This Time, Can We Finally Turn a Financial Crisis Into an Opportunity?

Once again, markets are crashing and taxpayers are bailing out wealthy insiders. It’s time we reform this perverse social contract.

At a time of coronavirus-induced panic in the financial markets, there are two wrong ideas about supporting the economy in a downturn that still haunt us. One possible upside of the current crisis is that these two ideas may finally be buried for good. And when they are, we might use this rare moment of clarity to fundamentally rethink who these markets, and their perennial bailouts, benefit in the first place.

The first of these ideas is that investors, when they decide to buy or sell their assets, are responding rationally to information. That is, markets are “efficient,” and therefore the best way to organize how a society chooses to invest. This idea is challenged by what we have seen in the financial markets over the past two weeks. Panicking investors are responding to uncertainty, not information. Central banks around the world have rightly intervened to try to stabilize markets that have been anything but efficient.

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Physical Gold Will Soon Break Free From The Paper Market In Spectacular Fashion

https://www.zerohedge.com/commodities/physical-gold-will-soon-break-free-paper-market-spectacular-fashion

Authored by Brandon Smith via Alt-Marklet.com,

Not long ago, the idea of gold and silver market manipulation was considered the realm of “conspiracy theory”. Alternative economists and precious metals investors were often accused of “wild imagination” or bitterness when it came to long periods of stagnation in the market. Despite a considerable amount of evidence to the contrary, our suspicions were not being taken seriously.

Fast forward to 2019, which was the year of vindication for all gold bugs. Multiple banking entities had been implicated in gold and silver market manipulation, including JP Morgan. It was no longer a “theory”; now it was fact. The problem is, whenever these institutions get caught illegally undercutting the market, they get a fine, at most. Essentially, they receive a slap on the wrist and then go right back to strongarming metals.

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Gradually, Then Suddenly

https://www.linkedin.com/pulse/gradually-suddenly-tim-o-reilly/?utm_source=wanqu.co&utm_campaign=Wanqu+Daily&utm_medium=website

There’s a passage in Ernest Hemingway’s novel The Sun Also Rises in which a character named Mike is asked how he went bankrupt. “Two ways,” he answers. “Gradually, then suddenly.”

Technological change happens in much the same way. Small changes accumulate, and suddenly the world is a different place. Throughout my career at O’Reilly Media, we’ve tracked and fostered a lot of “gradually, then suddenly” movements: the World Wide Web, open source software, big data, cloud computing, sensors and ubiquitous computing, and now the pervasive effects of AI and algorithmic systems on society and the economy.

What are some of the things that are in the middle of their “gradually, then suddenly” transition right now? The list is long; here are a few of the areas that are on my mind.

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Gangs really matter

https://marginalrevolution.com/marginalrevolution/2020/01/gangs-really-matter.html

We study the effects that two of the largest gangs in Latin America, MS-13 and 18th Street, have on economic development in El Salvador. We exploit the fact that the emergence of gangs in El Salvador was in part the consequence of an exogenous shift in US immigration policy that led to the deportation of gang leaders from the United States to El Salvador. Using the exogenous variation in the timing of the deportations and the boundaries of the territories controlled by the gangs, we perform a spatial regression discontinuity design and a difference-in-differences analysis to estimate the causal effect that living under the rule of gangs has on development outcomes. Our results show that individuals living under gang control have significantly worse education, wealth, and less income than individuals living only 50 meters away in areas not controlled by gangs. None of these discontinuities existed before the arrival of gangs from the US. The results are not determined by exposure to violence, lower provision of public goods, or selective migration away from gang locations. We argue that our findings are mostly driven by gangs restricting residents’ mobility and labor choices. We find that individuals living under the rule of gangs have less freedom of movement and end up working in smaller firms. The results are relevant for many developing countries where non-state actors control parts of the country.

That is from a new paper by Nikita Melnikov, Carlos Schmidt-Padilla, and Maria Micaela Sviatschi.  Via the excellent Samir Varma.

An email I sent on negative nominal interest rates

https://marginalrevolution.com/marginalrevolution/2019/08/an-email-i-sent-on-negative-nominal-interest-rates.html

Some of the negative nominal premium comes from the fact that you need these govt. securities for collateral, REPOs, clearinghouse margin, etc.

That doesn’t explain the change, but this point is often overlooked and it makes the puzzle somewhat less mysterious.

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Are Recessions Inevitable?

http://www.unz.com/rpaul/are-recessions-inevitable/

Stocks fell last week following news that the yield curve on Treasury notes had inverted. This means that a short-term Treasury note was paying higher interest rates than long-term Treasury note. An inverted yield curve is widely seen as a sign of an impending recession.

Some economic commentators reacted to the inverted yield curve by parroting the Keynesian propaganda that recessions are an inevitable feature of a free-market economy, whose negative effects can only be mitigated by the Federal Reserve. Like much of the conventional economic wisdom, the idea that recessions are caused by the free market and cured by the Federal Reserve is the exact opposite of the truth.

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Civic honesty around the globe

https://marginalrevolution.com/marginalrevolution/2019/06/civic-honesty-around-the-globe.html

I am a bit late to this party, having been traveling, but I will serve this one up anyway:

Civic honesty is essential to social capital and economic development, but is often in conflict with material self-interest. We examine the trade-off between honesty and self-interest using field experiments in 355 cities spanning 40 countries around the globe. We turned in over 17,000 lost wallets with varying amounts of money at public and private institutions, and measured whether recipients contacted the owner to return the wallets. In virtually all countries citizens were more likely to return wallets that contained more money. Both non-experts and professional economists were unable to predict this result. Additional data suggest our main findings can be explained by a combination of altruistic concerns and an aversion to viewing oneself as a thief, which increase with the material benefits of dishonesty.

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China has overestimated Trump’s desperation to do a deal

https://www.ft.com/content/f2e3e93a-72d4-11e9-bf5c-6eeb837566c5

For anyone who has negotiated with either Donald Trump or the Chinese Communist party, the collapse of US-China trade talks thanks to last-minute brinkmanship will come as no surprise.

At noon Beijing time on Friday — midnight Thursday in Washington — the US increased tariffs on $200bn of Chinese imports from 10 per cent to 25 per cent after it accused China of “reneging” on earlier promises at the eleventh hour.

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The fight to keep ideas open to all

The “commons of the mind” must be preserved, says James Boyle of Duke Law School, on the 50th anniversary of “The tragedy of the commons”

https://www.economist.com/open-future/2018/12/12/the-fight-to-keep-ideas-open-to-all?fsrc=gp_en?fsrc=scn/tw/te/bl/ed/thefighttokeepideasopentoallopenvoices

“THE ONLY way we can preserve and nurture other and more precious freedoms is by relinquishing the freedom to breed.” This ominous sentence comes not from China’s one-child policy but from one of the 20th century’s most influential—and misunderstood—essays in economics. “The tragedy of the commons”, by Garrett Hardin, marks its 50th anniversary on December 13th.

The article, published in the journal Science, was a neo-Malthusian jeremiad about uncontrolled population growth. But it is remembered for the image that the title conjures up and for the anecdotes that Hardin used. The idea behind it is as simple as it is profound: a resource freely available to all will be used inefficiently. An actual common will inevitably be overgrazed. Who would restrict their cattle if other herders may not follow suit? 

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Key pointers from “The Great Man” Theory Debunked

Source: https://www.zerohedge.com/news/2018-08-09/hitler-trump-great-man-theory-debunked

The “Great Man Theory” [Link] tells us that history can be largely explained by the impact of great leaders.

Herbert Spencer [Link] forcefully disagreed with the “Great Man Theory.” He believed that great leaders were merely products of their social environment. 

One of the significant shortcomings of many political philosophers is their ignorance of human nature.

Donald Trump, He’s a brute, a bully, and a demagogue, but he understands the zeitgeist, the spirit of the times and he adjusts his message to appeal to his base.

I have known many bullies; on the playground and in the boardroom. A bully may achieve short-term gain, but for long-term pain. It is very easy to destroy corporate culture, but extremely difficult, if not impossible, to mend a toxic workplace after the bully was dismissed. Now, extrapolate this to the world under Donald Trump.

China is building a large, new embassy at the mouth of the Panama Canal visible to every ship “as they enter a waterway that once symbolized the global influence of the United States.”

China is replacing U.S. influence in Latin America.

The elites are running out the clock in order to loot as much as they can before it hits the fan.

We dirt people will continue to suffer from stagnant wage growth while the so-called increase in national wealth goes to a tiny minority. [link]

It is said that every few generations, money returns to its rightful owners. That is what’s happening now.

or 5,000 years, China was a world superpower with only a short, two-century hiatus that is now ending as China again emerges as an economic superpower. Such a massive shift in wealth cannot be attributed to either leadership or the people below. It is a painful reversion to the mean. All the finger-pointing and wailing and gnashing of teeth … not even bombastic Trump and his tariffs can stem the tide and make Amerika great again as money continues to flow back to its rightful owners.

The USA is a declining, bankrupt, warmongering police state and most of its indoctrinated citizens think they live in a free, peaceful country.

China is a corrupt police state, but most of its citizens know it.

We have met the enemy, and he is us. The future awaits.