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Socratic economics VI: all I know is I know nothing edition

by kcurie Thu Nov 22nd, 2007 at 01:35:41 PM EST

Today: I know nothing edition

I have been trying to get an answer in the comments and everybody seem as puzzled as me .. (or well. they think I am stupid so why bother)...So I will launch a diary that I hope it will be promoted by the powers to be and answered by the experts in the field

I would like an answer to one simple question...


If everybody predicts the dollar is going to fall heavily and probably more than 4% given the hard-core trade imbalances, the Wild_Eye Coyote phenomena and the PRESENT TREND... why .. oh why is people buying US securities at 4% interest rates????

Why oh why  the basic rule that people do not want to lose money does not seem to apply here (no mention earning more money in europe)... who is willing to lose money on purpose and why?

Private investor....?
central banks of China and Japan (still buying at the same rate??).. one of the comments said they are not buying as much as before .. and still
Oil monarchies for favors...
Conspiracy theories (false companies arranged by the government to look like priv. companies are buying the stuff.... ala CIA movie)

Because it may turn out that even if China sells all the US securities there would be someone ready to buy them all...

HEAD EXPLODES AND I know nothing...

Please.. keep it simple..

[editor's note, by Migeru] Socratic Economics is an occasional series of questions posed in a Socratic effort to understand economics. Previous entries:

Display:
HEAD EXPLODES AND I know nothing...

You too?

(I'm going back to employment, about which I know even less than about money...)

by afew (afew(a in a circle)eurotrib_dot_com) on Thu Nov 22nd, 2007 at 03:05:34 PM EST
this is going to be a very boring thread.. with all heads exploding...

but seriously I would like someone explining to me.. why..

Now I am going for your jobs... let's see if my head doe snot explode there...

A pleasure

I therefore claim to show, not how men think in myths, but how myths operate in men's minds without their being aware of the fact. Levi-Strauss, Claude

by kcurie on Thu Nov 22nd, 2007 at 03:18:03 PM EST
[ Parent ]
Well, you know what Keynes' General Theory was about, right? Employment, Interest and Money.

We have met the enemy, and he is us — Pogo
by Migeru (migeru at eurotrib dot com) on Thu Nov 22nd, 2007 at 03:18:24 PM EST
[ Parent ]
I would say employment is clear defined thing.. money is clearly an objective measure.. youc an cehckhow it is created how it flows.. how it cahnges from ahnd to hand... adn the same thing goes for itnerests on money lent are given..

they are allc lear measures and objetive stuff... the thing is... keeping it objective and scientific would probably lead you to state very few meaningful propositions.. adn then you would not be able to justify all the free-lunch economists get...

I think that a finite resourse is also objective.. adn the distribution on what people spent their time.. what kind fo things they are doing....

fromt here on.. I get completely lost....GDp... nonsense, demand and supplu.. nonsense.. supply e-conomic uber-nonsense....

Monetary policy.... I know nothing....

A pleasure

I therefore claim to show, not how men think in myths, but how myths operate in men's minds without their being aware of the fact. Levi-Strauss, Claude

by kcurie on Thu Nov 22nd, 2007 at 03:36:33 PM EST
[ Parent ]
... but while finite and given material is objective, finite and given resources is not. Its technology that defines one thing as an economic resource and another thing as not, and the available supply relative to the aggregate required to satisfy the ambitions of each ongoing enterprise and other collectives that defines an economic resource as either a limiting resource or a complementary resource, which are the focus of strategic transactions and routine transactions, respectively.

The fantasy that the "resourceness" of resources is fixed outside the economic system is another one of those plausible sounding but fallacious concepts that allows marginalist economists to assume away a set of questions that their conceptual toolkit is not equipped to address.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Fri Nov 23rd, 2007 at 09:22:15 AM EST
[ Parent ]
... in the reserve banking system with government fiat currency as the reserve asset.

When the fiscal authority makes a payment for goods or services, that also injects reserves into the monetary system, and when tax payments are made, that removes reserves from the monetary system.

Then, in one alternative, the central bank lends reserves to commercial banks openly, when and as demanded by commercial banks, which injects reserves into the system ... and when those loans are repaid those reserves are removed again.

In this case, the interest rate on that lending is the cost of funds to banks, and when they lend, their revenue comes from the margin between that cost of funds and the lending rates they set. Since most money in a reserve banking system is created by bank lending, the cost of funds to banks, in the context of a given set of lending opportunities, has a strong influence on the amount of purchasing power in the system.

In the second alternative, the central bank buys bonds to inject reserves into the banking system, and if it sells bonds, reserves are removed from the banking system.

In this second case, a bank that has excess reserves lends them overnight to a bank that is short of reserves, and the interest rate on those reserves is the bank's cost of funds. In that case, the central bank regulates the cost of funds when it regulates the total amount of reserves in the system by buying and selling bonds.

One complication in monetary policy comes from the BS that central banks spin as they are engages in managing monetary policy, and the BS that actors in the financial sector spin as they attempt to rationalize monetary policy stances that serve vested interests of the financial sector, but not the broader public interest. Since that conflict of interest is endemic to a reserve banking system, so is the smoke generated by the fairy tales told to rationalize away that conflict with the broader public interest.

The other main complication is that in a reserve banking system, money has to feel like it is intrinsically valuable in order to perform its four functions properly, but on the other hand, actually having intrinsic value interferes with playing those functions. People socialized in a society with a functioning reserve banking system therefore have a false intuition about money, feeling like it is a thing rather than a collective institution, and that false intuition lends substantial aid and comfort to the spinning of BS stories about monetary policy.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Fri Nov 23rd, 2007 at 09:40:04 AM EST
[ Parent ]
I am definitely no an expert, but my rule of thumb, which is shared I think by people who do know about the fine print, is that the current price of anything in a liquid market is the best estimate for its future price.

Or, to put it differently, the people who actually trade in dollars are less sure about further drops than the people who write about trade in dollars. The trade deficit you mention has been like that for years, or to some extent it will already be incorporated in the price.

O a side note, you compare a drop of 4% in dollar values to 4% securities. Of course, people who expect a 4% drop in the next year, and buy 1-year securities are apparently willing tolose money. But people who buy longer duration securities might still consider it a good, safe investment, even if they expect a further 4% drop in the coming year but nothing afterwards.

by GreatZamfir on Thu Nov 22nd, 2007 at 03:34:48 PM EST
I am of course very interested if people know mechanisms that disturb this simple model...
by GreatZamfir on Thu Nov 22nd, 2007 at 03:36:32 PM EST
[ Parent ]
How technical do you want me to get?

We have met the enemy, and he is us — Pogo
by Migeru (migeru at eurotrib dot com) on Thu Nov 22nd, 2007 at 03:52:30 PM EST
[ Parent ]
As much as you need...

A pleasure

I therefore claim to show, not how men think in myths, but how myths operate in men's minds without their being aware of the fact. Levi-Strauss, Claude

by kcurie on Thu Nov 22nd, 2007 at 04:08:54 PM EST
[ Parent ]
Let's start with this:GreatZamfir:
the current price of anything in a liquid market is the best estimate for its future price.

Or, to put it differently, the people who actually trade in dollars are less sure about further drops than the people who write about trade in dollars

This is so "differently put" that the two statements are not equivalent. You interpret the second statement as
kcurie:
You mean that people buying US securities do not think that the dolar is going to fall
but that is not the same thing as "the best estimate of future price".

Again: the market expectation is not necessarily a good estimate of the future price. This is so important that entire chapters of financial mathematics books are devoted to it. In technical terms, there are two probability measures. One is the "actual" or "physical" probability measure, and the other is the "market" or "risk-neutral" probability measure. "Financial engineering" is concerned with the "market expectation", while "risk management" is concerned with the "actual expectation". Too bad the "actual expectation" is not observable from market prices, by definition.

You need the assumptions of general equilibrium, market efficiency, and lack of arbitrage in order to make the "actual" and "market" measures coincide. But that begs the question, doesn't it? Money is actually made exploiting deviations from equilibrium, market inefficiencies and arbitrage opportunities. But if you believe that's impossible because you know too much economics you just try to be a market maker and make money from commissions on the volume that is traded.

We have met the enemy, and he is us — Pogo

by Migeru (migeru at eurotrib dot com) on Thu Nov 22nd, 2007 at 05:38:21 PM EST
[ Parent ]
Are not all 'probability measures' by nature unobservable, i.e. you can observe the actual outcomes, or derive people's opinion on the measure from their actions, but you can't observe the actual function?

I encountered this 'risk-free probability' once before, when I accidentally visited an 'Introduction to Black-Scholes' talk by a French guy who I thought would be talking about shape optimization. But he said, very dryly, something along the lines of "Nowadays, all my students want to become rich. So I decided to study something about money. I'll tell you about it, it is actually not as boring as you would think." I am afraid  I missed the finer points of his talk.

Now, I understand why you could observe the risk-free expectation from the market prices, if the risk-free assumption were correct. It was my impression the Black-Scholes model at least used risk-free probabilities because it made calculations easier, not because it really was a good assumption.

But your post suggests that more intrinsically you can derive the risk-free expectation (or at least the market's opinion of it?) from current prices but not the actual expectation, nor other people's opinion on this. I definitely do not understand this.

On another note, how would these concepts translate to the practical case of the current dollar? More concrete, to return to kcurie's question, why would people who expect a further slide of the dollar be willing to buy American investments without an increase in the interest rate?

by GreatZamfir on Fri Nov 23rd, 2007 at 06:52:38 AM EST
[ Parent ]
Yes, probability measures are unobservable. If you assume that a large number of observations are drawn from the same probability measure you can start to approximate it. But this requires assumptions like time homogeneity and an "ergodic"-type hypothesis, namely that the population statistics are the same as the time statistics of a single instance of the population - not weak hypotheses, but without them you are talking about the probability of single events and then you have a lot of philosophical and practical problems.

Let's look at this probability of a single event in a little more detail... We have a single event, the result of a single football game.
RogueTrooper:

The miserable 3-2 defeat by Croatia at Wembley saw England finish in third place in qualifying Group E and led to the Football Association terminating the contract of head coach Steve McClaren after just 18 games.
This has economic consequences:
ThatBritGuy:
£2bn of domestic spending lost according to some estimates.
even consequences for stock valuation:
Jerome a Paris:

England's spectacular crash out of Euro 2008 on Wednesday night drove Sports Direct to warn that it was unlikely to meet expectations for profits in the current year.

The boot of Mladen Petric, who scored a late strike to lead Croatia to victory against England, also dented the prospects at Umbro.

So, trading Umbro or Sports Direct was in effect a bet on the outcome of the England-Croatia match.

Assume for the sake of argument that the "true" probability (objective-probability-interpretation alert!) of an England win (Achtung! single-event-probability alert!) was 2/3. That is, England was a priori twice as likely as Croatia to win the game. Now, how you would know this is beyond me, but let's assume that God rolled a die with 1-2 giving a Croatia win and 3-6 an England win. But we don't know this.

Now suppose that you're a bookmaker offering fixed odds which you adjust daily so as to make sure you don't lose money, and up to a certain point, 37846 pounds have been bet on an England win and 17364 pounds have been bet on a Croatia win, and you have been continually adjusting the odds as people place bets. How do you set the odds at this point? Note that you're the bookmaker: you're not in the business of betting on the outcome of the match so your opinion of the odds of an Englan win are immaterial to the odds you will offer. Note also that the amount of money bet on either side gives odds of 2.18:1 which overestimates the "true" (unknown by you or anyone) odds of 2:1 (this is presumably the English punters getting moderately carried away by patriotic fervour). So, what odds will you offer?

Using the ratio of money people have already bet with you, and given the fact that 2:1 < 2.18 < 11:5 (continued fractions under the hood, here) you could offer 1:2 odds for Croatia bets and 11:5 odds for England bets. The implied probabilities of 1/3 and 11/16 add up to 49/48 so you're making a profit of 1/48 no matter what. Indeed, if Croatia wins, you have to pay off 17364 * 3 = 52092 and if England wins you have to pay off 37846 * 11/16 = 55049, but people have bet 55230 in total, so if Croatia wins you make 3138 and if England wins you make 181. There is an implicit bet, but you never lose money.

Now, if you happen to have a personal estimate of the odds of the game that falls between 2:1 and 11:5 you won't bet, as the bet is not favourable. But if you believe that the true odds should be 3:1 because you're English or 1:1 because you're Croatian or you have some sort of grudge against the FA or MacLaren, you'll place a bet because it is favourable to you. It is, in fact, highly unlikely anyone will have so precise a bet as to fall betweeen 2:1 and 11:5 so everyone who is inclined to betting is pretty much guaranteed to find the odds advantageous (despite the 1/48 commission that the bookmaker is taking).

In this case, coincidentally, the 2:1 odds offered on one side match the "true" odds that nobody knows about. But note that the calculation of odds and payoffs at no point involves an estimate of the true odds, just an analysis of the market expectation, which is driven in part by irrational considerations and is not very precise (let alone accurate).

Now replace the football match results with the dividends to be given out by a company at the end of the financial year, the bets with buying and selling stocks, the bookmaker with a stock broker (or a "market maker") and the 2:1 and 11:5 odds with the bid and offer for the particular stock. Replace the patriotism or the grudges of the bettors with various cognitive biases of investors big and small, and you'll see the difference between the "market expectation" and the "true valuation" of securities.

The thing is, if you want to get a good estimate of the "true valuation" you need to pay through the nose for computers, analysts,  data, and even then either you have to rely on the judgement of an fundamental analyst or on having good technical analysts, or a good computer "expert system", and half the time you're estimating not fundamentals but the herd instinct of the market participants.

Now, I understand why you could observe the risk-free expectation from the market prices, if the risk-free assumption were correct. It was my impression the Black-Scholes model at least used risk-free probabilities because it made calculations easier, not because it really was a good assumption.
Isn't that true of most applied mathematics?
But your post suggests that more intrinsically you can derive the risk-free expectation (or at least the market's opinion of it?) from current prices but not the actual expectation, nor other people's opinion on this. I definitely do not understand this.
The fact is, if you want to say "the futures market is currently pricing oil as if it will not go below $60/bbl in the foreseeable future" or you want to say "based on the Black-Scholes implied volatility of S&P options we're entering a period of low market volatility", you can say that. But that doesn't mean that oil won't go below $60 or that volatility won't be high. It just tells you what the market expects. And, as we know at least since Keynes (who put them at the center of his macroeconomic theory), expectations drive the economy, but don't tell you anything about the fundamentals.

So, if you think you know about the fundamentals you're likely to find a few investment opportunities because the conventional wisdom is not very wise.

We have met the enemy, and he is us — Pogo

by Migeru (migeru at eurotrib dot com) on Fri Nov 23rd, 2007 at 07:48:08 AM EST
[ Parent ]
And, as we know at least since Keynes (who put them at the center of his macroeconomic theory), expectations drive the economy...

But do they?

Sure, my expectation that house prices will keep rising is a principal factor behind my decision to borrow as much as I can so I can flip it at a quick profit etc etc.

So, yes expectations drive asset prices upwards, which affects the amount of money in issue, and some leaks out into circulation.

But retail prices are different IMHO.

I don't believe yer average Joe Blow thinks:

"In my view, petrol, cornflakes, cigarettes and booze are going to rise 10% in the next year, therefore I want a pay rise".

I believe he thinks:

"Shit: petrol, cornflakes and booze have all gone up in the last year, therefore I want a pay rise."

And the JoeBlowCo Plc management think:

"Shit: our staff costs have gone up, and so have those pesky interest rates, (which the Central Bank has just raised in order to control inflation), never mind energy costs and the rest.

I must maintain my profit margin, and therefore I'll try and increase my prices."

Result, if they succeed: inflation.

ie maybe profits are de facto the principal component of inflation.

In other words, I think that retail price inflation is driven less by inflationary expectations, and rather more by past experience.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Fri Nov 23rd, 2007 at 12:15:06 PM EST
[ Parent ]
Retail pricing is different, as we have previously discussed.  People don't stop to calculate the ownership costs, figure the NPV, and add that to the purchase price.

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre
by ATinNM on Fri Nov 23rd, 2007 at 12:25:29 PM EST
[ Parent ]
I did not speak of inflation.

On the demand side, consumer confidence influences which fraction of disposable income mill be saved and which will be spend, that is, the savings rate, and what Keynes called the propensity to consume. Also the propensity to take on debt. And consumer confidence is all about expectations, though not about expectations of future retail prices.

We have met the enemy, and he is us — Pogo

by Migeru (migeru at eurotrib dot com) on Fri Nov 23rd, 2007 at 03:06:08 PM EST
[ Parent ]
Oh, one more thing. The market price is the expectation with respect to the risk-neutral measure. So studying market prices you can only ever get information about the risk-neutral measure, not the "true" measure.

We have met the enemy, and he is us — Pogo
by Migeru (migeru at eurotrib dot com) on Fri Nov 23rd, 2007 at 03:12:33 PM EST
[ Parent ]
And that's exactly the point I do not get. People who buy and sell are doing that based on their personal estimation of the true prob. measure, and their personal willingness to take on risk, I would say? Then why is the current price related to risk-neutral probability?
by GreatZamfir on Fri Nov 23rd, 2007 at 05:17:23 PM EST
[ Parent ]
Because the "risk-neutral measure" is just another name for the "market measure". It's a name that I actually find confusing. I prefer to think about "market measure".

We have met the enemy, and he is us — Pogo
by Migeru (migeru at eurotrib dot com) on Fri Nov 23rd, 2007 at 05:24:57 PM EST
[ Parent ]
As Feynman used to say, if you cannot explain something in simple terms you don't understand it.

Which means I don't understand the risk-neutral measure. Give it a couple of days.

Watch this space.

We have met the enemy, and he is us — Pogo

by Migeru (migeru at eurotrib dot com) on Sat Nov 24th, 2007 at 07:11:25 PM EST
[ Parent ]
thanks for teh answer...

You mean that people buying US securities do not think that the dolar is going to fall.. or that they are not sure... but if they are not sure and they are foreigners.. why not going elsewhere?

And do they really believe that the dollar is not going to fall further?

A pleasure

I therefore claim to show, not how men think in myths, but how myths operate in men's minds without their being aware of the fact. Levi-Strauss, Claude

by kcurie on Thu Nov 22nd, 2007 at 03:40:50 PM EST
[ Parent ]
Well, I think there's an extra factor that the USD remains the "reserve currency."

That's not exactly an easy thing to define, but I'm pretty sure it has something to do with it.

I would write more, but I've run out of energy for the evening.

by Metatone (metatone [a|t] gmail (dot) com) on Thu Nov 22nd, 2007 at 05:49:21 PM EST
[ Parent ]
my rule of thumb, which is shared I think by people who do know about the fine print, is that the current price of anything in a liquid market is the best estimate for its future price.
Actually, no. See, for instance

European Tribune: A very murky crystal ball by Colman on May 19th, 2006

A lot of people seem to think that oil futures give a good indication of future oil prices, apparently believing in the "wisdom of crowds". Menzie Chinn (who is a real economist) on Econbrowser looked at that idea:

...

So they're not very good at predicting prices. In fact, he goes on to say that they're not much better than a random walk would be.



We have met the enemy, and he is us — Pogo
by Migeru (migeru at eurotrib dot com) on Thu Nov 22nd, 2007 at 03:50:21 PM EST
[ Parent ]
Jerome's comment (and HiD's follow-up) in that diary was also interesting:

Jerome a Paris:

Futures are the opinion of the market as to where prices will be in the more or less distant future. Usually, there are fairly precise bets for the first year or two, and then it drifts towards what is seen as the long term expectation.

For twenty years, that long term expectation was extraordinarily stable. It is just as remarkable how quickly that long term expectation has changed in the past 3 years. This is truly the market absorbing new information. <...>

HiD:

keep in mind what may have changed is the character of the market.

<...>

Now the hedge funds are big, big players.  Buffett/Munger was on the phone daily to the guy sitting across from me back in 1996.  (Ditto Tiger.)  Buffett was an early adopter.  Many, many more are involved in commods now and there is much more money in hedge funds overall.  

So now you have a more realistic market.  That overlays the obvious supply/demand tightening.



Truth unfolds in time through a communal process.
by marco on Thu Nov 22nd, 2007 at 05:37:34 PM EST
[ Parent ]
If everybody predicts the dollar is going to fall heavily and probably more than 4% given the hard-core trade imbalances, the Wild_Eye Coyote phenomena and the PRESENT TREND... why .. oh why is people buying US securities at 4% interest rates????
What securities are people buying? US Treasury bonds? Corporate bonds? Stocks? All of them?

We have met the enemy, and he is us — Pogo
by Migeru (migeru at eurotrib dot com) on Thu Nov 22nd, 2007 at 05:57:28 PM EST
for oil exporters:



In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Sat Nov 24th, 2007 at 04:14:36 PM EST
[ Parent ]
I think the answer is: there are many kinds of investors.

Many are US invertors with mandates in risk and cashflow (think pension funds). They are american, they are immune to the fall of the dollar (first order approximation). They are losing on subprime bets, they bring in cash from abroad to make up for it. Prevents faster fall of the dollar. Park the cash in T-Bonds because they're shit scared. Hence the 4% T-Bond. It is a pityful return and foreigners should dump T-Bond if they are bearish on the dollar exchange rate. But China has'nt dumped yet, so no dollar crash, no rate jump. China & al may be short sighted as discussed by Krugman http://www.economic-policy.org/article1.asp?src=bpl&aid=183&iid=51&vid=22&id=

Next, you have many foreigners who realize T-bonds returns are crap, private bonds are a disaster, they have pulled 200 billion $ out of commercial paper and money markets. Some of them are converting into euro or their domestic currency (dollar goes down), but some of this dollar cash is staying in dollar (it makes sense, after all we don't know it's gonna crash just yet, there might still be bargains to make, and "diversification" doesn't mean you eliminate the dollar from your portfolio). And what asset class is there left to park it ? The only asset class that has a recent track record showing it can outperform the fall in the currency ? You get it, equities. Hence the surge in the equity indexes.

Pierre

by Pierre on Fri Nov 23rd, 2007 at 07:53:56 AM EST
Forgive me (I know so little!), do you mean they're investing in shares in companies?

I had a search for Equities and I was taken to shares, and then to Equities (via a strange gangster-chic ad--cocaine!  They're kids are coke heads.  Help!  How do you bring a cokehead down when their only direction is up?  Heh....(I'm guessing...the intensity.  Also (maybe...) the urban camoflage.  A bit gangster, a bit Wall Street Banker, keep the bases covered, move a bit easier...strange fantasy--from those films with a lot of shooting and killing....okay....after alla that, I was taken to Forbes.com.  Man, that is shiny, bright bright bright!  Things are looking up, hey!

Golden Telecom Up on Citi Report - Forbes.com

Golden Telecom shares rose $5, or 5.13 percent, to $102.38 Friday. Shares have traded between $38.51 and $114.85 in the last year.

So...is this when money needs to be intelligently, diligently, and considerately positioned to where it can be used most effectively--in general, keeping everyone a bit better off where it counts: family, streets, work, illness, loss, hoppertunities (melo!  Hola!  Ciao--e ciao a kcurie!  Avevo la fantasia di un libro, una raccolta e poi ridazione di questa seria di domande-con-risposte, col titolo: Socratic economics: an occasional series of questions posed in a Socratic effort to understand economics.  Un primo progetto per Milo Minderbender Memorial LLP--Ho pensato che Migeru sarebbe bravo alla ridazione--pero o perche' lui abbia una idea precisa per quel progetto--a quell' punto, se ci sarebbe mercato per tal libro, e poi per soldi, per qualcos' altro, o cosi'--un gesto verso gli altri col libro in mano, intitolato: "Socratic economics: an occasional series of questions posed in a Socratic effort to understand economics."

Money (in one of its aspects) looks like London--okay, a picture.

That's the past.

Forbes Surname Origin & Family History. Start your family tree.

Forbes Surname Origin
(Origin Scottish Locality) Lands free from military service, called Saor Forba, or free lands. The name of a parish in Aberdeenshire, Scotland.
Source: An Etymological Dictionary of Family and Christian Names With an Essay on their Derivation and Import; Arthur, William, M.A.; New York, NY: Sheldon, Blake, Bleeker & CO., 1857.


Don't fight forces, use them R. Buckminster Fuller.
by rg (leopold dot lepster at google mail dot com) on Fri Nov 23rd, 2007 at 07:48:08 PM EST
[ Parent ]
Pierre!  There I am ranting in italian...

I'm wondering if there isn't a majority of investors who'd just like to tidy away enough so the various he's and she's might never have to work again (Work!  Ugh!), but somehow there's never enough no matter how much you get because there are always bills...I really don't know, it sounds like coke addiction, something sugary and bright and alway on, but they don't know what to do with their money, so it...falls to the investors' agents to wisely invest these people with money--to the benefit (most widely taken, but with...the emphasis on "more", using some basic scale with "medical services" up there, "more for less"--who wants to make money--beyond a living wage--aye!  The wages of sin be death!)...?

%:~)

Don't fight forces, use them R. Buckminster Fuller.

by rg (leopold dot lepster at google mail dot com) on Fri Nov 23rd, 2007 at 08:00:56 PM EST
[ Parent ]
I'm wondering if there isn't a majority of investors who'd just like to tidy away enough so the various he's and she's might never have to work again (Work!  Ugh!)

Actually, most "investors", when measuring by wealth, are actually small people's savings, agregated and given to a whizz kid with a mandate and a fee (pension funds, wealth funds, life insurance...)

Soros and Buffet are very rich, but still much smaller than the institutional. And they no longer work and can afford to say out loud that we're doomed and it doesn't matter anymore.

But the golden boy managing the big money isn't so rich, and he's desperate to outsmart his competitors so that he makes enough fees before he turns 40 (by then, a younger golden boy will have him surely sidetracked).

Of course, by your or mine standards, just three years of this job, earnestly practiced, would earn enough to retire. But big bonus is like the coke and hookers it buys, it's addictive: and whizz kid wants more big bonus, hence the reckless investment strategies, the quest for yield, the speculation. And the bust for everybody's savings.

Pierre

by Pierre on Sun Nov 25th, 2007 at 10:25:08 AM EST
[ Parent ]
Do you have figures on this ?

Piketty seemed to point out that most equity wealth came from the wealthiest part of the French population. Might have to do with the fact that there are no pension funds in France...

Un roi sans divertissement est un homme plein de misères

by linca (antonin POINT lucas AROBASE gmail.com) on Sun Nov 25th, 2007 at 10:58:53 AM EST
[ Parent ]
The "Contrats d'assurance vie" and other pension complement funds availbable in France probably come from only a few percent of the population. It's more accessible in other countries, but the top earners will always represent the majority of the contributions to the funds, of course. They don't invest only in equity, actually I think fixed income is bigger although it never gets the headlines like the stock index.

Pierre
by Pierre on Sun Nov 25th, 2007 at 02:10:20 PM EST
[ Parent ]
Avevo la fantasia di un libro, una raccolta e poi ridazione di questa seria di domande-con-risposte, col titolo: Socratic economics: an occasional series of questions posed in a Socratic effort to understand economics.  Un primo progetto per Milo Minderbender Memorial LLP--Ho pensato che Migeru sarebbe bravo alla ridazione--pero o perche' lui abbia una idea precisa per quel progetto
Guarda che l'idea originale è stata tutta mia.

June 29, 2006: Migeru:

I suggest a front-page post that can go into the debate box. The series title (for it is a series) should be "socratic economics". Socratic because we would use irony and maieutics.

irony feigning ignorance in order to expose the weakness of another's position.

The Greek word eironeia--ειρωνεία applied particularly to understatement in the nature of dissimulation. Such irony occurred especially and notably in the assumed ignorance which Socrates adopted as a method of dialectic, the "Socratic irony." Socratic irony involves a profession of ignorance that disguises a skeptical, non-committed attitude towards some dogma or universal opinion that lacks a basis in reason or in logic. Socrates' "innocent" inquiries expose step by step the vanity or illogicality of the proposition by unsettling the assumptions of his dialogue partner by questioning or simply not sharing his basic assumptions. The irony entertains those onlookers who know that Socrates is wiser than he permits himself to appear and who may perceive slightly in advance the direction the "naïve" questioning will take. Fowler describes it:

The two parties in his audience were, first, the dogmatist, moved by pity and contempt to enlighten this ignorance, and, secondly, those who knew their Socrates and set themselves to watch the familiar game in which learning should be turned inside out by simplicity.
Many have interpreted Socrates as not feigning ignorance so much as expressing a form of philosophical skepticism.
maieutics a method of teaching introduced by Socrates. It is one of the four parts of socratic method. It is based on the idea that the truth is latent in the mind of every human being due to his innate reason but has to be "given birth" by questions asked by the teacher and answers given by the student.

The word is derived from the Greek "maieutikos", pertaining to midwifery.

Could you do me this favour? I don't like to post diaries from work anyway.

The title of the first instalment should be Socratic Economics I: Why GDP growth above all else?

For more evidence of this kind of thinking, just look at Jerome's diary "simply dreaming" yesterday on Martin Wolf's article.



We have met the enemy, and he is us — Pogo
by Migeru (migeru at eurotrib dot com) on Sat Nov 24th, 2007 at 05:02:21 AM EST
[ Parent ]
First, for those with income in US dollars and obligations in US dollars, a guaranteed return of 4% in US dollars is a valuable contribution to a portfolio.

Second, for central banks of the neo-mercentalists, with China being a prime example, the purpose of the purchase of US government securities is to maintain a low peg for their foreign exchange rates, to maintain economic activity and avoid the social unrest and political turmoil that would be caused by a slackening in growth of employment opportunities. In that particular case, given the numbers of entrants into the labor market annually  in China, a government targeting an employment growth rate of 3% annually would be committing political suicide.

Third, for those with impending obligations that must be met in US dollars, it is still better to park their their liquid balances in US bonds yielding a US-currency return and meet the obligation as it falls due than to pay early in more valuable US dollars to settle the obligation.

Those are the only three that come to my mind.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Fri Nov 23rd, 2007 at 09:50:07 AM EST


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