return depositors’ money, the Templar Knights performed the services we associate with banking after the turn of the first millennium and Christ himself expelled from the Temple of Jerusalem the dedicated members of the profession. It can be argued that people have always lent and kept valuables for others thus banks satisfy perennial needs since the dawn of times.
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