Category Archives: economics

Paul vs Paul on the US economy

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Paul Krugman debates Ron Paul on live TV. Ill-advised or not, it is interesting to see their different takes go head to head. I’m not sure either really puts their points across very well, but I was a little surprised to see the vitriol in the comments of the YouTube video against Paul Krugman. Ron Paul clearly has a strong support base.

If you listen carefully, you won’t hear Ron Paul address any of the fundamental economic issues caused by the Gold Standard, you will hear him disagree with Milton Friedman and you will hear him use more emotive please than even Paul Krugman. Krugman, on the other hand, uses a mixture of emotive pleas with overly complex ideas and probably entirely misses his audience.

Simple fact is, a little inflation and currency depreciation would go a long way to fixing the structural problems with the US economy AS WELL as the defiicent-demand cyclical problems.

Watch the video.

Beginnings of the European realisation that austerity is mis-timed

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Austerity has an encouraging family responsibility and belt-tightening feel to it. An analogy that is entirely misguided when it comes to national finances. Watch the PIIGS chase their austerity tail into a depression.

Meanwhile, the Dutch and some other European countries, former supporters of the ridiculous 3% deficit rule, are starting to question that “wisdom”.

We can’t all be Germany

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Some interesting thoughts on what drives Germany’s apparent success.

The article does understate the problem that Germany’s success is significantly export driven – not everyone can export for obvious reasons.

Also, the author notes that consumption has grown more slowly than economic growth without understanding that is exactly the source of an export-encouraged boom. Growth in consumption will also grow imports!

Digital currencies and more

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Bitcoins are a bad idea.  I’ve put this forward from multiple directions already.

What’s interesting is the range of new, government-sponsored digital currencies that are in development. Digital currencies might also be a little bit of a stretch, they’re still more like digital payment methods. Unlike Bitcoins, there is much to recommend about low-cost, high-security, electronic digital payment platforms.

Japan is toying with slightly different ideas. Rather than using a traditional ATM card to withdraw cash, you might simply use your palm. It really is only a matter of time before the ubiquitous plastic card disappears into a cellphone, embedded chip, retina scan or something.

Sweden is moving towards a cashless economy, with one of the driving factors being security – as in personal safety. Maybe I’ve missed some news stories (or not read Dragon Tattoo enough times) but I wouldn’t have thought that Sweden would be first in the world at worrying about personal safety.

To be clear, there are several wide-scale advances in this area around the world already.  These aren’t specifically digital currencies, but rather different, more efficient methods of payment.  The UK Oyster card is a good example of a wide-scale contactless payment system that works well for small payments in a fast-speed transaction environment. The precursor of the UK’s Oyster is Hong Kong’s Octopus card, which is actually used or micro-payments on transport systems, many parking areas and even vending machines.

Google and PayPal have systems allowing small digital payments that are cost-effective, but still linked to an account so your account information is linked directly to the transaction. One of the apparent virtues of Bitcoins is their anonymous nature. Now for the most part most individuals aren’t particularly bothered by anonymity, but it is a genuine concern. Do you really want a vending machine company to know when and where you buy your Coke and Vitamin Water from their vending machines? Would you want this information to be aggregated with your online purchases and fuel purchases and airline ticket purchases? Very soon the information that Google currently stores on you would be a drop in the information ocean from these real world movements and transactions.

So Canada’s proposal for an anonymous, digital currency is really interesting. Government backing is one good way of giving credibility and scale to a system that many competing system will not be able to manage.

For me, one of the most interesting aspects of the story was the Canadian Mint’s IPO of an exchange traded listing for gold receipts for gold stored at the mint. This is basically the oldest form of gold-backed currency – receipts of gold on deposit at an institution where the receipts were tradeable and allowed “gold” to be used for transactions more conveniently and safely that gold bars and coins.

What once was old is now new.

Prediction Update : US Yields stayed low

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In August 2011 I predicted that, against cries of hyperinflation and debt crisis in the US, yields would stay low.

Specifically, I said:

Prediction: If the US debt is downgraded in the next 6 months, yields won’t increase by more than 0.2% 6 months after the downgrade. In other words, there might be a small, temporary uptick, but within 6 months yields will have returned to below 0.2% above the day before downgrade.

S&P downgraded the US a few days later on 5 August.  Yields on 10 year US bonds were 2.56%, Currently, US 10 year yields are just below 2.00%. Clearly, 6 months after the downgrade (and at every point in between) US yields have stayed low, well below the upper limit of my prediction.

If you were still listening to the “obviously” right concerns over high inflation from quantitative easing and relaxed monetary policy in the middle of a huge liquidity trap and massive reduction in private spending, it’s time to reset your views.

For every complex problem…

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For every complex problem, there is a solution that is clear, simple and wrong.

Greece is a complex problem. Paul Krugman points to this Choose Your Own Adventure on the Greek crisis. Much like the original books, there are many, many nasty ends.

Read it, try it, explore a few paths. This is the best resource I’ve seen recently to explain exactly how bad almost all the alternatives are, and how there are no really good outcomes from this mess.

Rest of The World, watch out.