a thread in which ilx interprets economics and finance, sometimes linen by linen*, and disagrees a lot (probably)

cf. the currency for interest on debt

seems to me you worry about a lot of things

turtle: what you are saying sounds like I shouldn't worry about a lot of things (because they are beyond me? I would probably agree/)

Before inflation took hold perhaps, I thought the dollar was strong, but inflation means it is weak at least in the US, but then central banks changed their interest rates perhaps in response to the Federal Reserve and not necessarily dependent upon whether or not inflation was happening internally, perhaps it was. Recent discussion around federal debt limit increases in the US and also memories of 2008 make me wonder whether the currency system as a system is too fragile.

(I was hoping to buy lots of nice jumpers from Margaret Howell)

fiat currency seems much less fragile than specie, the 19th century was full of currency crunches!

the whole silicon valley bank thing unfolding right now is a pretty good opportunity to learn in real-time about the perils of fractional reserve banking!

WSJ says it's the second biggest bank collapse in history, "rattling investors"

Good, let 'em rattle

However, this is my current favorite WSJ headline:

Led Zeppelin’s Jimmy Page Battles Neighbor Robbie Williams Over a Basement Man Cave

that battle's been going on for years iirc

i assume there's been a new development

a thread in which ilx interprets jimmy page's battle with neighbor robbie williams over a basement man cave, sometimes linen by linen

given that i have a hard time understanding how bond markets work i’m not sure why i think i would be able to understand this but it’s annoying to me that i don’t

The real unrecognized problem of the financial system is the mistaken belief that “atomic settlement” can somehow make things safer and more efficient without generating different types of risks. But instant “real time” settlement is a bit of a false friend. Why? Because it does… https://t.co/0opJbL3MzU

— Izabella Kaminska (@izakaminska) March 18, 2023

I tried reading that and I don’t understand it either. It seems to be about some kind of government mandated clearing system between large banks. These kinds of topics are notoriously technical and dry, though no doubt important, especially if you’re a bank regulator or run a bank.

I will take that bet.
You buy 1 BTC.
I will send $1M USD.
This is ~40:1 odds as 1 BTC is worth ~$26k.
The term is 90 days.
All we need is a mutually agreed custodian who will still be there to settle this in the event of digital dollar devaluation.
If someone knows how to do this… https://t.co/tcuBNd679T pic.twitter.com/6Aav9KeJpe

— Balaji (@balajis) March 17, 2023

lmfao

a magical story. this was me this weekend talking to my wife about it.

SO MEDLOCK WAS JUST MAKING A SHITPOST ABOUT A SELF-HEDGING BET BUT BALAJI HAS BEEN DOOMPOSTING ABOUT HYPERINFLATION FOR MONTHS SO HE TOOK HIM UP AT WILDLY UNFAVORABLE TERMS BUT MEDLOCK DIDNT HAVE A BITCOIN ON HAND SO THIS PRO POKER PLAYER CAME IN TO BANKROLL THE BET AND pic.twitter.com/7DrLBIKzgp

— Colin Fraser (@colin_fraser) March 18, 2023

Every time I refresh the FT front page, it's another billion. https://t.co/SOE0hcGd2t

— Daniela Gabor (@DanielaGabor) March 19, 2023

given that i have a hard time understanding how bond markets work i’m not sure why i think i would be able to understand this but it’s annoying to me that i don’t

― Tracer Hand, Saturday, March 18, 2023 7:18 PM (two days ago)

for a variety of reasons the plumbing behind finance means that most trades settle two business days after the order is executed. think of it as buying on credit, or a check that takes a couple of days to clear

as a result, a lot can happen during those two days, which i don't pretend to understand on an aggregate, net-net basis like the tweet author apparently does but which i can easily picture in an individual basis (securities not being delivered, money not being delivered due to the buyer having gone full tilt, etc.)

love commodities

JPMORGAN CHASE OWNED BAGS OF MATERIAL KEPT IN A DUTCH WAREHOUSE THAT WERE SUPPOSED TO CONTAIN NICKEL BUT TURNED OUT TO BE FULL OF STONES - WSJ

— *Walter Bloomberg (@DeItaone) March 20, 2023

the goldman aluminum warehouses scam was good, just forklifts shuffling the same pallet of aluminum between two warehouses so goldman could make millions.

https://www.nytimes.com/2013/07/21/business/a-shuffle-of-aluminum-but-to-banks-pure-gold.html

jpmorgan's electricity scam was really good too: https://dealbreaker.com/2013/07/electricity-market-rules-were-not-a-worthy-opponent-for-jpmorgans-brainpower

just forklifts shuffling the same pallet of aluminum between two warehouses so goldman could make millions.

back in the 1980s (before Gramm-Rudman did a lot to fix loopholes in the US tax code), there was a very lucrative Investment Tax Credit that was used for many illegitimate purposes. The CPA I worked for for a few years in my home town had had a client back then who was a doctor. I'll call him Doctor Franz, and he had a buddy who owned some land, and we'll call him Rancher Hans. And there was a flock of sheep that were on Rancher Hans' land that Rancher Hans and Doctor Franz would sell back and forth to each other every other year to claim this tax credit.

LOL. I once had a boss who brought eggs from his hens to work and, shall we say, gently encouraged employees to buy a few at a nominal price, so he could claim a tax break for his farm as a working farm.

I know this probably makes me an unserious person but I find it endlessly amusing that the AT1 bondholders got zeroed in this CS debacle.

what's great is that every effort was made to tell the bondholders they could get zero'd when they bought the bonds, and they still made a surprised pikachu face when they did in fact get zero'd

I mean, it was not exactly unknown that CS was swirling in the toilet. if I owned AT1 bonds, I might at some point read the docs and make a decision as to whether I still wanted to be holding onto this paper?

LOL. I once had a boss who brought eggs from his hens to work and, shall we say, gently encouraged employees to buy a few at a nominal price, so he could claim a tax break for his farm as a working farm.

― o. nate, Friday, March 24, 2023 12:47 PM (one week ago)

hahahahah! recently there was a study published about IRS enforcement & audits being racist, which generally just reflected the inequity in the US, and how it's easier to program an automated system to flag certain types of discrepancies and fraud, which largely are tax credits for poor people, as opposed to flagging the types of fraud committed by rich people, who tend to be white.

I have clients that ask me about the benefits of having an S-Corporation, and pretty much, in the cases of those who ask, there is no benefit (only extra bureaucracy and fees), so I tell them that the only benefit is that it's easier to commit fraud through an S-Corp vs. as a Schedule C sole proprietor.

amazing

I can finally say it: I settled the bet early with @balajis! Took some time to work out the details but he proceeded in good faith and you can see the receipt of funds on chain in the next tweet. $500k to me (so I get 30% post tax as planned) and 500k to @GiveDirectly

— James Medlock (@jdcmedlock) May 2, 2023

xp so you’re saying I should be looking into a s-corp

I’d forgotten about that ridiculous hyperinflation thing, and lol

https://www.newyorker.com/news/persons-of-interest/what-if-were-thinking-about-inflation-all-wrong

I'm going to read that in a second, but in the meantime can someone (flopson?) explain to me why you would raise interest rates to "fight inflation" in this context: https://www150.statcan.gc.ca/n1/daily-quotidien/230516/t005a-eng.htm

just a weird quirk in how inflation is measured in canada. including mortgage payments in CPI means rate rises mechanically increase inflation. most (all?) other countries don’t do this, and instead measure some concept like owners equivalent rent, where they try to impute what homeowners would be paying in rent would they be renting their house. a general consequence of this is that canadian inflation is somewhat overstated in international comparisons

thank you!

I'm uncertain what to think about Argentina's plan to potentially dollarize the economy. I understand the rationale but not whether it would work or not, or why a currency peg would be a more manageable approach

Ecuador dollarized their economy, but would Greece or Italy be better comparisons? Argentina always seems confusing though, for a country with such high economic potential to be in this kind of position

I guess the problem with a currency peg is that no one would believe that Argentina would stick to it. Even Switzerland, a country with a much better track record for fiscal prudence, broke their peg to the euro when it became inconvenient. Not sure if dollarization would really work for a country of the size of Argentina. Seems logistically tricky.

i don’t think argentina will dollarize. to dollarize you need to back pesos with dollars and they don’t have dollars. so the only way they can do it is to sharply devalue the peso. but the only dollars argentina has are in deposits as bank reserve requirements which can’t be used for any other purpose. china has given them a “swap line” which lets them make payments in yuan but they could pull back on that at any moment. i think it’s more likely we see peso depreciation and some default but no dollarization. the extent of default precipitated by real dollarization would be extreme

I guess if Argentina did dollarize it would be similar to the scenario of countries joining the eurozone. This has happened a few times since the introduction of the euro, but all smaller economies: mostly the Baltics and small countries like Slovenia, Slovakia and Malta. Usually the conversion to the euro happened at a rate at which the converting currency had been pegged for some preliminary period.

Why similar to the countries you mention and not Italy or Greece? Italy's economy being bigger than Argentina's

I guess it is similar to that too. I was thinking of the difference between joining an existing currency and forming a new one. But I guess they are basically the same.

pic.twitter.com/nDH7kOFcPE

— ░MATT░IN░BIO░ (@sabrmattrics) July 30, 2024

Is that related to amazon's shuttered plans for drone-based burrito delivery?

flopson i am reading (and enjoying so far) https://www.goodreads.com/book/show/122773797-economics-in-america. is this man lying to me or is he good?

i haven't read that book. this review (by an economist who has written many goodreads reviews i have enjoyed) only gives it two stars, but isn't scathing. my guess is deaton is not lying, though he has been shooting from the hip in his dotage. he most recently pissed me off by writing the following in an imf blog post:

I used to subscribe to the near consensus among economists that immigration to the US was a good thing, with great benefits to the migrants and little or no cost to domestic low-skilled workers. I no longer think so. Economists’ beliefs are not unanimous on this but are shaped by econometric designs that may be credible but often rest on short-term outcomes. Longer-term analysis over the past century and a half tells a different story. Inequality was high when America was open, was much lower when the borders were closed, and rose again post Hart-Celler (the Immigration and Nationality Act of 1965) as the fraction of foreign-born people rose back to its levels in the Gilded Age. It has also been plausibly argued that the Great Migration of millions of African Americans from the rural South to the factories in the North would not have happened if factory owners had been able to hire the European migrants they preferred.

this is a bizarre read of the evidence. there are so many more compelling explanations for postwar reduction in inequality, and despite deaton's casual empiricism ('inequality go up when immigration go up') the actual research estimating the long-term effects of immigration actually finds very positive effects (the short-run effects are much more controversial)

deaton's career is kind of an odd story. after spending most of his career as a technical microeconometrician developing methods to measure povery and welfare--still very well-regarded work, if a bit niche--he and his wife anne case wrote a series of papers on "deaths of despair" that so insanely oversold their conclusions that they nearly destroyed deaton's academic credibility. the papers were all published in PNAS, an interdisciplinary journal known for having low standards for social science work. andrew gelman and many others meticulously debunked all the overreaches, nearly all of which would have been grounds for rejection in any decent economics or social science journal. it's not that 'deaths of despair' is a lie or fake news per se, but they tried to sweep things together into a narrative (basically a close relative of the 2015-era "economic anxiety" theory of trumpism) that completely fell apart upon closer scrutiny. my main takeaways from reading the various back and forths with critics is (1) it's almost entirely about opiods, (2) once you adjust for age the increase in mortality is modest or even flat (and only looks striking in international comparisons with europe where age-adjusted mortality was declining), (3) the early results that showed it was a white working class phenomenon was purely due to unaccounted-for selection bias

thank you! that review seems fair. I heard about him via their book on deaths of despair, which I never got around to, but the specific de tocqueville / https://en.wikipedia.org/wiki/Letter_from_America aspect of this book appealed to me (as someone who also migrated here via academia) so i picked it up.

as that review says it has a kind of slapdash and written to a deadline quality because of the source material, but it works for me because he has a nice voice (I'm listening to the audiobook, which he reads himself), and its at the right level of detail of my level of interest.

the best chapters so far have been the one on healthcare (it's deranged) and the one about why no one likes economists. almost every chapter mentions how bad the sacklers are even when it's not really relevant.

BREAKING: Fed announces that Jerome Powell received the light of Islam and unhesitatingly recited the Shahada. He has embraced Islamic Banking and the Fed Funds Rate is now 0%. Truly there is no god but Allah, and Mohammad is his prophet!

— Maia (@maiamindel) September 17, 2024

always appreciate a good reference to https://en.wikipedia.org/wiki/Islamic_banking_and_finance