Archive for the ‘Economics’ Category

…three logical reasons to buy Swiss bonds on negative yields.

Of course there’s a problem here. And that’s the fact that these logical reasons are founded on us continuing to live in an utterly insane world.

Any situation can be viewed in different ways by different people…is the glass half full or half empty? But the theory, logic and even the mass statistics which can be used to support this, only serves to highlight the way in which any case can be argued and ultimately it is down to subjectivity. When we truly concern ourselves with an element of personal liberty and real freedom, who will then argue that my stance is better than yours?

Throw into the mix that there may be a general (a very loosely defined term) opinion about what is actually right or wrong, one can see that ultimately, you can make your choice and you will be judged by it.

As many commentators seek to prove/disprove competing theories of what is the fairest and most prosperous system of them all, consider the above quote in this piece by MoneyWeek where the current logic of the financial markets is put into context.

This was written regarding the recent selling of debt by some European governments for negative yields, whereby an investor will get back less than what they originally paid….and they willingly accept those terms…

The bond market keeps getting crazier – don’t get caught in the rout

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Freedom is indeed a misunderstood construct

Freedom is in the hands of the beholder (who has the power)

Consider this from MoneyWeek, regarding the upcoming meeting of the Federal Reserve to decide the direction of interest rates. Other parts of the ‘Free World’ also experience similar detailed focus of their communications…

And, perhaps more to the point, the Fed is meeting tonight, and everyone is worried that it’s getting closer to raising interest rates. It’s not that rates will rise tonight. It’s just that Wall Street expects the Fed will remove the word “patient” from its communication.

By the mysterious osmosis through which markets absorb information, that apparently means that the Fed will probably raise rates in June (September at the latest).

As I’ve said countless times in the past, it’s somewhat pathetic that the words of one individual sitting in a meeting room somewhere in the US can upset our ostensibly free markets more than any amount of economic data.

But there you go.

 

Is this a new normal, or the just the pre-cursor to another major crisis? Experts haven’t been able to agree on the full impact of the massive stimulus packages, ultra low or negative rates and slowing emerging markets.

Under most text book senarios, the easy credit effected since 2008 should lead in the long term to high inflation, unless other parts of the economy are severly shattered and demand levels will never recover.

A couple of facinating articles shed some light on these changing trends and attempt an explanation;

…brink of a second credit crisis

…once in a generation transformation

How central banks have lost control of the world

 

 

Consider this piece by Dr Nazeer Ahmed about the Atlantic slave trade although focusing in this extract on the sugar trade;

The introduction of sugar transformed America, Europe and Africa alike. Its impact on history was far greater than that of Mayan gold treasures or the rich silver mines of Mexico. To understand how it happened, it is important to know the process of sugar extraction….

…..the Native Americans were not suited for the kind of backbreaking work required on the sugar plantations. So, labor had to be imported.

At first, Muslim slaves from Portugal and Spain were imported, but it was soon realized that Europe could not meet the increasing demand for labor. African labor was ideally suited for this task

Sugar processing yields molasses as a by-product. Fermented molasses yield rum. Molasses were processed into rum in the factories that sprang up in New England, as well as in England, Holland and France. Much of the rum was consumed in Europe. From there, some of it found its way to West Africa. European merchants paid for the slaves with rum, guns, horses, and industrial products from southern Spain, and fine muslin cloth imported from India. Guns were in demand by the African slave agents who used them to hunt for more slaves. Both guns and rum were destabilizing factors in West Africa. It was a recipe for men to get drunk and kill each other. There were enormous profits to be made at each stage of the sugar-molasses-rum-gun-slave transaction. In the process, Europe and America grew rich as Africa bled in agony.

Now consider the progression of this trade into the formation of the Joint Stock Company; the very root of the world of globalised business of today;

The slave trade was not a business for the common man. Since it required enormous capital….French and English pirates were active against Portuguese shipping throughout the 16th century. Rich merchants in London, Liverpool, Paris, and Amsterdam financed the expeditions. On occasions, even their monarchs participated.

By 1600 the Atlantic slave trade had taken on the character of organized international trade. As sugar plantations grew in the Americas, so did the demand for slaves. Indeed, slaves had become a “commodity” wherein profits depended on timeliness and speed of delivery. The European slave traders had their counterparts on the African coast. The coastal chiefs controlled the trade, employing slave catchers who raided several hundred miles into the interior and hauled in the captives. Competition was intense

Trade with India, West Africa and the Americas required enormous capital. Ships had to be built, soldiers hired, fortifications erected and depots maintained in distant lands. The overhead was high. Initially, only the kings, noblemen or rich merchants could supply this capital. The Dutch were the first Europeans to open up this trade for broader participation.

In 1602 the Dutch East India Company was formed which enabled a broader spectrum of merchants to invest in the profitable Indian Ocean trade. The evolution of this one institution, the joint stock company, was the single most important development in the world in the 17th century.

Ultimately, it proved to be the means by which Europe conquered and colonized much of the world. By the year 1660, the Dutch had already accumulated the experience of sixty years in the formation and operation of trading companies. The British and the French realized that in order to compete they too must form similar trading companies

As the British gained dominance of the oceans, the Atlantic slave trade gathered momentum…..Many more millions were killed in the tribal wars that were fought in Africa to capture the slaves. When all these numbers are added up, a conservative figure for the total casualties of the Atlantic slave trade would be fifteen million.

Oppression cannot be institutionalized without moral justification. A sociology of domination emerged in 18th and 19th century Europe and America, condemning the black man to an inherently inferior position and providing a moral justification for his enslavement

A small example of the link between diets (food commodities), slavery, industrialisation/commercialisation/capitalism and colonialism. In short, how the dominant contemporary form of supremacism works, how part of it was formed and how EVERYTHING we think we know must be viewed in this context and DE-COLONISED

Central banks have been mandated to keep the level of consumer prices rising at modest levels. In the UK, this level is set at 2% per annum; what this means is that it is their duty to destroy the value of the money you hold by a small amount each year.

But have you ever wondered why economists favour the need to have any inflation at all, even at modest levels? What are the theoretical reasons taught to all pupils of this field which enforce the desire to do this as opposed to doing nothing?

Consider this extract from Wikipedia, stating just one of the positive effects of Inflation

Financial market inefficiency with deflation The second effect noted by Tsaing is that when savers have substituted money holding for lending on financial markets, the role of those markets in channeling savings into investment is undermined. With nominal interest rates driven to zero, or near zero, from the competition with a high return money asset, there would be no price mechanism in whatever is left of those markets. With financial markets effectively euthanized, the remaining goods and physical asset prices would move in perverse directions. For example, an increased desire to save could not push interest rates further down (and thereby stimulate investment) but would instead cause additional money hoarding, driving consumer prices further down and making investment in consumer goods production thereby less attractive. Moderate inflation, once its expectation is incorporated into nominal interest rates, would give those interest rates room to go both up and down in response to shifting investment opportunities, or savers’ preferences, and thus allow financial markets to function in a more normal fashion.

Let us decode this

The role of the financial markets is undermined when savers choose to hold funds. We shouldn’t hold our own cash, why would we not trust the ‘Markets’ (the elite, the powerful, the manipulators)? If we hold our cash, prices can’t rise – the prices of goods we don’t need, that we have been told to want, and have been hoodwinked into consuming as if they are a scarce resource, enabling corporate shareholders to profit at our demise.

No price mechanism, perverse movements in physical asset prices. As is arguably happening with property prices in certain regions, particularly London. But the effect of these has not been caused by consumers hoarding their cash, and we are still experience positive inflation rates – it has been the commercial and central banks creating too much money through additional debt, flooding assets with funds which are chasing a higher yield than available from deposits. This is not to mention the decades of under investment by the public and private sector to increase the supply of new homes, and of the government to liberalise planning red tape.

When have price mechanisms ever been wholly reliable? With so much behavioural science at play, larger institutional players able to sway bigger portions of the market with their heavyweight capital, ratings agencies rubber stamping firms with a questionable seal of approval, on top of an Efficient Market theory which took a huge bruising in the wake of the 2008 crises. We all have to question what fair value really means? If reality isn’t as rosy as some make out, then how can a price accurately reflect the fundamentals.

Consumer goods less attractive. God forbid we arrive at a point in time when producers truly act upon what is needed, not what we are told and coerced into buying. True freedom would dictate that we should be free to not consume if we choose, regardless of the loss of ever-increasing profits, the loss of tax generated and the freeing up of labour to put our minds and talent to use doing what we are best suited to, not being part of a workforce until we die in service, or develop chronic mental and physical issues directly related to our lifetime of fruitless effort.

Rates have room to go up or down, thus allowing markets to function in more normal fashion How do we define what is ‘normal’ There is huge subjectivity in use here. I can’t help but think the normal function has more to do with setting the pieces on a game board, dictating the rules of play, and watching it all unfold, bust after boom, after almighty bust. Play on…

Consider the following two articles about some growing disruptive trends, which we should all be at least slightly familiar with in our everyday lives;

We must unleash the sharing economy to help drive living standards

Farewell Corporate Power: How the rise of the blockchain could change everything

Of course, as long as there is money to be made, we will continue to be exploited for the goal of maximizing shareholder returns. However I posted these to enlighten us about the realm of possibility in our modern age, and how, if used for different reasons than those prevalent today, we already have the means to shape a fairer, more just world.

 

There will be no end to how much we can lament the state of affairs we find ourselves in, when so much of life is based upon false measures of prosperity

Please read the following articles, with extracts given below;

Why then do we continue to measure ourselves in reference to a rate of economic output that was by definition unsustainable and indeed placed us in such a perilous predicament?

Worse than that, by using our past mistakes to judge our current performance, we condemn ourselves to repeating the cycle

All economic measures are fallible, some are even dangerous

Recently the ONS again rewrote years of ecomonic history by altering the way GDP is measured, bringing in various activities which were previously excluded from how growth is assessed. This fundamentally changed the performance landscape over the last decade and beyond, the following piece by Alister Heath touches on its implications;

The way the national accounts, the GDP statistics and the rest are calculated has been torn up. International statisticians are making a greater effort at including the output of the sex and illegal drug industries and of charities; they are also changing the way research and development and elements of defence spending are accounted for.

Everything we thought we knew about the economy was wrong