Some Heavy Duty Weekend Reading
The most interesting speakers at Jackson Hole didn’t include Ben Bernanke. The two papers I’ll be reading this weekend will be Woodford’s much talked about speech as well as Andrew Haldane’s. If readers have any thoughts on the papers I’d love to hear them. The papers are both fairly wonkish so they might make for superb bedtime reading, ie, falling asleep material. I’ve also attached a rather disturbing study by the SEC regarding the financial literacy of the general public. The results aren’t pretty….”U.S. retail investors lack basic financial literacy … have a weak grasp of elementary financial concepts and lack critical knowledge of ways to avoid investment fraud.” Wow.
- The Dog and the Frisbee, Paper by Andrew G Haldane, Executive Director, Financial Stability and member of the Financial Policy Committee and Vasileios Madouros, Economist, Bank of England.
- Methods of Policy Accommodation at the Interest-Rate Lower Bound, Michael Woodford, Columbia University
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.
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I have three days to recover, so let’s bring on some pain. Try these darker variations on for size.
”U.S. retail consumer lack basic financial literacy … have a weak grasp of elementary financial concepts and lack critical knowledge of ways to avoid getting ripped off.” Unless you are in an advanced math class, I don’t think our high school education system even teaches you how to calculate APR. Someone correct me if I am wrong.
Fortunately, we are not alone in our poor decision making. It never ceases to amuse — or depress — me that Ben Bernanke had an ARM mortgage at the height of the housing bubble. He had to refinance his mortgage “because we had an adjustable rate mortgage and it exploded, so we had to. ” His words, not mine.
And just because I think you could use some cheering up Cullen. ”U.S. lawmakers lack basic financial literacy … have a wrong grasp of the monetary system they are supposed to shepherd and lack critical knowledge of ways to avoid causing mass financial panic.” Fearing bankruptcy when the “debt” is denominated in your own currency is all sorts of madness.
Poor financial literacy is only a consequence of a more generale poor literacy. Americans are at the bottom in math, science, literature etc… This is the reason because I’m NOT bullish on the US and you should too. You can have weapons but in the long term what’s really matter, now and always is culture in general and the US is a third world country on this topic with a super elite of scientist and engineers mostly composed by foreign people.
http://www.zerohedge.com/news/can-it-happen-again-again
hmmmmm
I
Thanx for the alternative link. The reason for my ‘hmmmmm’ was that anything MMT would be published on ZH. (I am a programmer not an economist)
1) Agree with responsible govt. and regulation. I think Minsky liked the Canadian banking system and their regulatory system.
2) I think that population dynamics play a big role here also. Boomers were buying in the late seventies and early eighties and now they are retiring. Peter G. Peterson mentions this in his book “The Gray Dawn” and I hear that the book “The Age of Greed”, which I haven’t read, also mentions it.
Also, private debt seemed to take off in 1982. I smell a connection with Voodoo economics, but can’t quite put my finger on the evidence. Romney’s comment about returning to Reaganomics sent a cold chill up my spine.
We indeed had very little competition after WWII, and it seems to me the Transistor radios were the beginning of the trade imbalance trend. It seems a little dishonest to me for them to complain about their excess of dollars now. Where were they when we complained about trade imbalances with Japan, Taiwan, Korea, China and Europe?
The CAD is mentioned in this article: (I like foreign comparisons because it includes cultural differences) http://www.thehindu.com/business/Economy/article3812629.ece
I had seen a similar article elsewhere on rates here and the stimulation of the US economy, but couldn’t find it, but this one is pretty good in that it factors in the characteristics of the Chinese population:
http://www.albertoforchielli.com/2012/07/04/lowering-interest-rates-may-not-be-the-best-way-to-stimulate-the-economy/
I am told that in “The Age of Greed” regulation and corp taxes were high and there was a concerted effort to go overseas. Maybe we should have taxed the private sector more then to attenuate excessive demand. I was hired then as a programmer in the field of factory automation. This was just before Rockwell and Siemens and we were using Digital Equipment computers to automate various plants. Eventually, the history that we now know all too well has occurred. Corporates moved overseas. China became the producer of the world and here we are. Just like the stock market economic trends tend to overshoot.
See Cullen’s article here also: http://pragcap.com/who-are-the-real-job-creators
Concerning De Gaulle and: ‘Where do you think he got them?’
I’ll have to ponder on that for a while. Very interesting question though.
I was in Japan when Nixon did it and the Yen went from 360y/dollar to half that.
Thanx for the goldnews article. I’m at work now, but will definitely read it later.
EV
Haldane’s paper is great reading. But for those who do not have the time to go through it, this article from the WSJ hits the high notes fairly well. Certainly not a perfect substitute for a great paper, but you can get a good idea of his central thesis.
http://blogs.wsj.com/totalreturn/2012/08/31/the-jackson-hole-speech-people-should-long-remember/
“a radical return toward simplicity” sounds like what’s in order.
Specifically, a return to in-state and community-based banking, with anything beyond that limited to meeting the needs of large corporations and similar institutions?
Thanks for the reference.
From Dog and Frisbee:”Ignorance can be bliss
There is a second, quite different, rationale for simple decision rules. This does not rely on the sub-optimality
of satisficing behaviour. Instead it states that heuristics may be the optimising response to a complex
environment. Disregarding information can make not only for cheaper but also for better decisions.
Ignorance can be bliss (Gigerenzer (2010)).
Oscar Wilde said of cynics that they knew the price of everything and the value of nothing.3 Autistic savants
have an acute case of this problem. Often, they combine prodigious memory skills (knowing “the price of
everything”) with serious deficiencies in value judgements (understanding “the value of nothing”). They are
penny-wise and pound-foolish.”
In Methods of Policy Accommodation at the Interest-Rate Lower Bound, Michael Woodford,:
I count the word “Expected” 94 times, “Theory”, 26 Times and “Actually”, 17 times,
For what it’s worth.
Is the last paragraph an illustration of knowing the count of every word and the meaning of nothing?
Just a bit of mining for words that seemed to keep repeating leading me to ponder the “Relevance of Forward Guidance in Theory”:
“1.1 Relevance of Forward Guidance in Theory
Should it matter at all what a central bank may say about future policy decisions, as
opposed to what it actually does, or what it may announce about actions that it has
already determined to take, as soon as they can be implemented?4 It is important
to recognize first that according to standard macroeconomic theory, people’s expectations
about future policy are a critical aspect of the way in which monetary policy
decisions affect the economy.”
So how much information is presented in light of knowledge of data and outcomes and how much is simply telling the mkt what is needed/wanted to hear…?
As far as Woodford’s paper on the zero limit bound is concerned, is zero really the limit? The guy (Greg Mankiw) that Romney is likely to appoint to replace Bernanke has called for imposing a -10% interest rate on cash by invalidating all cash with a particular last digit in the serial number so that seriously nominal negative rates can be applied to the banking system.