Open Thread – Anything Goes

What’s on everyone’s mind?  Do you have a question for me?  Do you have an insult for me?  Do you have insults for each other?  Do you have a suggested post?  Do you want to talk about how perfect Ben Bernanke’s beard is?  Do you have any site suggestions?  Do you have anything great you’ve read lately that you’d like to share with the group?  Seriously – anything goes….Have at it.

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Got a comment or question about this post? Feel free to use the Ask Cullen section, leave a comment in the forum or send me a message on Twitter.
Cullen Roche

Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services. He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance and Understanding the Modern Monetary System.

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  • Greg

    I sure have learned a lot in the last several years from your blog.

    Thanks, Greg

  • http://Macronomy.blogspot.com Martin

    “Do you have anything great you’ve read lately that you’d like to share with the group?”

    http://www.fdic.gov/news/news/speeches/spapr0913.html

  • Skateman

    From a human ingenuity perspective, I find my optimism keeping me, paradoxically, out of many stocks these days. Technology/creative destruction seems much, much greater now than at any point in my career. I feel like there’s only a handful of safe areas. It’s gotten so bad I look at utilities and think, “plummeting solar prices are eventually and perhaps soon going to kill this industry or at least its profitability.” I look at oil producers and think, “self driving electric cars and it’s goodnight Irene.” Everything and I mean everything seems like its being commoditized, too. Are you selling pricey phones? Android’s coming for you. Are you a bricks and mortar retailer? Amazon means your days are numbered? Are you a delivery company? Watch out for 3D printers. And finally, do you have human labor to sell…good luck finding a job with automation/algorithms/3D printers taking over. Maybe these processes will take longer than I expect, maybe I’m just linear extrapolating too far, but I see huge creative destruction risks everywhere.

  • In Accounting

    Just wanted to say thanks for all you have done with this block in the past few years, I’ve learned an incredible amount from you and the great community here.

    Cheers!

  • Aaron

    You mentioned you have no clue what’s happening in the market now. I responded that’s what trend following is for, so we don’t have to know, just follow the trend.

    To me, times like this are exactly why trend following and tactical/adaptive asset allocation exist. Because it’s so dang hard to figure out all the fundamentals and variables that act as a force on prices. The markets can seem so irrational at times, but only after the fact does everyone figure out why it was so. By then, the move is over and you missed it. How can an individual investor/trader compete with funds that employ thousands of analysts and have 100+ folks in China alone?

    In the end, all the fundamental information that is available to the market participants is wrapped up in the price. If the price is going up, then it’s time to buy. If it’s going down, then it’s time to sell. Based on your timeframe you can construct a mechanical system to tell you when something is going up and when it’s going down. Stay diversified, manage risk. How else is an individual going to make it?

  • In Accounting

    Ugh autocorrect. Of course I mean blog instead of block.

    Since I’m posting twice I’ll ask a question as well:
    What is your expected impact of competitive currency devaluation (ie – Japan, SK) on the effectiveness of monetary policies at home (ZIRP, QE, etc)?

  • barak

    Cullen, i was wandering how MR views purchasing of fx by central banks in order to devalue the currency? Is this money printing?

  • R.D.

    NEO-KEYNESIAN anything as Business Insider promotes all sucks just like Roseveldts new deal crap.

  • Indignado

    Here is a blast from the past. Anybody think we will get close to a 1 to 1 ratio of DOW to Gold?

  • Anonymous

    In the past, what made your blog exciting was the rigerous debates in the comment section. Now it seems that the only folks who comment are the suck asses (oops Apple Polishers) and the “tell me what I should think crowd”. I understand you need the ad revenue, but don’t sacrifice why you started this blog.

    Just saying………

  • Raskolnikov

    I have a couple questions, Cullen:

    1–Where do you think the 10-year UST would be without QE?
    There’s still weak demand for funds, so it would still be pretty low, right?

    2–How are the Fed’s MBS purchases effecting rates? I mean the 10-year is pegged to mortgage rates, so MBS sales don’t really matter, right? Besides, originations are down so the Fed must be just buying the old MBS, not MBS that are created by new mortgages.

    3—Isn’t there a danger that the economy will slide into recession due to the sequester ($85 billion) cuts? A lot of economists are saying the cuts will slice 1.5% of GDP. Well, according to Dean Baker, GDP only grew by 1.8% last year, so that’s cutting it pretty close, don’t you think?

    Thanks

  • Gloeschi

    If the Fed / Treasury leases out gold, does the gold physically change location? Assuming there was an audit of ‘official’ US gold holdings, would the bars still be there, even if leased out? I guess we won’t know until after the fact, since most of the gold under control of US military (West Point, Fort Knox) anyway.

  • jaymaster

    What’s the deal with all this “flexible hose” stuff I’m seeing? There are commercials on every TV channel 24/7, spam in all my email accounts, and even radio ads!

    Is this just a US thing, or are people in other countries being bombarded with this stuff too?

    And where did it come from? Why the big push all of the sudden? And who’s behind it?

    I bought something similar about 20 years ago, but it leaked like a sieve. Is this just a renewed push of that old technology?

  • Skateman

    What’s the point really? 95% of the shit big corporations sell is a scam anyway. Their incentive is to maximize short-term profitability, long-term negative externalities be damned. So we buy and sell the stocks of these scammers/externality producers to try to do better than the market to further enrich our wealthy clients. Great way to spend a life. But, hey, the money’s good so….

  • http://november99786@gmail.com Rich R

    Yes….something I’m concerned about. From what I understand, under Dodd-Frank future public “bail-outs” will be prohibited. The events in Cyprus represent the framework of all future bank rescues. That is a “bail-in” will be conducted. All unsecured creditors (depositers) could be tapped to mend the finances of failed institutions. Supposedly, the FDIC only has about $25 billion on hand to insure depositer’s accounts. Also, I understand that derivatives have primacy over all other bank credit obligations. There is something like $200 trillion in derivative contracts among the top US banks. If we have another financial crisis (and I don’t see why we won’t at some point…nothing was fixed from the last crisis)…what is there to prevent a complete collapse of the banking system for the average bank customer…?

  • jt26

    Hi Cullen, since you were the artist formerly known as The Pragmatic Capitalist, …
    Could you expand MR a bit on the importance of capital? E.g. possibly …
    – intellectual capital (nice to see these reported now as investments!)
    – corporate (ex-financial) capital … esp. as it relates to Abenomics (i.e. why buy JREITs vs. MBS?; why buy stocks vs. pushing down interest rates on corporate credit) .. I’m not thinking of the wealth effect, but rather the ability of corporates to borrow based on their capital and the ability to raise capital based on their existing capital.
    – the importance of the above capital vs. bank capital which is often wasted in creating money for the sake of investing in money-like assets or simply transforming money assets …

  • http://kiddynamitesworld.com Kid Dynamite

    I would like to hear you talk more about Kyle Bass’s Japan thesis… he keeps talking about a pending crisis, but I get the feeling you disagree…

  • brazzo

    what is it about the financial markets community? I mean professionals working at investment banks, I’ve worked over ten years on these banks and I just can’t get rid of the impression that people working there (mostly) are so self indugent, prepotent, arrogant!!

  • pupcakes

    Look harder. There are lots of good people about. :)

  • Adam2

    Hey Cullen, I’d like to know your and others fitness regime.

  • Aaron

    On a more practical note, what does your daily schedule look like? I think if successful people posted their daily routine online, it would help a lot of would-be successful people figure out what it takes to get there.

  • Boston Larry

    Cullen, is the current streak in the S&P 500 one of the longest in history without a 5% correction? I think I read that on another site. If one of the keys to your algo is reversion to the mean, then this is has been a rought time to be a mean reversionist, has it not? What are your thoughts on this? I echo some of the questions that Aaron asked about trend following and tactical asset allocation. Thanks for providing a great forum and for all your insights.

  • http://asymptosis.com Steve Roth

    Cullen, I’d be very interested to hear your thoughts on this:

    http://effectivedemand.typepad.com/ed/

  • Frederick

    I’d also be interested in more of “what makes you tick”. You seem to have accomplished a huge amount for a young guy. So what is it? Are you working 120 hours a week? Do you have a life? I don’t mean that to sound insulting, but I’d be interested in knowing more about you. You seem very balanced in your thinking, but is your life the same?

  • The Undergrad

    Any chance you could extend a MR framework to the international stage and share your thoughts on portfolio construction/risk management. Even if you were to just pass on books/papers you’ve read it would be much appreciated.

    Thanks for all your hard work.

  • Bruno V

    Cullen,

    Would be interested to hear your take on this paper (H/T Barry Ritholz):

    Are Stocks Cheap? A Review of the Evidence BY Fernando Duarte and Carlo Rosa
    http://libertystreeteconomics.newyorkfed.org/2013/05/are-stocks-cheap-a-review-of-the-evidence.html

    Cheers,

    Bruno

  • http://www.chpc.biz Brian_Ripley

    I should know this from reading Pragcap, but I don’t. Can anyone answer or send me to a link that will explain:

    1) What can banks do with excess reserves? Do they move excess reserves into their own (bank) accounts not at the Fed? And then is that treated as their own bank capital and they can use it for lending or making investments.

    I understand that banks don’t lend from their reserve accounts (at the Fed).

    2) The Fed swaps cash for treasuries and treasuries for cash with banks through the reserve accounts to affect the Fed funds rate… but the Fed is also “buying?” Mortgage backed securities and other investments? from banks. How do the other non treasuries get into the reserve system?

    2a) My question is confusing to myself. Maybe I should ask… is the Fed buying bank investments (mortgage backed securities et al) directly from the corporate balance sheets of banks in other words out side of the reserve system? Is that why it is referred to as money printing? The Fed is buying bank assets?

    Some countries don’t have reserve systems (Canada, Australia, New Zealand)

  • phil

    “anything goes”

    ok, here goes..

    you’re a hypocrite for deleting my comments when they don’t suit your particular line of argument.

    Debate on this site is only as free as you want it to be.

    Of course your fans don’t know this because they don’t get to see the deleted comments.

  • Alex

    I love how my two favorite blogs are PCap and ZHedge….it provides the perfect balance of information coming in. Perfect Zen….

  • wkevinw

    +10000

  • http://orcamgroup.com Cullen Roche

    Phil,

    There’s a well known 1 strike rule here (which I rarely actually enforce because I don’t like playing internet police over grown men and women). I’ve warned you 100’s of times about your behavior. While you seem friendly enough I really don’t care for having the same discussion about MMT every single day. In fact, I am sick and tired of MMTers constantly regurgitating the same old tired arguments that I’ve debunked time and time again. You think it’s right. I don’t agree. So why do you keep coming back here repeating the same MMT arguments? At some point you had to realize I would just think you’re trolling the site (which is what it looks like again from this comment).

    Anyhow, you’re right (and wrong). People get banned here if they act like jerks, troll the site or can’t behave like adults. That’s the bottom line. If you write comments that aren’t the same regurgitated MMT talking points every single day then great. But if you want to write about MMT all day every day you should start your own website and stop filling the comments section here with something you know I think is fundamentally incorrect. It’s not conducive to learning for you to be contradicting much of my work all the time. I’m fine with disagreements and counterpoints, but at some point you’re not contributing, you’re just repeating your talking points and giving everyone the impression you have an agenda. That’s not okay.

    CR

  • Kristian Blom

    Opinions are built on sand; are they worth more when we put money behind them? Here is an opinion or two.

    The current environment is about the reality of weak demand in the Developed world and an Emerging World that does not yet have the necessary institutional framework (banking and government) to function efficiently.It is about this reality vs. the aggregate efforts of central banks.

    Central Banks have imposed a form of equilibrium which will tip over once the diminishing effect of QE becomes common knowledge/understanding.

    In the intermediate term we are oscillating between periods of rising but historically low inflation, which puts the brakes on the economy, and periods of disinflation, which serve as a stimulus. The American consumer is adhering to a similar pattern of saving up for a quarter or two and the spending it down.

    The big institutions have recently bid up the Consumer Discretionary sector, betting on more easing.

    ‘The Markets’ seek the truth=change.
    ‘The Humans’ seek equilibrium and are willing to lie to themselves.

    To make money and preserve capital ‘see’ both sides.

    Kristian

  • David

    Mr. Roche,

    I’m a bit puzzled. From what I understand about the mechanics of the Fed’s asset purchase program, it only seems to me that they’re accomplishing their goal of keeping long-term interest rates suppressed. But I see this incessant focus by traders/managers on the absolute amount of excess reserves and whether today or tomorrow is a “POMO day.” This statement typically entails several references to “liquidity pools” and movement of those funds into equities.

    Am I wrong in believing that the financial community has effectively bought their own bullshit? Because to me banks have not really been reserve constrained for a while now and the Fed only controls the *cost* of holding money. And to me it’s an entirely different argument whether long-term interest rate policies change the dynamics of the equity market. I suppose this is a good transition to my next question. Do you know of any cointegrative relationships between Treasury yields and the S&P 500’s earnings/dividend yield?

    One last thing. Does it also seem reasonable that the Fed could raise short-term interest rates while maintaining their asset purchase program?

    Please let me know if you think I’ve made any errors. Thank you.

    David

  • BAlex

    Without giving away any home cooking, what are you using for your trigger points? Something along the lines of Meb Faber’s work?

  • David

    ‘The Markets’ seek the truth=change.
    ‘The Humans’ seek equilibrium and are willing to lie to themselves.

    The market is a collection of human beings. Humans lie to themselves as you’ve said yourself. Hence markets can reflect the dispositions of their participants. I’m not sure how that makes a market truth-seeking, but ok.

    David

  • phil

    Let’s put some facts into this argument.

    1. The last post by me which you deleted was a quote I took directly from the Fed’s own literature, which contradicted your argument.

    It wasn’t even a comment of my own, it was just a direct quote from the Fed.

    It wasn’t insulting, trolling, or even related to MMT in any way whatsoever.

    You simply didn’t like it, so you deleted it.

    2. On a previous occasion you were making your usual comments about MMT and banks, so I posted links to articles written by MMT economists on banking reform, which contradicted your arguments.

    You didn’t like it, so you deleted it.

    3. You have repeatedly stated that MR is “only descriptive” and “not prescriptive”.

    I posted a comment quoting numerous “prescriptions” articulated within your own paper (“understanding the modern monetary system”), which were examples of you directly contradicting yourself.

    You didn’t like it, so you deleted it.

    4. No doubt this comment will also be deleted, because according to you I’m now “trolling”.

  • David

    1) Nothing, really. They’re shuffled around amongst each other but the Federal Reserve determines how many reserves there are in the aggregate. Remember that banks have not been reserve constrained for a while now.

    2) I don’t really understand your question. I think there is an auction process for primary dealers. Additionally the Fed has switched its policy for managing short-term interest rates. It now pays interest on excess reserves (IOER).

    2a) Yes to all of your questions.

    If I am incorrect please let me know. Thank you.

    David

  • http://orcamgroup.com Cullen Roche

    As discussed, you’re on a mission to spread your agenda. It’s abundantly clear from your comment history that you only comment about MMT. I don’t care if you want to spread MMT. You’ve literally never commented on anything else. And in case you haven’t noticed, this isn’t an MMT website so what should I think about this? You’re like the annoying soccer lover who keeps coming to the NFL blog to talk about soccer. Get out of here with that! It’s just a nuisance at some point.

    I don’t care if you want to discuss it in comments sections of the blogs you read. Just don’t do it here. I don’t know why that’s so controversial to you. MMTers banned MRists from their sites when they didn’t like their comments. Mosler banned JKH long ago. So what. If someone is trying to teach people how the monetary system works and someone is constantly interjecting with an alternative view that contradicts their understandings then it becomes counterproductive. We’ve all seen the MMT back and forths. The evidence is all there for people to judge. I don’t need you coming here every day regurgitating the same talking points. It’s tiresome and I don’t have the time to correct all your mistakes every day.

    Sorry if you take that personally, but it is what it is. Call me an ideologue or a conservative or a builder or strawmen or whatever the usual insults MMTers sling my way to make themselves feel better. I don’t care. Just don’t do all that here. Thanks.

  • CollegeKid

    If you were to take one entry level job out of undergrad, what would it be and why?

  • AB

    As would I.

  • brazzo

    Don’t know how it’s in America but in many countries when banks go bankrupt the controling shareholders (the ones that signs the books and are statutary) have to use their own capital and assets to pay for losses of depositors.

    So if a depositor loses it’s savings the government uses all the banks assets to the limit and then goes to the private capital and assets the CEOs, CIO CFO have on their own to pay them back..

    How about that incentive for American Bankers and why no one even discuss the possibility???

  • Johnny Evers

    I enjoy Phil’s posts.
    Probably most of us don’t know anything about the MMT-MR feud, or care.
    It’s important to allow alternative viewpoints.

  • http://orcamgroup.com Cullen Roche

    I’m all for the debate and alternative view points as well. But rather than having Phil come here and repeat his same points every day we can basically just say – okay, if you want to know what MMT is then read this:

    http://www.gate.net/~mosler/frame001.htm

    If you want to know why I think MMT is wrong then read this:

    http://pragcap.com/mmt-critique

    And if you really want to know how the money system works then read this:

    http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1905625

    That saves me a lot of time and effort correcting people and going back and forth on things I’ve discussed 100,000 times.

  • ReturnFreeRisk

    The kind of market action in the stock market reminds me of 1999. I think the Fed will stick to zero rates till mid-late 2015. Two plus more years of zero rates will take SPX well north of 2000 as long as the economy does not go into recession. I smell a bubble forming. what say you?

  • Cowpoke

    Ironic ain’t it..

  • jwr

    I have the Ducks in our playoff pool. If they make it to the finals I’ll have a great shot at winning the pool. Will they make it to the finals?

  • http://None Pete

    Anyone has a good explanation those broker houses such as JPM, BAC, MS have perfect trading days in a quarter? These are the market makers in any market. It proves the casinos don’t lose, the players do.

  • LVG

    That’s just Zero Hedge garbage. The banks charge commissions on their “trading” books so they’re just scraping fees for making markets. They’re real traders in the same sense that you or I trade. ZH sensationalizes this data to make it look like they’re rigging the game or something. I can’t believe anyone still reads ZH. Has any website been more discredited in the last 5 years?

  • Geoff

    LA all the way.

  • JK

    Cullen (or anyone),

    Is there somewhere to observe data/graphs depicting the trend in private sector credit expansion and contraction? Also, is the disaggreated into sectors (housing, students loans, credit cards, fixed capital, etc. etc.). If there isn’t somewhere specific that already offers this, how would one go about putting it together? (is this information even publicly available?).

    thanks.

  • Aaron

    Yes I think Meb Faber is awesome. So helpful for the little guy. What I do is very similar to Faber, Butler and Philbrick, and Gary Antonacci. Basically taking a set portfolio of diversified assets (e.g. US stocks, Int’l stocks, bonds, real estate, and perhaps gold/commodities) and looking at the momentum/relative strength over a previous set of months (could be 1-12 months). Buy the top X asset classes and hold for a month. If one of the top asset classes has a negative return over the lookback period, then move to cash. These are easily constructed and tested on a site like etfreplay.

    This is simple enough for the regular investor to follow and can be done by people with a full time job as it only requires trading at once a month at most. It also puts you in the asset classes that are trending up, and gets you out of the ones that are not. With enough diversification, your capital should be able to survive and grow throughout different market environments. The only ones that are bad for trend following are choppy/mean-reverting environments. However, those don’t last forever and eventually trends break out again.

  • Steve W

    I understand the intent of MR to be descriptive. I’ve recommended your abstract/research paper “Monetary Realism” to many, including some of my elected representatives (and am still waiting for feedback — glad I’m not holding my breath. :) )

    Because federal spending is part of this whole puzzle, I struggle with understanding how we will get reduced deficit spending when needed. By that I mean how will politicians agree to spend less? In a perfect scenario, I understand that if the private sector grows enough (with its “prudent” and productive credit expansion — we hope), then perhaps federal spending doesn’t have to be reduced. I also understand that taxes can take some of that private sector “new” money out of the system and if not merely redistributed, achieve some spending reductions.

    Perhaps, given the realities of politics, we have to resign ourselves to eventual painful inflation due to the ineptitude of Congress and the White House (no matter who is president), and/or painful recessions and deflation. Perhaps as long as we don’t experience hyper-inflation, then we’ll generally be okay through these cycles. I know there’s no magic debt to GDP ratio and I know it’s mostly a matter of debt service and living standards. It’s just hard for me not be cynical about the behavior of politicians, and hard for me not to worry about their actions making the cycles more volatile. There’s only so much the Fed can do.

  • RB

    If you could enact (or repeal) one policy to increase employment, what would it be?

  • http://brown-blog-5.blogspot.com/ Tom Brown

    Yes, politicians are truly the problem sometimes… not necessarily the unelected part of the government. For example did anyone catch that news story about the Army saying that it definitely DIDN’T need any more M1 tanks… but congress then told the Army that they’d be getting new M1 tanks anyway!!! All a political “jobs in my state/district” kind of ploy. Especially obscene given some of the other cuts that are being made. (I think the state in question here is Ohio).

    One other thing to consider though: if the economy improves jobless benefits will decrease and hopefully more people will have health insurance (and thus stop using expensive emergency room services), and tax revenues will go up. Maybe there will even a few less expensive prison incarcerations/trials to pay for. I can see several plausible mechanisms by which deficit spending will naturally be reduced should the economy improve. I don’t have the facts and figures… so I emphasize “plausible” here.

  • David

    JK, it sounds like you want details within the Fed’s Flow of Funds report. This should serve as a nice starting point: http://research.stlouisfed.org/fred2/categories/32256

    Cheers.

    David

  • John Warner

    What policy changes or actions would you implement to give the US full employment, i.e., any one who wants to work will be able to find a job?

  • LVG

    Cullen has debated this MMT fool a million times here. He doesn’t get it. He doesn’t want to get it. He can’t get it. He just wants to spread his ideology. He doesn’t understand that cullen’s worried about how things work and not how they could work. Personally, I wish cullen would ban all the MMT and Austrian people who come here. They’re useless.

  • David

    I’m not sure if it’s appropriate to generalize the characteristics of one person to a whole different group of people. Economics communities tend to do this way too often from what I’ve seen.

    Phrasing your comments like we get the “truth” while he doesn’t gets old fast. Perspectives change. I’m sure Mr. Roche can appreciate that.

    David

  • JK

    Thanks David. That’s what I’m looking forward.

  • http://www.highgreely.com jldasch

    I think if you work through the MR model and the core MMT model (different from what is commonly presented as MMT) from first principles you will see that the reason we have a combination of decreasing debt yield with increasing debt levels coupled with lower overall employment (lower real productivity) and deflation is not that hard to understand.

    One of the great ironies of the current situation is that many people who don’t think critically have irrational thoughts like ” how will politicians agree to spend less”. Of course to anyone who understands economics this is wacko. We have been spending far less! Transfer payments are not government spending! Because ignorant people equate these two disparate flows we have seen government spending dramatically decreased in the US over the past 30 years.

    Probably the greatest problem the US faces is huge reduction in government spending over the past 30 years which has likely resulted in lower real productivity, and probably lower real productivity going forward.

  • Andrew P

    Bubbles always rise the fastest right before they blow up. I don’t see why the Bernanke Bubble couldn’t push the SPX to 4000, or even to 10000. Every central bank except the ECB is joining the party, and the ECB can’t be far behind. Yen devaluation alone will force Germany to call for ECB QE and perhaps even an outright currency devaluation war.

  • pafka

    Does anyone have an idea what would be the next bubble?

  • Dennis

    I want to understand this chart.
    http://pragcap.com/wp-content/uploads/2013/04/assets.png

    It looks like during the period 2003-2009 banks and non-bank institutions created, not all, but most of the assets that could be purchased (in the form of credit). Since 2009 most of the assets that could be purchased were created by governments. Net credit creation by the banks et al has been zero as the borrowers unwind their debts and the banks crack down on those that might want to borrow at these low rates,. However, they might have a teensy weensy chance of defaulting, so forget it, no loan for you. This means that “where our fiat currency (money) comes from” has dramatically changed. Do I have this right???

  • http://orcamgroup.com Cullen Roche

    David has this pretty well covered. Thanks!

  • http://brown-blog-5.blogspot.com/ Tom Brown

    Brian,

    You may find this helpful too (where reserves can go, example of bank making a purchase w/ reserves, and how reserves leave the banking system)

    http://brown-blog-5.blogspot.com/2013/04/the-three-places-reserves-can-go.html

    http://brown-blog-5.blogspot.com/2013/03/banking-example-5-bank-spends-excess.html

    http://brown-blog-5.blogspot.com/2013/03/list-of-ways-reserves-leave-banking.html

    2a) Wait! Canada, Australia, and New Zealand don’t have reserve systems??… or they just don’t have reserve requirements (i.e. their reserve requirement is 0%). I thought Canada does have a reserve system. I *think* the others do to, but I’m not sure. Anybody?

  • Jonathon McKitrick

    Even though everything I have learned hear, including the key parts about inside and outside money, and how contrary to popular opinion, the government does not ‘print money’ but has outsourced money creation to the banks…I’m still having a hard time with this concept…

    If the government is running a deficit year after year after year… where is that money coming from? Is it mostly China’s accumulated dollars lent back to the US? Or, is it dollars created by the Fed to buy the bonds sold to cover the deficit?
    If it’s a zero sum game, with Peter lending money to the government to pay Paul, what about the interest cost?

  • Yogi

    Is the Q ratio no longer relevant? If we assume it is then first, a reversion to the mean, then a significant drop below the mean implies a very significant drop the value of US stocks. Why should this time be any different? As suggest that we are likely to see valuations drop to levels attained in the other great bear markets. A better question is does it occur during this coming recession or the one after that.

  • http://brown-blog-5.blogspot.com/ Tom Brown

    Economic laboratory in my back yard?

    I’m running a very simple economic experiment in my back yard… a simple supply and demand and starvation kind of thing.

    I live in California near a Monarch butterfly overwintering site. For those that don’t know, the Monarch migrates North to South across the country each year. In my neighborhood there’s a cluster of a dozen trees or so… right in the middle of a bunch of the same kind of tree, that they return to each fall… staying to about Feb. Perhaps 40,000 of them or so cluster in these trees.

    So, having no landscaping at my house, I decided to try something unique. The Monarchs ONLY lay their eggs on one kind of plant: Asclepias (milkweed). Having never seen a Milkweed (very very few grow naturally around here), I nevertheless thought it might be fun to plant a bunch to attract as many butterflies as possible… so I went WHOLE hog! I grew, from seed, literally 1000s of milkweed plants of all varieties in a greenhouse I build alongside my house this past winter. I had never actually seen an adult milkweed, but pictures like this made me think they weren’t bad looking:

    http://www.thismia.com/A/Asclepias_purpurascens.html

    http://www.missouriplants.com/Whiteopp/Asclepias_variegata_page.html

    http://www.imagejuicy.com/images/plants/a/asclepias/3/

    I knew the Monarch caterpillars would eat the plants… what I didn’t count on was the unceasing demand!

    Well I grew my plants, prepared the soil, and planted them outside this spring… long after the Monarchs had departed for Northern latitudes. I had visions of a huge vibrant garden of flowering milkweeds ready to greet next Fall’s migration of butterflies!

    BAD miscalculation! After planting the young healthy plants in neat rows and being pleased that some started to flower (some actually were as high as 4′, but most were about 1 to 1.5′ tall)… I was looking forward to growing a nice crop… there were a few Monarchs about… nothing like a swarm. Maybe you had a good chance of seeing one in the yard if you visited at noon. Two was not infrequent… these were the hangers on… the ones that don’t migrate North I guess.

    Well, in a few short weeks the caterpillars they produced have stripped every plant in my yard down to bare sticks!!! In an effort to save what I thought were the more healthy plants I’d collect the caterpillars off the these plants by hand (literally handfulls!) and relocate them… I’m down to my last stand of healthy plants but there’s nothing else left with which to satisfy the voracious appetites of these insatiable caterpillars! They have no concern for their environment! They will eat everything they can: leaves, flowers, even the stems when they get hungry! I have a caterpillar and stick garden! Not a butterfly garden! :(

    If it takes that FEW butterflies to cause that kind of devastation… I can’t imagine how in the world my poor plants will ever recover… I think they are goners!

    One good thing though… all over my yard on on my house I have Monarch chrysalises, which are rather striking in their own right:

    http://reading-writing.blogspot.com/2010_07_01_archive.html

    I must have several hundred of these things hanging literally everwhere! If I lean a shovel against a wall for a couple of days… I’ll have chrysalises hanging off of it next time I look! They’re on EVERTHING! So once they hatch, maybe I’ll get my “butterfly garden” after all… for a few days anyway!

    I’m positive that there will be a great starvation when all my plants are gone… you really don’t see any milkweeds in these parts… so I don’t know what those hungry masses will do!

  • http://brown-blog-5.blogspot.com/ Tom Brown
  • http://brown-blog-5.blogspot.com/ Tom Brown

    Do you suppose in a misguided effort to do some “good” (Monarch populations have been suffering recently, I understand), I inadvertently created an “artificial” milkweed “bubble” in the market, and now the starving caterpillars will have to suffer the consequences! “central planning” ruins everything again!! ;)

  • http://orcamgroup.com Cullen Roche

    Ha! Great story. I used to raise Monarchs back home in VA from start to finish. They’re the coolest animals. And I remember the appetite. Unbelievable how a little caterpillar could devour an entire leaf 10X its size in a day.

  • http://brown-blog-5.blogspot.com/ Tom Brown

    Interesting! Do you recall what species of Milkweed you fed them? Tuberosa? Curassavica? Syriaca? I found that the best growing plant in these parts is physocarpa (from S. Africa). That’s the one with the big inflated fuzzy light green seed pods (like tennis balls).

    I think the reason I don’t see any milkweeds around where I live now is that they must eat any plant that pops up! I saw a Monarch lay it’s egg on a sprout that was no more than 1″ high!

    Probably in VA the plants get a break for part of the year at least… but then they have to deal w/ a bit colder winter. Somehow it must work out… but not here!

  • http://pragcap.com/open-thread-anything-goes John Adams

    Milkweeds grow back from roots here in Forida. And they produce many seeds. I had monarch catapillarsfor a while, then they all disappeared.
    Apparrently something ate them.

  • http://brown-blog-5.blogspot.com/ Tom Brown

    You are welcome to take mine!… I’ve got too many!…but I did have five chrysalises open today with five healthy butterflies emerge. One yesterday too. Pretty cool.

    Regarding your caterpillars… there’s a protozoa disease called OE which infects them. The protozoa creates very tough “spores” which cannot be seen with the naked eye but which cover the butterfly or the caterpillar or the plants they are on. These spores can infect them with the protozoa. It’s very difficult to kill the spores, and nothing can be done for the Monarch (in whichever life stage it’s in) once it’s infected, however, milder infections allow it to continue to the next stage (and maybe go on and infect other Monarchs!).

    There are three populations of Monarchs in the US: West Coast, East Coast, and Florida. The Florida population stays in Florida. Unfortunately that population is the most heavily infected with OE, with a rate of infection of about 90%. The West Coast population (West of the Rockies) is infected at about 30%, and the East Coast population (the one that migrates to Mexico) has a very low infection rate… under 10%. There are a few other diseases and parasites which infect Monarchs too… like a kind of wasp which lays its eggs inside the caterpillar, and then eats it’s way outside the chrysalis. Also there’s a kind of lizard that can eat the caterpillars. As you probably know, the Milkweed diet of the caterpillars imparts the Monarch caterpillar, chrysalis, and butterfly with stored toxic chemicals which keep most predators from eating them.