Breakeven Inflation Directionality And The Interest Rate Cycle

The ongoing collapse in breakeven inflation (roughly speaking, what rate of inflation is priced into the bond market -- primer) is not a particularly optimistic sign about the global economy. However, this does not necessarily reflect a belief that a recession is imminent. The fall reflects the weakness in oil prices, and probably is also related to the directionality of the inflation-linked bond market (TIPS in the United States). This article explains this notion of directionality.

Money As Debt: A Visual Post-Script

With respect to this earlier discussion. (H/T Neil Wilson, who reminded me that this phrasing is still on British pounds; I was looking at American bills, where I believe there was a variant of this phrasing.)

Banks And The Acceptance Of Money: Tokens of Lower Canada

One of the defining characteristics of money in relatively modern societies is that it is accepted as such by banks. (Ancient societies had a somewhat more informal notion of banking.) Although there could be other instruments used for transaction purposes, if they are not accepted by banks, their usage will be limited. Acceptability by banks drove the usage of copper tokens in the Canadian colonies. This article is a somewhat tangential reply to some comments of Eric Lonergan on the previous "Money As Debt".

Fujimaki: Japanese Hyperinflation! (Again!)

It's been fairly quiet on the JGB collapse front; apparently, people got tired of losing money shorting the things. However, this has not stopped Takeshi Fujimaki from re-iterating his Japanese hyperinflation call.

Money As Debt

The question of whether government-issued money is a debt has shown up in two recent contexts. The first is an fundamental argument about money, and how to think about it. The second is a more technical question: if the central bank replaces government bonds with reserves (which are a form of money), has the debt-to-GDP ratio gone down? To summarise my views: yes, (modern) money should be defined as a form of debt. But since the central government with a free-floating currency cannot be forced to default, one can question whether it makes sense to treat central government debt like the debt of other issuers. In particular, the debt-to-GDP ratio of such governments is essentially a piece of trivia that can be safely ignored.

Growth Limits (Again)

The "limits to growth" debate is continuing. Ramanan has written a good article discussing the role of the external constraint in this debate. I agree with what he says, but I am less troubled by the fact that it is not heavily discussed by others.

The Return Of The High Pressure Economy

The potential for rapid economic growth in the United States has popped up again as a partisan political issue. J.W. Mason has written an excellent article -- "Can Sanders Do It?" -- discussing the hubbub that has arisen around rapid growth projections based on Democratic candidate Sanders' economic plans. (On the Republican side, there previously was a debate regarding the growth projections given by the candidate Jeb Bush.) I agree whole-heartedly with J.W. Mason -- a return to a period of rapid growth in the United States is certainly possible. However, for those of my readers are obsessed about the government bond market, that should raise the hairs on the back of your neck...

Difficulty Of Extending Universal State Pensions (Part 2)

With the coverage of defined benefit pensions falling, other private sector means of providing retirement income are tending to fall short. Although the financial products to provide a retirement income exist, they end up under-utilised in practice. The alternative is for the central government to step up its provision of retirement income replacement. However, the wide income disparity within the "middle class" means that it is difficult to provide wider coverage without creating structural changes to the economy.

Monetary Disorder: Some Views From France

One of the entertaining part of economics is the divergence of views on a national basis. Within a country, partisan political views create a spectrum of opinion, but we can usually identify an "establishment view." But those establishment views can be quite distinct across countries. As an example, the French establishment has a fixation upon exchange rate regimes, and an interpretation of the current monetary system which bears little resemblance with mainstream American views on the topic. This was apparent from reading Désordre dans les monnaies [Monetary Disorder]: L'impossible stabilité du système monétaire international?

Pick Your Financial System Dysfunction

Trade-offs are an important part of decision making. If make a change to improve some metric, it is usually at the cost of something else. We have enthroned mark-to-market as a core principle of finance, and we are now seeing what the costs are. If those market prices do not turn around, the only way out is "qualitative easing."

"Groundhog Day!" For The Treasury Market

Treasury market participants might be forgiven if they feel that they are trapped in a "Groundhog Day" style time loop; the 10-year Treasury is back at levels seen in 2011. This is despite the widespread  belief that a Fed rate hike would cause a bloodbath reminiscent of 1994. Although I have a dour outlook about economic trends, it is still unclear that it is weak enough to trigger a further plunge in yields.

Money Hoarding Versus Saving, And Economic Growth

One of the ongoing arguments in political economy that has followed on from Keynes is the debate over the "Paradox of Thrift." This paradox could be loosely summarised as: an attempt to increasing savings by households will lower incomes, and will actually reduce their financial resources. Free market supporters tend to reject this logic, instead arguing that increased savings increases investment, boosting growth (as discussed here). Professor Nick Rowe argues in a recent paper (paper link; comments link) that the problem is not "thrift," rather the desire to "hoard" monetary assets. This debate is not just of theoretical interest; we need to understand the effects of increasing savings in order to gauge what the effect of increasing pension contributions would have on the economy (for example).