Big in Japan
(Things are easy when you’re big in Japan)
The case for Japan is a simple one or is it not? Stagnant for 20 years, the Japanese Government wants to believe their economy touched bottom. Now, all it needs is some stimulus to resume growth (is it a coincidence that the Spanish and Greek prime-ministers said exactly the same? And, at least, the Spanish premier, begs the ECB to do the same). If the Americans tried to stimulate their economy via QE – Quantitative Easing, the Europeans chose to keep their currency by performing QE – Qualitative Easing. The Japanese are going to try and be bolder and will go for QQE – Quantitative and Qualitative Easing, that is, doubling the size of their money offering while buying assets of less perceived quality. To be absolutely fair, the FED and the ECB also used both strategies. The FED did the twist while the ECB was never shy to increase the size of their balance sheet, before and after Draghi’s speech. Continue reading
Peter Bruegel the Elder, The Tower of Babel (1563), Kunsthistoriches Museum, Vienna.
Whenever someone leaves something into the custody of another, usually but not necessarily against a fee, the contract between the two parties is said to be a deposit and that something must be surrendered on demand. The custodian cannot use the thing delivered or, if goods are fungible, must at all times keep the same quantity of the good under custody. When someting is delivered for another to use, usually but not necessarly against a fee, then the contract arising is called a loan. The loan is not callable on demand but has an agreed term for the delivery of the thing lended.
Regardless of definitions, whenever someone makes a bank deposit, it is actualy lending that money to the bank. He may feel this is unfair or incorrectly so. But it is unwise to treat the matter differently.
Gustav Klimt, Nuda Veritas (1899), Osterreichisches Theatermuseum, Vienna
According to Murray Rothbard, the only novel though of Nicolas Oresme, for the advancement of economic science, was the first correct formulation of the world famous Gresham’s Law, some 200 years before Sir Thomas Gresham’s own description of the phenomena. The fact that good currency disappears from circulation when a less valuable one is forcefully introduced had been observed at least since Ancient Greece. There is a reference to this phenomena in Aristophanes play The Frogs, which implies that it was common knowledge and easily understood by the average theatre-goer in the late 5th Century BC. What is remarkable about Oresme is that he points the reason for this behaviour and explains the chain of events that lie underneath: it is as a reaction to government coercively imposing a fixed-price to the currency after debasing it. This drives out of the market the under-priced currency, which people will try to sell abroad at the higher market price, while keeping the debased coins for usage in local transactions. Outside Political Economy, Modern Finance applies this law to the valuation of derivative contracts when more than one underlying asset is allowed to be delivered at the settlement date. When calculating the price of the derivative, it is assumed that the underlying that will be exchanged at settlement is the cheapest-to-deliver or CTD. Continue reading
Benozzo Gozzoli, The Triumph of St. Thomas Aquinas (1471), Musée du Louvre, Paris
It was St. Thomas Aquinas who baptised Aristotle. Plato had more or less been a constant source of inspiration for the Christian thinkers from the very beginning, but Aristotle, with its appeal to senses and a description of the world based in how it appeared to man’s eyes, was a bigger challenge. The understanding of Aristotle’s philosophy under the light of Christianity had begun before St. Thomas. His mentor, St. Albert the Great was a worthy predecessor, but there is no doubt that as Aristotle was the systemiser of the Greek world and it was St. Thomas who achieved the same result for Christendom based on the ideas of the Stagirite. From St. Thomas onward Aristotle became The Philosopher in the Western World. The movement for nation states to impose themselves above the Church was also a revolt against Aristotle’s preeminence. Continue reading
Eugène Delacroix, 1830, Liberty Leading the People, Musée du Louvre, Paris
Institutions are the building blocks of civilization. Despite the future being unknown, they help individuals to anticipate the consequences of their own actions. Institutions such as marriage, language, markets, justice or money, etc. come to be by the repeated behaviour of many people creating patterns that every individual expects his fellowman to keep. This means institutions have to be stable enough to allow for repeated patterns of behaviour to be incorporated and yet, dynamic enough to allow better ways of serving each and every individual’s goals to spring. Continue reading
Yesterday evening the Cypriot Parliament took the only sensible decision at this stage which was nothing at all. I think this is a Mexican standoff where, unlike in a duel, the first to shoot is at a disadvantage. We had an anticipation of what was to be when the Cypriot finance minister resigned after a thorough consideration of his options: a) to be killed by an angry mod in the streets of Nicosia b) to be killed by a shot in the back of the neck by a professional assassin (or possibly in a more violent fashion) c) both d) none of the above. Later the parliament was roughly given the same choice and resigned from passing a law. If nothing is done, then Cyprus will have to leave the euro and will have no choice but to devaluate its currency. This outcome is harmful to both Russia and Germany, so Nicosia reckons they will have to move. Continue reading
Another One Bites the Dust
(And another one gone, another one bites the dust)
A bank rescue is being attempted in Cyprus by the European Union, the IMF, the ECB and the Cypriot Government. The full tab is expected to be of 17Bn euros of which the EU wants bank depositors to contribute with 5.8Bn. The first sentence takes care of the what, when, where and by whom, while the second is a pretty condensed version of the how. Five of the six questions people ask (or should ask) when they want to know about something. This leaves us with the trickiest one: the why. And the honest answer to that is I do not know and can only speculate about it. Continue reading
Break On Through
(We chased our pleasures here, dug our treasures there, but can you still recall the time we cried? Break on through to the other side)
I’ve wanted to talk about the equity rally for a long time and now that the Dow Jones went off to reach new highs it seems like just about right. Last week when it broke the previous milestone (14164.5 points) Zerohedge published an interesting note comparing how other economic aggregates and prices stood in 2007. You can check them here: Continue reading
Marinus van Reymerswaele(1539), The Money Changer and his Wife, Museo del Prado, Madrid, Spain.
From Plato’s Laws:
The law enjoins that no private man shall be allowed to possess gold or silver, but only coin for daily use…our citizens should have coin passing current among themselves, but not accepted by the rest of mankind.
He was thinking about something like leather to do the trick. Paper was yet to be invented of course. Furthermore…
If a private person is ever obliged to go abroad, let him have the consent of the magistrates and go; and if when he returns he has any foreign money remaining, let him give the surplus back to the treasury, and receive a corresponding sum in the local currency. And if he is discovered to appropriate it, let it be confiscated, and let him who knows and does not inform be subject to the curse and dishonour equally with him who brought the money
Plato is famous, amongst other things, for writing in his youth The Republic, the oldest book know to describe a communist state. The older, more mature, Plato wrote The Laws, considered by some the oldest book to describe a fascist state. How much was learned in twenty-five centuries?