Recent Posts

Friday, March 27, 2015

Theme: Government Financial Operations

Modern Monetary Theory (MMT) emphasises the importance of monetary operations within modern economies. They explain the difference between Greece and Japan, a distinction that some find hard to make. This article provides a limited overview, and a set of links to some of my related articles on this topic.

Thursday, March 26, 2015

Minsky On Bank Position-Making Instruments

Although the financial system appears extremely complex, the underlying principles tend to be stable over time. One of the fundamental needs of a banking system is for position-making instruments, which are financial instruments that can be bought and sold to manage liquidity. The economist Hyman Minsky often highlighted the importance of these instruments. This article summarises his discussion of this topic, which is useful for understanding some of the operations underlying government finance, in particular the repo market.

Tuesday, March 24, 2015

Primer: Can We Consolidate The Central Government And Central Bank?

One of the strengths of Modern Monetary Theory (MMT) is that it provides a clean analytical framework for the analysis of "modern" economies (economies with a free-floating currency and which controls its central bank). One of the ways in which it does this is to consolidate the central bank with the fiscal side of the central government. Such a consolidation has extremely important effects for understanding government default risk, and is controversial as a result.

Saturday, March 21, 2015

Book Review: Smaller Faster Denser Lighter Cheaper


The book Smaller Faster Lighter Denser Cheaper: How Innovation Keeps Proving The Catastrophists Wrong by Robert Bryce is a celebration of technical progress, in particular progress fueled by capitalism. As someone in the Peak Oil camp, I was curious to take a look at some of the more optimistic views of the future. Although I do not disagree with Bryce's assessment of the past, the weaknesses within his analysis did not really cause me to reassess my gloomier long-term outlook.

Thursday, March 19, 2015

Demographics: The Non-Crisis Of The Dependency Ratio

It is fashionable to wring one’s hands about the impending demographic crisis that is about to hit the developed countries, at least amongst those who want to be seen as serious. There is no doubt that social programmes will need to change over time, but that should not be a shock: one of the definitions of something being dead is that it does not react to changes in its environment. In this article, I look at the demographic situation for the United States, and offer a high level explanation why it is not particularly worrisome. In order to be brief, I am looking only at the capacity to produce real goods and services here, and not the financial measures that are the usual justification for panic.


Wednesday, March 18, 2015

Brief Fed Comments

The Fed dropped "patient" from the statement, and the 10-year U.S. Treasury rallied 13 basis points to 1.92%. I am unsure what bond bears did in their previous lives, but they seem to be dealing with a lot of bad karma right now.


Tuesday, March 17, 2015

Update On Profits And Inflation

Chart: Profit Share And Inflation (Bond Economics)

In the post-war period, there has been a strong secular relationship between inflation rates and the share of national income. In summary, corporate profits were at their lowest share when inflation was the strongest. As I noted in Low Inflation, High Profits, this relationship call into question the political neutrality of central banks' low inflation mandates. However, this is a topic of discussion that does not come up too often.