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Sunday, February 18, 2018

Why Lender-Of-Last-Resort Operations Are Inevitable

Lender-of-last-resort operations by central banks (or "bailouts of the financial system") are deservedly unpopular across the political spectrum. Malcontents have argued that risky lending ought to be handled by markets, and that deposits should be fully backed by reserves or Treasury bills. Unfortunately, the believers in these theories never bother to look at the economics of short-term lending. The money markets have the structure that they have for a reason, and they only will function if there is a lender-of-last-resort that is able to step in and prop the system up. Any attempts to make the system bailout proof would have far-reaching consequences into the structure of the economy.

Friday, February 16, 2018

Video: sfc_models Installation


A video that covers the initial installation steps (in Windows). It covers two installation techniques, and how to run Python scripts, for those new to Python.

Thursday, February 15, 2018

Comment On sfc_models Development, Upcoming Reports

My work is now largely driven by my book publishing. Once I finish off the breakeven inflation analysis report, I might do a book of primers on fractional reserve banking. This would be a short book of blog articles that are largely repackaged as-is, with just some editorial cleanup (similar in concept to Abolish Money (From Economics)!). The next big project would likely be on business cycle analysis; the research for it would start relatively soon (and thus show up as blog articles). (However, I am looking to become more opportunistic for report topics. If there is an exciting crypto-Armageddon angle that pops up, I might go for that.)

The business cycle book is where I would start looking at extending the sfc_models package again. Although the book would be empirically-focused, I would want to build up a small suite of business cycle models to illustrate theoretical points. 

Installation Instructions For The Python sfc_models Package

The following text is an excerpt from An Introduction to SFC Models Using Python (Section 2.2). Although I obviously want to sell copies of my book, I want users to be able to use the package first for free. For an experienced Python programmer, the installation is very easy, as sfc_models is a vanilla Python package. However, many of my readers will not be familiar with Python, and would need some guidance in order to set it up.

I added in a file that describes the installation (at a high level) in the package, which users will hopefully see if they look at the GitHub repository. At some point, I would like to build up a free PDF that describes how to install and run examples. (Helping with documentation is one of the most pressing needs for outside help.)

Wednesday, February 14, 2018

Rising U.S. Breakeven Inflation - Mean Reversion Or Something Else?

Chart: U.S. Breakeven Inflation, Spot and Forward

There have been a great many attempts to pin the blame on the equity market correction on things other than the implosion of the short-volatility complex; inflation and fiscal policy being commonly-cited culprits. I do want to wander into equity analysis, but the move in breakeven inflation has been interesting. In particular, my approximation of forward inflation has gone back to its pre-2015 average relatively quickly.

As a disclaimer, this article was written before the highly-anticipated CPI release. I do not think the subsequent pricing changes will be enough to matter from the "big picture" perspective of this article.

Sunday, February 11, 2018

Introduction To "Inflation Breakeven Analysis"

The great inflation of the 1970s in the developed countries provoked a strong political and economic reaction. Investors searched for ways to protect themselves from inflation. The United Kingdom launched the first modern inflation-linked bonds in 1981. In addition to being of interest to investors looking for protection against inflation, the market also provides a market-based measure of inflation expectations. Since investors have “skin in the game,” the resulting forecasts could be better than a purely survey-based inflation forecast. A more reliable inflation forecast could then be useful for policymakers that aim to control inflation.

This article is the unedited introduction to the upcoming report "Inflation Breakeven Analysis."

Thursday, February 8, 2018

I Blame The Finance Profs

The equity market got smashed around today again, and commentators were busy trying to find the culprit: inflation, deficits, the Illuminati? As the article title indicates, I put finance academics as being the underlying cause of this problem. Once again, capital is being destroyed in size as a result of the side effects of their theories.