Money is an abstraction used to settle debts.
This is why this worked so well in the Weimar republic :-) That has to do with belief or confidence in the abstraction. Indeed. Now, belief or confidence in the abstraction of being able to settle FUTURE debts is nothing else but... a form of speculation ! In other words, money is really a totally speculative asset. Totally (that's what your "abstract" means: the money carrier has no usage value as consumption or as capital production good) - its only value resides in speculation. It is an asset, because you can possess it. And it has the specific feature that it is accepted very generally to settle debts. Any asset can settle debts, on the condition that it is accepted by the creditor. You can pay a debt in apples, you can pay a debt in labor, you can pay a debt in state bonds, you can pay a debt with stocks, but not all creditors accept that. Money has the peculiar property to be generally accepted. In fact, with fiat money, this is usually imposed by law ("legal tender"). You are OBLIGED to accept it. That's not how most people use the word speculation. Speculation usually means when people try to earn money from price increase being long an asset. (or price decrease in a short position) Outside of Bitcoin and forex, most people don't "buy" money. They simply use it as medium of exchange. I don't think it has anything to do with speculation but it needs faith in the backing. People trusted gold notes because gold was backing the notes. They trust fiat because it's backed by future output of issuing country. (And demand is set by legislature) But when that confidence is shaken like in Weimar Republic, the faith was broken. |
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I thought that's what I was explaining. Only commercial banks have a deposit account at the Fed. No individuals so if you borrow money from JP Morgan and deposit into your Citi account. The Fed just change their ledger to reflect this. So the only way for the money to get into the economy is for banks to lend it out. It's a common misunderstanding that money is not created from commercial banks. They create it in the form of credit. It's called endogenous money. Most of the mainstream economists get this wrong Here's a paper the Bank of England put out on this issue http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoneycreation.pdfCan not trust a source that comes from the bank itself, because this involves the ownership of trillions of money, they will try to hide it as much as possible and give others as much misleading info as possible There are 2 facts that do not support the theory that commercial banks can create money: 1. Federal reserve act of 1913. It gave FED exclusive rights in creating USD. If commercial banks are doing that, they are braking the law 2. There were many bank failure in financial crisis: If commercial banks could create money by just issuing a loan, then they would just simply loan to each other and create trillions and trillions of dollar and they will never need FED. The fact that they went bankrupt is because they don't have money and they can not create it by themselves, they must turn to FED to borrow money However, since majority of the financial activities are settlements between different bank's database with very little movement of real money. From bank's point of view those virtual money are more important for daily operation. Real money (e.g. reserve) only become a problem when there is a liquidity crisis. Just like an exchange only have problem when customer withdraw their bitcoin. And today's banks limit the withdraw strictly to prevent a bank run Endogenous money is a heterodox view so it's a 180 that BoE would put out his view. They have no ulterior motive to put out this paper. Banks create credit money. They are not minting money, like the Treasury. Can you say where Federal reserve act says this? Whe people say "printing money", what they mean is the Fed is increasing reserves. The money is comes into existence when someone borrows it. If there are no borrowers no money is created. Banks didn't become bankrupt. They were at risk of insolvency. Investors were pulling money out and the banks froze lending to each other because they didn't trust one another. It was a liquidity crisis not a bank run 1) Fed. Reserve creates and credits its accounts with "new money" 2) Fed. buys US Treasury bonds with this new money 3) This injects new money into the system (interest rates are effected here) 4) Commercial banks lend the new money into existence based on their view of the economy at that moment 4.5) The US Government also brings new money into existence through government-sponsored programs There will always be borrowers, whether then are individual people or other banks or other businesses. Prior to the Fed. Reserve Act, banks and lenders were not required to be part of a centralized network or keep a set amount of non-interest bearing reserves around. The high interest rates and huge economic inflation caused the bank run. America was in dire straits before the 1930s. Lots of wars, Great Depression, famines, economic uncertainty, etc. No individual could get a loan for anything because banks refused to lend, so the people tried to get their money out. It most likely was a combo of the banks didn't have the money, people made a huge run on the bank en masse and banks refused to lend. Prior to the FRA or the creation of the Fed, banks were not dependent on a centralized system. Without the Fed America would not be where it is today (both good and bad). Before, banks didn't create new money, it was made up of people who actually leant money they physically owned. With the Fed, new money can be created out of thin air and used to allow the country to profit in an unlimited manner. Now banks are required to purchase non-transferrable stock in their reserve bank forcing banks to abide by a centralized money making unit (the Fed). This ensures the system will only break if all the pieces crumble. Makes it very difficult if everyone (all banks and lenders) must abide by rules that keep them vested in the money maker (the Fed). This centralized system made banks of yesteryear less powerful (controlling the economy totally), more corruptible and more controllable. Not quite. 1. The money the Fed creates are reserves. It still need to be lent into economy. 2. True sometimes. But could be other types of assets. And should be noted they buy from primary dealers. 3. True sometimes but its not their primary mechanism for affecting interest. 4. True 5. This is called deficit spending The number of borrowers depend on different variables. There was much less borrowers after 08 Prior to FRA the major banks did use a clearinghouse that had lender of last resort function similar to the Fed. But it was private not open to every bank |
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Money is an abstraction used to settle debts.
This is why this worked so well in the Weimar republic :-) That has to do with belief or confidence in the abstraction. |
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I thought that's what I was explaining. Only commercial banks have a deposit account at the Fed. No individuals so if you borrow money from JP Morgan and deposit into your Citi account. The Fed just change their ledger to reflect this. So the only way for the money to get into the economy is for banks to lend it out. It's a common misunderstanding that money is not created from commercial banks. They create it in the form of credit. It's called endogenous money. Most of the mainstream economists get this wrong Here's a paper the Bank of England put out on this issue http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoneycreation.pdfCan not trust a source that comes from the bank itself, because this involves the ownership of trillions of money, they will try to hide it as much as possible and give others as much misleading info as possible There are 2 facts that do not support the theory that commercial banks can create money: 1. Federal reserve act of 1913. It gave FED exclusive rights in creating USD. If commercial banks are doing that, they are braking the law 2. There were many bank failure in financial crisis: If commercial banks could create money by just issuing a loan, then they would just simply loan to each other and create trillions and trillions of dollar and they will never need FED. The fact that they went bankrupt is because they don't have money and they can not create it by themselves, they must turn to FED to borrow money However, since majority of the financial activities are settlements between different bank's database with very little movement of real money. From bank's point of view those virtual money are more important for daily operation. Real money (e.g. reserve) only become a problem when there is a liquidity crisis. Just like an exchange only have problem when customer withdraw their bitcoin. And today's banks limit the withdraw strictly to prevent a bank run Endogenous money is a heterodox view so it's a 180 that BoE would put out his view. They have no ulterior motive to put out this paper. Banks create credit money. They are not minting money, like the Treasury. Can you say where Federal reserve act says this? Whe people say "printing money", what they mean is the Fed is increasing reserves. The money is comes into existence when someone borrows it. If there are no borrowers no money is created. Banks didn't become bankrupt. They were at risk of insolvency. Investors were pulling money out and the banks froze lending to each other because they didn't trust one another. It was a liquidity crisis not a bank run |
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Money is an abstraction used to settle debts. Notes and coins are physical representations of that abstraction regardless if they are made of gold or paper. The only reason gold was used as the material of choice is it had the desirable properties.
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I looked at their financials over 2 years ago and thoughts "holy fucking crap, how is this stock price anywhere NEAR where it is today"?
And thought, this is obvious, easy money, I am going to short this stock. 3 month, 6 month, 12 month even and I think some 24 month (was sure it couldn't possibly last 2 more than years, and it would correct significantly lower towards a more realistic value).
Great company, horrible stock, the most creative accounting i've ever seen in my life. Who the heck actually knows how to put a fair value on it. But I am warning you, as somebody who thought PUT options were a slam-dunk and got burned, 2 years ago or so - be careful, that price could stay high for who knows how long(years and years more even maybe..), it has NO basis in reality anymore. The market's prices today are totally disconnected from reality in many areas in general (long story).
I am sure many have come to the same conclusion only do discover the price behaves in a manner which defies reality.
This stock is a turd which just won't flush.
When buying options you have to get timing pretty perfect or you get killed on theta. I suggest doing something like an at the money vertical for directional play or sell out of the money call so theta is in your favor |
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1. Whoever borrows that money gets (temporary) ownership until they pay it back. Its logged as a liability on your balance sheet, but an asset on your deposit account. After you deposit the money you can spend it as if it was yours. But you still owe the lender.
Thanks, but that is after the money creation. What I want to understand is the ownership change during the money creation by FED I don't think commercial banks create money, they only register a loan in their database, similar to some exchanges do with your bitcoins on their platform, no real money/bitcoin is involved, only numbers in their database, and bank's ability to generate check book numbers are limited by the reserve requirement. They can not loan out money that they don't have (even they have the asset), but they can loan out the same money again and again to generate large balance numbers in their database 2. Exchange rate between currency pairs like USD/JPY are determined by supply & demand. But the price is correlated with fundamentals (GDP, Interest rates, etc..)
I have not thought about forex, I just mean the value of the money domestically To be more precise, there are two different theories: One is Real Bills Doctrine, which states the money's value depends on the value of the asset that back them, so more money = more wealth (since every dollar is backed by assets of corresponding value). And the quantity theory of money: MV=PQ, where money's value is subject to change depends on the money supply, flow speed, and productivity of the country I thought that's what I was explaining. Only commercial banks have a deposit account at the Fed. No individuals so if you borrow money from JP Morgan and deposit into your Citi account. The Fed just change their ledger to reflect this. So the only way for the money to get into the economy is for banks to lend it out. It's a common misunderstanding that money is not created from commercial banks. They create it in the form of credit. It's called endogenous money. Most of the mainstream economists get this wrong Here's a paper the Bank of England put out on this issue http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoneycreation.pdfThe quantity theory of money relies on an exogenous view of money, which we know is not true by the paper from BoE. So I don't subscribe to this view The RBD seems more reflective the realities of banking to me. My criticism of RBD is that it doesn't emcompass current technological state of finance and financial instruments like derivatives and securitiaztion of debt. And it doesn't address the rise of shadow banks. So RBD in itself is not a safeguard for something like 08 GFC because a lot of assets maybe speculative in nature. |
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QE is a new invention first attempted by BoJ back in 2001. There's data we can look at.
BTW, as far as I know, QE is nothing else but a variant on what John Law already invented in the beginning of the 18th century, no ? That is a good point. In fact Real Bills Doctrine explains much better why FED had printed 6x more money and there is still no big change in dollars value: These dollars are all backed by assets of similar value, thus people's trust in dollar's value has not changed You two might have missed my questions before, I write them here again: 1. Who get the ownership of every newly created fiat money? 2. Is money's value decided by supply and demand? Please share your thoughts There's no inflation is because what people call "money printing" is a swap of assets between the Fed's balance sheet and the banks balance sheet. That money is reserves not cash. It doesn't enter the economy until the bank lends it out 1. Whoever borrows that money gets (temporary) ownership until they pay it back. Its logged as a liability on your balance sheet, but an asset on your deposit account. After you deposit the money you can spend it as if it was yours. But you still owe the lender. 2. Exchange rate between currency pairs like USD/JPY are determined by supply & demand. But the price is correlated with fundamentals (GDP, Interest rates, etc..) |
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I use options express. I predict a huge drop for Netflix which means a huge gain for this put.
I guess my question is where do you see the fundamentals breaking, the movement of Canadian netflix users to the American version of it or the constant awesomeness of Plex and Xbmc  What fundamental? P/E ratio is like 130. It only beat ER by 1c. I agree that you should short NFLX. I'm not sure the timing but soon. Look for an "M" pattern when you short |
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Place a put order for 360 at 1.50 bid for March 20, 2015
Thank me later.
If you want me to explain further into this speculation, just ask.
Explain. He just did. I predict a huge drop for Netflix which means a huge gain for this put.
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"De-centralization is one of the prevailing geopolitical and technological themes of this century. The fight for de-centralization of control and information is playing out on the Internet in every country in the world. It is, in my opinion, the most important fight as it will determine the freedom (or lack of) for billions of people. We are heading in a good direction overall. We have replaced kings, despots and tyrants with institutions. Now we are replacing many institutions with protocols and networks, empowering individuals. But those who benefit from centralized control over power will not sit idly by while we take away their power. They use fear and violence to exert control and deepen their power structures. They fool us into submitting to unearned authority and give up our rights and freedoms by exploiting security fears. Bitcoin is only part of the puzzle, but it is a very powerful part."
---Andreas M. Antonopoulos
So he wants Skynet?  |
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Too many Gordon Geckos in this thread |
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People studying economics at the university study keynesian economics so they are not learning real economics.
No they don't. The mainstream economics is neoclassical or neoclassical synthesis. Have you ever taken any University level econ classes? |
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QE is a new invention first attempted by BoJ back in 2001. There's data we can look at.
BTW, as far as I know, QE is nothing else but a variant on what John Law already invented in the beginning of the 18th century, no ? Is he a central banker? As far as I know the BoJ was the first central bank to enact such policies |
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http://object.cato.org/sites/cato.org/files/serials/files/cato-journal/2008/11/cj28n3-1.pdf" The second type of deflation, however, is the result of positive
aggregate supply shocks that are not accommodated by an easing of
monetary policy. Such aggregate supply shocks are the result of pos-
itive innovations to productivity or factor input growth that lower per
unit costs of production and, in conjunction with competitive market
forces, create downward pressure on output prices. Unlike a collapse in aggregate demand, positive aggregate supply shocks that are not monetarily accommodated generate a benign form of deflation where nominal spending is stable, because the decline in the price level is accompanied by an increase in the actual and “natural” level of output." That article's point is that the gold standard isn't a good idea because it can be abolished or adjusted. Like fiat being "money created out of thin air" a gold-standard is a "promise out of thin air". It basically argues that you can trust neither government nor private central bank with control over your monetary system. Anyway, I wasn't arguing for a gold-standard. This is what I said. The price deflation of phones has to do with scale and manufacturing. Still doesn't make this macro. It just makes his original example impotent What makes deflation dangerous in our current monetary fiat system has to do with the reason behind the deflation.
No it doesn't because inflation still occurred under gold standard. Those in monetary debt are more likely to default in times of deflation, because their debts increase in value. If they default, their creditor (like a bank) has to write off that debt. If the collateral didn't cover the value of the debt, and if the creditor (bank) also has debts to others it might default itself, which may bring it's creditors in trouble as well. It can become a chain-reaction.
Congratulations, you just described a deflationary spiral. In recession all prices are falling including income. Macro 101 |
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Nope. Try to pay attention. I wasn't trying to prove anything except how utterly ridiculous it is to cite a micro example to illustrate a macro principle. My evidence is a hundred years of economic data and the entire economics profession having consensus on this point. Since you take a fringe and controversial position its your burden to prove not me. https://www.stlouisfed.org/On-The-Economy/2014/August/The-Gold-Standard-and-Price-InflationEven Hayek conceded this point. Only the fringe like Mises and Rothbard thinks otherwise |
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Except we've never seen this case. You are ignoring market psychology as determinant factor. Things like sticky wages
Actually we do have seen this. Computers ! Computers have been getting cheaper and cheaper the last 15 years. According to Keynesian logic, nobody is going to buy computers, because next year you get not only a cheaper one, but also a more powerful one ! Turns out that the computer market is one in which the turn-over has been one of the highest. We observe a similar behavior in cellular phones. They get cheaper and cheaper (except for i-phones, which are transiting to a luxury item). And the market explodes. So no, lower prices in the future do not stop people from spending. That has to do with scale and manufacturing within one industry as it goes from infancy to maturity not macro issues. Also your analysis is flawed. Take Samsung for example. Their top of the line model keeps increasing in price after each generation at the onset of release. S5 at release costs more than S4, costs more than S3, etc. It's just that they discount the previous generation after the initial R&D are recouped. They depreciate the capex over the life cycle of product If your proposition is that lower prices defer buying, he needs only one counterexample to negate it, and he has given it. LOL no. Only if you don't understand macro principles. Deflation is falling prices in aggregate not because of one sector. You have to use CPI Also I just made an example he he percieved the price is falling, yet in actuality they are not. It's also easy to refute that notion. If you are looking to buy an iPhone 5s and you know the price gets marked down in 6 months when iPhone 6 is released you might defer your purchase. However this isn't the point |
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If all these algorithms are so good why don't we have stable economies? And theology is probably the best way to view the systems we have today, even the temples are indistinguishable and religion is the only other conceptual thing that's become so engrained in our lives. When we can build models that accurately simulate the workings of the mind we might stand a chance because value is just as much a concept as beauty or taste.
That's like asking why there is still hurricanes even though we are advancing in modelling meteorology. No, the comparison doesn't work. There are perfectly good models for meteorology, but they are chaotic, and so we know that they diverge. They still allow statistical predictions in fact, and running families of meteorological models for 100 years is exactly what climate modeling does. What I'm pointing out is something else, and in fact you illustrate it: The models are tools for understanding. The policies are tools to counteract.
But the counteraction is EXACTLY PART of the dynamics too ! Policies are a part of "human action". Policy goals too. How do you predict and model that ? Give a climatologist the following task: - calculate the number of hurricanes in the years 2070 - 2080. - calculate me the yearly average temperature in North America in 2070-2080. - calculate me the amount of snowfall in the northern hemisphere in 2070 - 2080. He will be able to do so, given enough computing power. His result will be statistical, but with good enough meteorological models, he will in principle be able to calculate you the statistical distribution of hurricanes in 2070 - 2080. Similar for the other questions. *in principle* he knows how to do so. Maybe the computing power is not sufficient, maybe the models are slightly off, maybe the parameters in the model are not known accurately enough etc... .but *in principle* he knows how to do so. In fact, the only external input he needs is the economic one, of land usage, CO2 emissions, and so on ! Now, give an economist the following task: - calculate the average evolution of unemployment in the northern hemisphere in 2070 - 2080. - calculate the energy market in 2070 - 2080: what's the price of a KWhr ? - calculate the average state deficit in 2070 - 2080. Do you even know in principle with what model to estimate that ? This is a red herring response. I didn't claim economics have the forecasting accuracy of meteorology to a specific date. I don't know anything about meteorolgy to be qualified to make statements about meteorology. But if you want to know unemployment figure forecasting you pull past data all variables such as from income, tax rates, interest rates, consumer spending, etc.. Then you model this as a matter of relation. After you have your model you can run simulations. E.G what happens to unemployment when there is shock that causes interest to fall or rise. I don't understand why you think you need to know the reason why interest rise or fall. If sudden policy raises the rate then you can do simulation in your model. |
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If all these algorithms are so good why don't we have stable economies? And theology is probably the best way to view the systems we have today, even the temples are indistinguishable and religion is the only other conceptual thing that's become so engrained in our lives. When we can build models that accurately simulate the workings of the mind we might stand a chance because value is just as much a concept as beauty or taste.
That's like asking why there is still hurricanes even though we are advancing in modelling meteorology. The models are tools for understanding. The policies are tools to counteract. |
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Except we've never seen this case. You are ignoring market psychology as determinant factor. Things like sticky wages
Actually we do have seen this. Computers ! Computers have been getting cheaper and cheaper the last 15 years. According to Keynesian logic, nobody is going to buy computers, because next year you get not only a cheaper one, but also a more powerful one ! Turns out that the computer market is one in which the turn-over has been one of the highest. We observe a similar behavior in cellular phones. They get cheaper and cheaper (except for i-phones, which are transiting to a luxury item). And the market explodes. So no, lower prices in the future do not stop people from spending. That has to do with scale and manufacturing within one industry as it goes from infancy to maturity not macro issues. Also your analysis is flawed. Take Samsung for example. Their top of the line model keeps increasing in price after each generation at the onset of release. S5 at release costs more than S4, costs more than S3, etc. It's just that they discount the previous generation after the initial R&D are recouped. They depreciate the capex over the life cycle of product |
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