28 November 2024
World analysis
Knowing how the world really works is essential to understanding how the world economy works. Mike Benz is an ex US State Department employee who is the best person I know of at explaining how the world really works with an explanation of who runs the world, how they do it and what their goals are. As an introduction I recommend that you watch his interview by Tucker Carlson on X:
https://x.com/TuckerCarlson/status/1758529993280205039
Then, please follow Mike on X to understand what is really happening in the world as we go along.
Also, this is his web site:
https://foundationforfreedomonline.com/
I follow numerous people on X including Mike Benz.
18 April 2024
Crypto 'currencies'
In recent years many people have rushed to 'invest' in Bitcoin and other crypto 'currencies'. Prices have been going up and many novice investors believe that this upward price movement is a confirmation of the soundness of their 'investment'. Their investment has gone up and if they sell they would make a lot of money.
I can't believe that many otherwise smart people are investors and promoters of crypto. Perhaps they can see something I can't.
My understanding is:
I believe that the best way to look at crypto is to imagine that crypto is a bond.
When an investor buys a bond for say $100 at 5% for ten years, the issuer promises to pay the investment holder $5 per year each year, including at the end of the tenth year plus $100 at the end of the tenth year which is the return of the money invested.
When crypto currencies are initially issued, investors hand over their cash to buy crypto. The crypto issuers guarantee to never pay any dividend and to never return the invested money. As a result there is no future money coming from these crypto currencies. Investors rely on other people buying their crypto to get any money back. This is not a solid foundation.
Markets for investment products such as shares(stocks) and bonds are vulnerable to manipulation which can result in many investors losing their money. To help prevent this, governments have many laws, rules and agencies to protect investors from such scams and market rigging.
I understand that crypto 'investors' are not protected by these laws and rules because their issuers have successfully argued that crypto purchaes are not investments, they are tokens, such as football cards or other token collectible items. They are not bonds because they do not return the investor's money. Similarly crypto yields no return.
Some people believe crypto is going to replace money. I can't see how this will ever happen. Money needs to fulfill three main functions:
1 Be a stable store of wealth. Crypto's volatility rules this out. I haven't seen anything that shows the value of Bitcoin is going to become stable.
2 Be a generally accepted means of exchange. It isn't possible to buy most things with crypto. It also isn't likely given that it would compete with government money and the government can block it from being used.
3 Be a measure of price and values. The price volatility seems to rule out crypto here too..
For every loser there is a winner. Crypto is excellent for the issuers. They collect all of the money up front and don't have to repay anything.
The big question is why so many otherwise rational people think that crypto is a great investment?
9 February 2022
Analysis by Wm:
Following on from my previous post below, the governments of the world mistakenly thought that because they were printing a lot of money and substantial consumer price inflation didn't occur that reality had changed and they could print as much as they wanted. Their new theory is called Modern Monetary Theory which allows governments to print massive amounts of money assuming there will be no consequences. The governments have had a rude awakening as their hyper money printing has now resulted in high inflation. They did not expect this. Plus, they are likely to be understating inflation.
12 November 2020
'Massive money printing hasn't caused consumer inflation'
Analysis by Wm:
One of the observations of the post Global Financial Crisis (GFC) era (2008 to the present) is that the central banks of the US, Europe, China and Japan printed trillions of dollars and this didn't cause significant consumer inflation as traditional economists expected. Basic economic theory states that when you have more dollars chasing the same goods and services, the price of those goods and services will rise in some direct proportion to the money printed.
The reason that everyday goods didn't go up in price is that everyday people didn't get anywhere near the bulk of the printed money so weren't able to spend it. The printed money mainly ended up via gifts or low cost loans with well off people who spent the money on buying more assets. The prices of these assets did go up substantially in this time frame including shares/stocks, government securities and real estate. So, inflation did happen however with asset prices, not consumer prices.
Most people don't own assets and missed out on the increases in value. Thus the money printing has compounded inequality.
24 May 2019
4 in 10 US people unable to pay an unexpected [US]$400 expense
The US Federal Reserve Report on Wellbeing of US Households for 2018 at: https://www.federalreserve.gov/publications/files/2018-report-economic-well-being-us-households-201905.pdf on page 10 says:
If faced with an unexpected expense of $400, 61 percent of adults say they would cover it with cash, savings, or a credit card paid off at the next statement—a modest improvement from the prior year. Similar to the prior year, 27 percent would borrow or sell something to pay for the expense, and 12 percent would not be able to cover the expense at all.
Seventeen percent of adults are not able to pay all of their current month’s bills in full. Another 12 percent of adults would be unable to pay their current month’s bills if they also had an unexpected $400 expense that they had to pay.
One-fifth of adults had major, unexpected medical bills to pay in the prior year. One-fourth of adults skipped necessary medical care in 2018 because they were unable to afford the cost.
20 June 2017
US banks Off Balance sheet derivative exposure has gone down from around US$220T in 2013 to US$165T at the end of 2016. However they attribute a lot of the decrease to “Trade compression”. They have a definition of Trade Compression:
"Trade compression: A significant factor in reducing the amount of notional derivatives outstanding. Trade compression aggregates a large number of swap contracts with similar factors, such as risk or cash flows, into fewer trades. Compression removes economic redundancy in a derivative book and reduces operational risks and capital costs for large banks."
https://www.occ.gov/topics/capital-markets/financial-markets/derivatives/dq416.pdf page 17
It seems to me that they’re using smoke and mirrors to reduce their notional derivatives total.
17 February 2017
Bloomberg - US households ramp up borrowing led by mortgages, credit cards
Article by Matthew Boesler
"US households increased their borrowing in the final three months of 2016 at the fastest pace in three years according to the US Federal Reserve Bank of New York."
Consumer debt rose 1.8% in the fourth quarter bringing total consumer debt to US$12.6 trillion. This is just shy of the US$12.7T peak in the third quarter of 2007 when the Global Financial Crisis began.
16 February 2017
ABC NEWS - Are Australian households on the edge of a debt crisis?
Article by David Taylor
"According to research group Digital Finance Analytics, around 20% of Middle Income Australians have no room in their budget for unexpected expenses."
"Financial Counselling Australia said that the slightest headwind - a metaphor for rising unemployment or higher interest rates - could produce something of a catastrophe for households."
"The latest Reserve Bank data shows household debt makes up 187% of total disposable income. that puts Australia right at the top, globally, in terms of how much debt households are carrying. For many it's already become too much."
"Many Australians are financially underwater. In Western Australia for example, the market prices of many folks' homes have now fallen below the value of their mortgages."
"It's never been cheaper, or more enticing, to borrow money. So that's what Australians are doing. The problem is that while borrowers have taken on more and more debt, their wages haven't moved much at all and the end result is a python-style financial squeeze."
"Experts warn of two major financial pressure points: unemployment and interest rates."
"Digital Finance Analytics has warned that if the average standard variable mortgage rate increased by 0.5 to 1.0 per cent, 30 per cent of households could be pushed over the edge financially."
"As it stands, around 20% of households have already pushed their budgets as far as they will go."
"Despite reassurances from the Reserve Bank that it's going to keep the record low official cash rate on hold, the commercial banks may be forced to raise their mortgage rates independently of the central bank. That depends on the outlook for 'Wholesale' or overseas rates, including US interest rates, which are expected to rise."
23 September 2016
Bill Maher at the end of the HBO show 'Real Time'
To people who ask "Why doesn't our economy work for people like me?"
His response: "Because it's not designed to."
28 June 2015
CNBC source for free information on interest rates
In my economics book I recommend that readers regularly look at bloomberg.com to see what is happening with interest rates because the values of almost all investments are related to prevailing interest rates. Bloomberg had charts relating to bond yields as part of their free service until recently. I find charts very useful. Now that Bloomberg doesn't include charts as part of its free service I recommend that readers look at CNBC for similar information: http://www.cnbc.com/id/15839203
Click on the 10 year US Treasury line to get the charts.
28 June 2015
Bank for International Settlements(BIS) warning on sovereign debt
In its annual report the BIS warns: "The average ratio of gross public debt to gross domestic product is expected to reach 120% in the advanced economies at the end of 2015, well above the pre-crisis average of 75% it says." It cautions that despite good intentions the current path is not sustainable.
16 March 2015
Australian households awash with debt: Barclays
Mark Mulligan reported in The Age that Australian households are the most indebted in the world. http://www.theage.com.au/business/the-economy/australian-households-awash-with-debt-barclays-20150316-1lzyz4.html
5 February 2015
'Global Debt has Risen by US$57 Trillion Since the Financial Crisis, Which Is Scary'
This is the title of an article by Neil Irwin in the New York Times of this date.
This is the debt of countries, businesses and people.
Apart from the heading the rest of the article isn't very interesting.
29 June 2014
Bank for International Settlements issues economic warning
This article supports a couple of the issues identified in my book.
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