a thread in which ilx interprets economics and finance, sometimes linen by linen*, and disagrees a lot (probably)

(a) this is not the kind of unique item fetter is talking about, set about the benjaminian-auratic irreplaceability, but (very often) one document among many in the market at large so similar as to be identical (meaning that replaceability is not often an issue)

the word you're looking for here is fungibility, which is key to selling short. shares of common stock are the most common example in financial markets, because a share of common stock is completely fungible with another share of common stock. but you can extend this to other fungible items too, like bushels of corn, or megawatt hours of electricity, etc.

ok but my explanation is better than just saying "fungibility" (a word i admit i had forgotten) (also a word i like, bcz it looks like it means "can turn into a mushroom")

I think one can only sell something that one owns.

If Mark S lends me a copy of A HIDDEN LANDSCAPE ONCE A WEEK, I cannot sell it.

It is not mine to sell.

― the pinefox, Wednesday, November 2, 2022 6:29 AM (three hours ago)

putting aside one's principles here, the key to mark's example is that a buyer is indifferent as to whether the seller actually owns or doesn't own the item he is selling, so long as there are no consequences to the buyer if the buyer accidentally buys stolen goods. the law generally works this way too - any recourse by a wronged party here (i.e. if the copy of A HIDDEN LANDSCAPE ONCE A WEEK were in fact stolen from someone else) is against the seller, not against the buyer (assuming the buyer didn't know it was stolen). intuitively, that makes sense - when you buy a book online, do you first ask the seller "hey I just want to make sure this copy of A HIDDEN LANDSCAPE ONCE A WEEK wasn't stolen?"

that said, the government has an interest in making sure that items of high value like cars and houses can't be stolen and flipped so easily, so there is a titling system run by the government that then shifts some of the responsibilities back onto the buyer, such that if you're buying a used car or house, you do have some responsibility to do due diligence and make sure that you're getting a clean title of ownership etc. - ignorance no longer works in your favor here!

Yeah I accept that there's an arbitrary quality to the gold standard - why gold and not cowrie shells - but ultimately it still constrains money as something that the issuer promises to exchange for an actual thing. With fiat money, there's no 'thing' at the bottom that the system is based on. It's just a lot of people agreeing to accept that a complete abstraction has value, so it seems to me to be on a different conceptual level.

― Zelda Zonk, Tuesday, November 1, 2022 11:26 PM (yesterday)

this may be a bit unfair / putting words in your mouth, but it feels to me what is appealing about the gold standard to you is that gold is something that is out of the government's control to make more of without great effort on its part - that perhaps you distrust the government to make the right decision about its ability to print more money in a fiat money economy. in which case, may i introduce you to something called bitcoin!

i don't think zelda is saying the gold standard is attractive, just that it's conceptually different, which is true. monetary policy is very different under gold standard and fiat

With fiat money, there's no 'thing' at the bottom that the system is based on.

i guess it depends on what you mean by "thing"

the value of currency is targeted by the central bank to a level at which a meticulously measured index of prices (weighted to match the "basket of goods" a "typical" household consumes) grows at 2% per year

the central bank may fail at that task, but it has incredibly powerful tools to achieve it. and it's politically shielded to use them even when unpopular--it can even induce recessions

whether or not that consitutes a "thing" seems besides the point. an incredibly powerful institutional arrangement determines its value

It's just a lot of people agreeing to accept that a complete abstraction has value, so it seems to me to be on a different conceptual level.

"the value of [x] is not determined by its intrinsic quality but by how other people value it" is true not just of money but of everything. it's true that part of the value of gold is determined by people who like shiny objects, but if we used a gold-backed currency that would be a negligible share of its value. (and if a "law of one price" holds, the premium from its shiny-object value will get arbitraged away)

Mark S: I have read Marx on the commodity many times, and each time I seem to have understood it less.

And isn't that meant to be the easiest chapter in the book?

It would be good for the thread (most of which I don't understand) if Mark S embarked on a close reading (and posting) of Grace Blakeley's STOLEN. (Most of which I might not understand.)

Come to think of it, this title STOLEN seems to chime with the apparent claim above, that the economy is based on people selling stolen things.

this is probably going to be very disappointingly boring

the old freshwater/saltwater divide in macro has...

That was pretty interesting -- thanks! Are there any pop economists that are considered charlatans or well past their sell date by academia? For example, I get the feeling Chomsky's status is firmly in the emeritus box by most working linguists.

re: gold
apparently all the gold mined throughout all of history would be enough to make less than a dozen solid gold life-size Gundam robots
https://img.kyodonews.net/english/public/images/posts/ae6aaa18fca7838e0a6264898141e49c/photo_l.jpg

I guess I'd rather have a solid gold Gundam than one made of crypto...

ts: Marx vs Mark S

we are the real-life life-size gundam robots

https://ichef.bbci.co.uk/news/976/mcs/media/images/66662000/jpg/_66662411_wimbledon_gold_624.jpg

a simpler way to explain why the yield on a 10y bond is higher than the yield on a 2y bond

Except that currently the yield on the 10y bond is lower than the yield on the 2y bond.

that’s an inverted yield curve, means we’re headed for a recession baby

https://en.m.wikipedia.org/wiki/Inverted_yield_curve

https://www.nytimes.com/2022/11/02/business/treasury-yields-bond-market.html

News says that interest rates are going up.

Does that mean that whatever money I have in the bank is finally going to gain interest?

only you're with a bank that is interested (pardon the pun) in passing on interest to you - nothing that says they have to!

for example, here in the states a savings account with bofa right now pays 0.01% in interest, while a savings account with ally pays 2.5% - a difference of 250%! both banks are making at least the current benchmark rate on deposits of 3.75-4% , except bofa is keeping all of that interest for itself and passing on pennies to its customers! bank wisely!

lol bofa

from the NY Times article:

When an investor owns a Treasury bond until it matures, the return an investor will receive is fixed, but because government bonds are publicly traded, their value can rise or fall just like a stock price and that means yields move higher or lower, too.

because while the coupon doesn't change, the price the bond is bought and sold at does change, so the effective yield does too.

just reading that sentence i would assume that return and yield (and value / price) are simply different things

or perhaps subtly different things

yield = coupon/price

Coupons are going up on newly-issue bonds. Old bonds trading in the secondary market that have lower coupons will decline in price (because why would you pay full price for a lower-coupon bond when there are newly-issued bonds available at higher coupons?). Yield is a mathematical formula which basically says that buying this old bond at a lower price is approximately equivalent to buying a newer bond with a higher coupon in terms of the interest you will receive relative to the amount you paid.

wait yield equals coupon divided by the price??

Not exactly, no. But yield increases with coupon and decreases with price. So it gives you an approximate sense of the relationship.

sorry o nate that was a good explanation i’m just feeling amazingly dim

when you say “yield decreases with price” you mean “yield decreases as price increases” correct? e.g. what we always hear trotted out in articles about bonds

Yes. The price of an old bond with a lower coupon has to decrease so that its yield increases enough to make it a good value relative to a new-issue bond with a higher coupon.

some bonds change their yield percentage on a schedule, too
ex: US i-bonds https://www.treasurydirect.gov/savings-bonds/i-bonds/

Series I savings bonds protect you from inflation. With an I bond, you earn both a fixed rate of interest and a rate that changes with inflation. Twice a year, we set the inflation rate for the next 6 months.

I believe the fixed rate was near 0% earlier this year (it's 0.4% now) so the interest is paid twice per year at a fluctuating rate

obviously this is a government bond, results may vary, etc

I-bonds are a different beast altogether.

It’s difficult to see the social benefit in much of this, apart from being helpful to government cash flow

I guess we have the Venetians to thank.

https://ritholtz.com/2013/12/birds-boats-and-bonds-in-venice-the-first-aaa-government-issue/

meat stone is great altho i

It’s difficult to see the social benefit in much of this, apart from being helpful to government cash flow

*with interest

i think that’s a mischaracterisation. what I don’t see the benefit of is the overnight, lightning fast moves to eke out a few hundreths of a percentage point here and there. All that stuff - it seems to me - is less about borrowing and lending money, facilitating cash flow and capital expenditure in the long term etc and more just about trying to game trades to make money for oneself or one’s bosses

but that is precisely what facilitates cash flow, by which I presume you mean liquidity. liquidity is what encourages lenders to lend. unfortunately, as long as liquid markets exist, there will be arbitrageurs and high frequency traders who will try to eke out those 1, 2, 3 basis point gains. if you want to be charitable, those market participants provide something very important: liquidity!

From that Venice article:

As with any bond, as the price of the prestiti went down, the yield went up.

It's amusing to think that people have been reading this sentence and scratching their heads since probably at least the 12th century.

*points furiously at table as it flips on its head*

it's weird out there people (things turning into money)

https://pa1.narvii.com/7781/2594f7301ac2d1776fc9b8290c70ad144d3f7241r1-480-270_hq.gif

LRB 3.11.2022

https://www.lrb.co.uk/the-paper/v44/n21/paul-taylor/academic-benefits

I read this new article on pensions. I did not comprehend it. A pity as I have one of these pensions.

I particularly lost track around here.

One great attraction of government bonds is that powerful countries with their own currencies don’t default – if all else fails they can print the money required to meet their obligations. Another is that they pay a guaranteed rate of interest. The only problem, as far as pension funds are concerned, is that you can’t predict the interest rates on bonds the government might issue next year or the year after. If interest rates go up, then bonds already issued, which pay the old, lower rate of interest, will seem less valuable. If you want to sell those bonds you will have to accept a lower price. In a world where bonds are continually traded, it makes sense to think of the income generated by the bond as a proportion of the current rather than the initial price. Traders talk about the yield rather than the interest: if the price of a bond goes down, then since the interest it pays stays the same, the yield will go up.

In a simple world, a pension fund manager could use the contributions from employees to buy bonds, and the fund’s liabilities and assets would be perfectly matched. But fund managers have traditionally put at least some funds into riskier investments, such as stocks, to generate higher returns. The risks are manageable because pensions are long-term investments and can ride out market fluctuations. The managers of closed schemes, however, are primarily focused on balancing the books, so invest in bonds rather than stocks. In recent years they have used a strategy called Liability Driven Investment (LDI) to guard against the risk that the yields from their assets will be lower than the yields used to calculate their liabilities. A key element of LDI is hedging – for example, protecting a fund against low or falling bond yields by betting that yields will go down. If yields go up, you can buy high-yielding bonds and not worry about the bets you lost. If yields go down, you will have to buy more bonds to get the same return, but at least you have an additional income from the bets you won. For the last ten years, bond yields have stayed low, LDI has been a winning strategy and many schemes have moved into the black.

I revert to the reflection that it is frustrating, for me, that a publication to which I subscribe prints things that I cannot comprehend.

Never mind the fact that this apparently directly relates to my life.

https://www.bloomberg.com/opinion/articles/2022-09-29/uk-pensions-got-margin-calls

this may be an easier explanation for you?

pension funds are a whole new exciting concept for this thread! It also goes back to math and nerds solving math problems. Pension Fund Managers (the people who are responsible for making sure there is enough money in the pension fund to pay out) are generally some of the most conservative investors (i.e. risk averse), because they aren't investing/managing money for rich people, but for old people who rely on the pension in order to live, and the pension itself was something contributed by the employer on behalf of the worker, as in, the worker lacks control over the money that will pay for their comfort in their old age or disability. The worker trusts the employer, and the employer trusts the pension fund manager.

Pensions are what are called (at least here in the US) "Defined Benefit Plans" -- as in, the pensioner is guaranteed to get a certain amount out of the fund when they retire. The concept is, "they will have enough to live comfortably until they die".

So, then someone has to determine what that amount is. And a lot of the problems that pension funds have had in the past 20 years (perhaps more), is the "until death" aspect of the calculation. People live longer. Therefore the pension fund needs to have more money (and earn more money from investments) in order to cover that expense. This is why you see pension funds investing in riskier things (e.g. the mortgage backed securities in 2008 that caused the recession), so that the pension fund will have enough money to pay the pensioners.

I think the largest problem pension funds have had in the last 20 years beyond that is that they have nearly ceased to exist outside of a handful of unions. Most corporations switched to a 401k-with-some matching model and the legacy pension obligations just get traded to whatever company loses in mergers/spinoffs

Literarily speaking, one could draw examples from "Lord of the Flies" in a description/analysis of pension funds ...

I think I was one of the last people through the door eligible for the pension fund when I started a job, and that was back in the early 00s. They completely killed it a year or so after I was vested

I think the largest problem pension funds have had in the last 20 years beyond that is that they have nearly ceased to exist outside of a handful of unions

many of these are government workers though. So, they are nowhere near "vestigial" in terms of impact on current economics ... I'm sure we've had this discussion on other threads but, a lot of US Cities have budget problems due to pension obligations to Police and Fire retirees, who tend to retire earlier than the average worker.