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scepticus

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  1. FYI, this paper from Naranya Kocherlakota (was part of the FED, not sure if he still is) underpins my view. https://ideas.repec.org/p/fip/fedmsr/275.html In this paper, I provide a possible explanation of why nominally risk-free bonds are essential in monetary economies. I argue that the role of nominal bonds is to serve as record-keeping devices in intertemporal exchanges of money. I show that bonds can only serve this role if they are illiquid (costly to exchange for goods). Finally, I show that in economies in which nominal bonds are essential, welfare and nominal interest rates are both positively associated with the supply of illiquid bonds (if that supply is small). Our current nominal bonds are not illiquid, and therefore if you admit the conclusion of this paper, are not socially beneficial.
  2. Doesn't matter where they are held really. All safe assets are assets of the private sector and liabilities of the public sector. If Britcoins become a thing then public will be able to hold M0 as well. I don't disagree with that, my point is why have them available to the public in the first place? If we didn't have them, then there would be no chance of them affecting prices. Of course we need money, but the bank reserves held by commercial banks can serve as that money. In principle if they quantity of bank reserves is held more or less constant then there will be money and there will not be a load of safe assets de-stabilising the economy. I don't disagree with that either, my point is merely about the effect of nominal safe assets on financial stability. If that be true then again it re-inforces that we don't need safe assets for the market to function. Yes but that has nothing to do with my points here. I have never claimed nominal safe assets are or should be inflation proof. But why? Why can't the market determine a yield curve for itself, why does it need the government to help by issuing such assets? Especially in light of your comment above about having many units of account?
  3. That depends on the real return on fiat assets, and any increased carrying costs associated with the gold. by safe cash assets I mean M0, or bank reserves, which are necessarily held on bank balance sheets and not by the public. In my reponses I have not judged bank deposits (aka commercial bank debt) as safe (at least not as safe as bank reserves or gilts). A.steve has claimed that nominal assets are vital for functioning price signals and a functioning market, and this is what we were talking about (since I am disagreeing with him). I have not been making any specific claims about the utility of safe assets as a store of value. So I think you are talking at cross purposes here. M0/bank reserves are nominal risk free because they are the unit of account. Gilts are risk free because you are guaranteed to get your capital back. If I buy a gilt and hold it to maturity, the government will pay back at least what I paid for it, unless the bid for the bond is excessive and drives the yield negative. Nominal risk free is all about a guarantee of getting your capital back in nominal terms. An interesting case is negative return on safe assets as per the above example of negative yielding gilts, or in the case of CB NIRP policy. In these cases, we could say that such an asset remains safe if it meets the criteria that you are guaranteed a specific sum back at the time of purchase, even if its less than what you pay for it. Then, there is no "risk" because everything is known up front. Assuming we had a negative yielding riskless M0 0-duration cash asset, then this would suffice for market signals. In this case (or when M0 cash is zero or positive yielding), there is no additional need for gilts or other longer duration safe assets to endow the market with the required information transmission capabilities.
  4. I agree there are pros and cons between cash and gilts for different types of saver or investor. I have always maintained that for exactly the reasons you cite above, gilts are better for any saver with a large amount of value to store. Therefore replacing gilts with cash is not necessarily inflationary since one is removing the better store of value from the market. But whichever position you take, it doesn't answer my objection about why nominal risk free assets are required for market signals.
  5. Interesting font. I guess you have prepared this in some text editor? Anyway, government bonds and bank deposits cannot really be stolen or lost. Or at the very least, they are are a lot less steal-able or losable than gold bars. They also have the nice trait they can follow you anywhere unlike gold bars, as long as the internet stays up. Further, at large scale, say you have 10 billions dollars to save, far more convenient than gold. So I maintain my point that nothing like the current generation of risk free assets has ever existed in history. Some of this is to do with modern info-tech, but even 18th century gilts were far better than gold in this regard. Wrong, because the warehousing of safe assets like bonds has created a similar amount of safe cash assets. The quantity of safe assets has not changed, all that has changed is the average duration. Cash is safe, gilts are safe. Swapping one for the other doesn't alter the safe to no safe ratio, except in so far as cash has an FSCS limit. But even then, the cash assets created are held as reserves at the boe, so no nominal loss risk attaches to those assets. There is no such thing as a nominal risk free asset in the real world. They are a financial fiction. In the real world there is only a continuum of nominal risk that is unknowable and can be at best approximated. Society is not required morally, or in terms of optimising overall outcomes to provide nominal risk free assets, when the real world/physical universe could never make such guarantees, That is not a lack of confidence in money. It is a reflection of the fact that there is no such thing as a nominal risk free asset in the real world, and that our money has now finally after 40 years arrived at a point where it reflects the physical world reality. It is also a reflection of the fact that mom and pop savers have been duped into thinking that central banks etc can guarantee their money has zero nominal risk when the central banks is not capable of making such a guarantee. We can retain the option not to invest by holding cash, but what we cannot do is guarantee no nominal loss on cash. This will manifest itself gently via negative interest rates, or via bank failures etc, and possibly most likely, bank fees for holding cash in accounts that pay no interest. We cannot invent a financial reality that is divorced from physical reality and expect the former to persist for any length of time. And you did not address my point about why nominal risk free assets are required for market signals. We had such signals before safe government debt and insured bank deposits were invented.
  6. If you have a good size garden a nice asset to have for recreation and additional resilience is a natural swimming pond. Divided ~50:50 between a deeper swimming zone (maybe 2m deep in the middle) and a shallow 1.5m to 0.3m deep regeneration area. The latter is filled with various water plants that keep the water clean. An underwater wall separates the two areas to keep silt etc out of the swimming area but allow water to flow between the two over the top of the wall. Then a simple aquarium compressor or two can be run off a solar panel to create a bubble pump (or airlift pump) that circulates the water and oxygenating the plants. You get a nearly maintenance free, chemical free swimming pool and a large reservoir of drinking water for emergencies.
  7. The presumes that history is necessarily a guide to the future. That history shows our destiny. Its a philosophy also known as historicism, which by the way is the view upon which both Marxism and Fascism are founded (thanks in turn to Hegel, the statist philosopher who worked for the Prussian absolutist monarcy in the 18the century). Its not a view lovers of freedom and human progress would want to be seen to espouse. Nations based on both fiat money and gold standard money have collapsed. In principle future nations based on either could prosper. I disagree. Value can be specified in terms of knowledge, and knowledge can have a universal (and non anthropomorphic ) definition. See for more details. Not true. Stocks and bonds can change in nominal and relative value thanks to the collective action of others (buying, selling, writing good or bad things about stocks and bonds in the press). Gold is no different in that regard. As per my link above, knowledge and value can be defined explicitly. The problem is that we collectively and individually don't know many things, so our ability to perceive the true value of something is limited. This applies to stocks, bonds, gold, bottles of water etc. They are all just substrates, just matter and information. Value lies not in them but in the physical and social transformations that they enable when combined with the requisite knowledge.
  8. Interesting. What were they, these assets that could not be lost or stolen (and for bonus points, that earned interest)? Not necessarily disagreeing with that, but I think we need to clear up the position on risk free assets first.
  9. The other interesting angle is emerging besides NETD are the various flavours of viewing the universe computationally. E.g. Wolframs work on Branchial Space, Deutsch with Constructor Theory, Verlinde with Holographic Gravity. We'll need some progress with fundamental physics I think before we can crack this complexity. Also, way may find (as per Wolfram) that overall the computation in question is irreducible.
  10. >It is not nature that humans cannot command, but themselves, in all their insignificance and world-altering might. Precisely the point I was making in the Why Socialism Can never work thread, to which the response was an accusation that such a statement is an apology for the worst excesses of capitalism.
  11. quite so, the existence of the gold standard didn't prevent the british empire 1700-1900 issuing piles of government debt to finance imperial expansion. The british empire was built despite of, not thanks to, the gold standard. We British were the first ones to find a way round the gold standard, which is why we built an empire. As soon as the other nations cottoned on and copied us, our empire waned.
  12. Genuine nominal safe assets have only been a thing since the end of Bretton Woods II. This has co-incided with the start of the long road down for nominal interest rates, and the con-commitant rise in asset values. We are only just starting to understand the systemic effects of nominal risk free assets. I am not suggesting 0-risk assets be swiped away at the moment of crisis. Merely that there should be an expectation that there is a limited amount of them and that not all spivs will be able to get hold of them when they want to. If this expectation were embedded in spiv-mindset, there would be less spivs. I don't see why 0-risk assets are required for information transmission in markets. There is no such thing as 0-risk in the real non-financial world so I don't see what systemic utility a 0-risk benchmark can really have. My position is that the existence of 0-risk assets actually obscures information transmission about genuine risks. Not if the implied backstop to nominal losses on lacklustre investments is withdrawn. Then lacklustre investments will be priced accordingly like they would have been in Amsterdam in the 17th century. Again I fail to see why vast pools of 0-nominal risk assets are required to facilitate a free market with good liquidity and price discovery.
  13. I agree because such attempts are normally based on statistical mechanics for equilibrium systems, whereas the market is as you say a system far from equilibrium. In this sense it matches living systems, but there is no workable scientific method for analysing non equilibrium thermodynamic systems. If there was one we could apply it to markets, but we may be waiting a while.
  14. >There needs to be something between a hard, metals base currency and Gordon Brown. Except there isn't and never will be. Money, including commodity money, is just information. We only used gold when the information processing capability of our society was insufficiently developed to use something more efficient. If we went back to commodity money we'd just end up by quickly repeating all the previous waves of financial innovation and changes to the global exchange system to get round the limitations and inefficiencies that commodity money implies. There is no option but to try and better evolve a system of money built on numbers in computers. Bitcoin is a great example of this. Not the right solution, but at least an evolutionary branch.
  15. That is precisely the cause of the problem we are faced with in terms of high inequality, national debt and unstable markets. When private investors have made an investment and later conditions turn sour there should not be a vast pool of nominal risk free instruments that preserve capital they can hide in until the danger passes, and which then leaves non-investor tax payers footing the bill. Instead, they and their principal should be left to face the wolves of recession using real world risky places to park their capital. And let the wolves take the hindmost. Private investors and their funds need to be regularly culled when they chose wrong.
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