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

https://www.nytimes.com/2022/10/09/us/california-high-speed-rail-politics.html

someone else thinks about finance.

It makes me think that fundamentally the banks aren’t so bad after all. They keep our money for us, but they look upon it like a loan, and they pay us interest. Just like when they lend us money to buy a house, but they charge us interest. It’s the same rules.😎

— stuart murdoch (@nee_massey) November 5, 2022

But banks don't pay us interest, do they? I don't get any extra money for what money I have in a bank.

in a savings account you generally will get interest yes, in the ordinary in-and-out accounts not so much

you can definitely earn interest if you keep it at a bank that offers to pay interest on deposits. what kind of bank / account do you keep your money in now? xp

Well, I should not be too explicit talking online, but it's a current account (from which I can pay for things), which is connected to a savings account (which does not seem to pay any interest on whatever is in it).

As I mentioned upthread:

Recently it was said that "interest rates have risen". But does that mean the bank will give me more money? Presumably not. Why? I suppose because they don't want to and I can't do anything about it.

might want to change banks, I don’t know what english websites are reputable but this suggests you could be earning some interest on your savings account

https://moneyfacts.co.uk/savings-accounts/regular-savings-accounts/

You definitely earn (or should earn) interest from certain bank accounts, but not much compared to investments. You essentially sacrifice growth for the sake of security/liquidity. That's why banks are less incentivized to raise interest rates, or maybe a better way to put it, that's where things like bonds become preferable to cash, as far as investments go. As rates go up, bonds generally raise payout rates as well, to remain attractive to investors. That's where the juggling of things like bond coupons and yield and stuff come in, though that can become a full-time job, since they are constantly shifting around and coming and going, at least as I understand it.

On the "why do govt issue bonds when they could surely just print the money?" question:

I wonder if there's a issue of market confidence as well. Govts can print money - but can they persuade anyone to trade with them if the currency is perceived as worthless.

I've sen it stated a lot in newspapers recently that a sovereign state like the UK can never ultimately go bankrupt because as a last resort it can always print more of its own currency - but I'm really doubtful about this. If a sovereign state's reputation goes down too low - other countries will want to carry out transactions with it in a currency they trust - like the US dollar.

A lot of the answer involves trade with other countries. While a nation could make its own citizens accept its money at a stated value, they have less ability to do so with foreign governments or foreign individuals investing or trading with them. If a nation didn't import goods from other countries, and was entirely self-contained, then theoretically, yes, it could do this. It's less about reputation, and more about how much your nation's economy is dependent on money/goods from other, stronger countries (i.e. the US).

I am a bit surprised that we haven't gotten to this point yet in this very nice thread, and I don't want to ruin this very nice thread, but ... a prime example of this interdependence and how a nation can't just print as much money as it wants and have everything be fine is Post WWI Germany. Part of Germany's strategy was to reduce trade with other nations that had stronger currencies and be more self-sufficient. However, the German nation (as it currently existed) lacked certain resources in order to increase its self-sufficiency ... which encouraged Germany to obtain those resources by force.

sorry - I think I didn't read the italicized thoroughly enough before responding -- basically it's less about reputation and trust, and more about whether you can pay in the trading partner's currency (if they are stronger) or if you have enough goods/materials to equal or exceed what they are giving your country. Like, if your country's currency is of questionable value, but you can trade raw materials or finished goods of value (oil, lumber, diamonds, the stuff they make cellphones out of, Beatles records, etc.) then that would compensate for your crap currency. If your currency is crap and you don't have enough valuable things to trade, then you have a big problem.

"why do govt issue bonds when they could surely just print the money?"

In the USA the power to 'print money' for the government has been vested in the Federal Reserve, not the US Treasury. The Fed accomplishes this by buying US Treasury bonds using some newly created money. The jargon for this is monetizing the government's debt.

But nations kind of do just print the money don't they? I read somewhere that the Bank of England holds around 35% of the UK national debt. In other words, the UK government issues bonds, a third of which are bought by the BoE (owned by the UK govt) presumably by printing money...

xp - the existence of the Federal Reserve in the first place is another issue (for well over a century the US didn't have central banking, and there were lots of runs on banks) -- it was a concept we imported from Europe

as well as the various other things i'm not (including qualified to expound on this thread lol) i'm not an economic historian, so i only had the vaguest grasp of financial strategy in interwar germany after the hyperinflation (a hyperinflation usually explained as a consequence of the peace settlement imposed on germany by the victorious allies at versailles) (tho this is contentious, like everything else in this thread), so after reading sarahel's posts and went and looked some stuff up abt it

anyway its architect (to be fair to me i actually did know some of this this) was one hjalmar schacht -- a reactionary conservative who wasn't *strictly speaking* a nazi (he often found them annoying and disgusting) but nevertheless inarguably their invaluable collaborator for several years (he was part of the von papen / von neurath gang). unlike many nazis and the rest of that gang, he had a p good grasp of his field (economics and finance) and also a p flexible imagination: if the new deal lifted the US out of the depression, then schacht's "new plan" got there first (and helped inspire it): it being a popular largescale keynesian project of road-building and public works that more or less ended unemployment (tho as sarahel suggests, in germany and in the US, the full recovery was as much fuelled by war as civic keynesianism)

the thing i *really* didn't know was that schacht's full name at birth was horace greeley hjalmar schacht -- greeley was a pioneering US newspaperman who supported lincoln and north in the civil war (tho he later broke with the republicans over reconstruction and worked to undermine grant); he is also the editor largely credited with firewalling the opinionating op ed aspects of a newspaper from the (factual) news reports and also with the frontier-busting meme-campaign "go west young man!")

er so anyway hjalmar schacht everyone, a very shitty figure in economics who is nevertheless also fairly interesting

oh i’ve heard of horace greeley! that’s wild. i had no idea.

what an attempt at nominative determinism from the parents

(actually strictly speaking greeley didn't invent the actual op-ed page, that was herbert bayard swope in the early 20th century: but greeley is generally credited with being first to insist that news and opinion are NOT THE SAME and should be distinguishable on the page)

possibly useful, and uk centric

https://www.bbc.co.uk/sounds/brand/m001dwr7

"Understand: The Economy
Radio 4

From inflation to GDP, from the stock exchange to bonds, Tim Harford goes back to basics to explain the terms we hear every day, and what they mean for you."

i was surpeised to see some uk bank offering 4.5% on isa (fixed, for a couple of years) whereas my savings have all been earning fractions of a percent for the last decade.

I heard an episode of this programme just now. I agree that it is very relevant to this thread.

Early in the programme he gave this increasingly familiar scenario:

"I borrow money from my friend X, and give her an IOU for £100, which she then sells to her friend Y".

I stop at this point because I cannot conceive a friend, or anyone really, doing this.

If I did borrow £100 from Mark S, it is pretty much inconceivable that he would sell the fact that I owe him £100 to poster koogs. This would not be normal or comprehensible human behaviour. I borrowed the money from Mark S, I will give it back to him. That's all. If another person was involved then I would no longer understand what was going on or why.

So what is meant as a helpful analogy does not work for me.

I did not understand the rest of the programme either.

no this is a interesting point and it struck me when i was inventing explanatory examples up thread that they often sit on the boundary between different ways of describing the world -- and the nature of that boundary is scale

what i might do, after all, is myself then borrow £100 from poster koogs and afterwards say to you "you might as well pay koogs back, not me" -- likely or not, this feels like a plausible scenario, and where it becomes enstranged is that to do this, on my part, would indeed be "selling the fact that I owe poster pinefox £100, to poster koogs"

i don't naturally think of it like this, but ppl who live in a world of multiple such personal small loans in every direction evidently do (if only for book-keeping and for conceptualising purposes)

so what creates this boundary is the multiplicity: quantity becomes quality, as hegel was possibly the first to observe out loud

what i might do, after all, is myself then borrow £100 from poster koogs and afterwards say to you "you might as well pay koogs back, not me" -- likely or not, this feels like a plausible scenario

Does it?

I can't even understand why it would be mathematically logical, let alone humanly plausible.

Nonetheless I register my appreciation of your posts on this topic, Mark S - they are generous and good-humoured.

I have the heard the Hegel line - from ... Lanchester! (Has anyone ever read it in ... Hegel?) I actually think it is somewhat intuitively true.

Has anyone ever read it in ... Hegel?

not me, i own a copy of the philosophy of right but have read perhaps three (3) pages of it, the going is laborious!

the scenario would be something like this: shortly after i lend you the money i realise i actually needed it myself for something i'd completely forgotten about; rather than hurrying after you and grabbing it from yr hand (while shouting "actually, no!") i decide to approach poster koogs, who i know to be both flush and generous in such situations

interpeting "anyone" more broadly: our mutual acquaintance non-poster b3n w4ts0n* has, or so i venture -- first bcz he devotes several pages to it in his essay collection art, class and cleavage: a quantulumcunque concerning materialist esthetix, and second bcz once when i was in his flat long ago (or actually the flat of his then-gf who is very much not his present gf, this was a LONG time ago), i noticed he had the same pb edn of the philosophy of right as me, so i idly picked it up and realised it was chock-full of marginal notes in his distinctive (and rather attractive) handwriting

I stop at this point because I cannot conceive a friend, or anyone really, doing this.

If I did borrow £100 from Mark S, it is pretty much inconceivable that he would sell the fact that I owe him £100 to poster koogs. This would not be normal or comprehensible human behaviour. I borrowed the money from Mark S, I will give it back to him. That's all. If another person was involved then I would no longer understand what was going on or why.

So what is meant as a helpful analogy does not work for me.

I did not understand the rest of the programme either.

― the pinefox, Thursday, November 10, 2022 9:14 AM (forty-nine minutes ago)

pinefox, the more realistic every day scenario is that you are short on cash until your next paycheck comes in, so you borrow £100 from a loan shark. the loan shark is uninterested in actually collecting from you should you miss your payment date, so the loan shark sells it to a mafioso who will come and break your legs if you don't pay up on time.

Mark S: reading your humorous anecdote I thought that you were explaining that said non-poster had borrowed money from people and lent it to others. I was relieved to find that he had merely read a book by Hegel.

a slightly more realistic example - you buy a car on an installment plan. the initial loan you take out is with the car dealer. one year later, you miss a payment. the repo man who comes to repossess your car (if you can't make the missing payment) is not actually the car dealer, because the car dealer has sold your loan to the repo man, who now has the right to collect your car /or/ your money to satisfy the loan, whichever you're more willing to give up.

xp -- i think probably two books! the quantity/quality idea is i believe taken from the logic not the philosophy of right

tight friend groups often trade debt to each other (usually sans interest or risk)-- i got you for lunch last week so you owe me lunch but mark s got me for lunch today so if you two are hanging out together next week lunch is on you.

what's different is that in such situations mark s is usually not carefully calculating that the lunch you will buy him will probably be more expensive than the lunch he bought me and that he will thus obtain a free (portion of a) lunch-- while at the same time you (pinefox) hope that the lunch you will buy him (mark s) next week is cheaper than the lunch i bought for you last week-- while at the same time i smile smugly, already knowing that the lunch mark s bought me today was far tastier and more lavish than the lunch i bought for you last week-- thanks to my head for big meals

quantity becomes quality

I have heard this same thought expressed as "sufficiently large quantitative differences are qualitative differences". This is often mentioned in computer programming, in the sense that at certain scales, the type of solution you would use for a particular problem changes. For example, if you have to find all occurrences of a word in a document, you can use a word processor. If you have to find all occurrences of a word on the internet, you need to have a distributed map-reduce algorithm running on a large cluster of machines.

Difficult Hour, thanks for your post and droll commentary.

tight friend groups often trade debt to each other (usually sans interest or risk)-- i got you for lunch last week so you owe me lunch but mark s got me for lunch today so if you two are hanging out together next week lunch is on you.

Really? I cannot imagine this scenario happening.

Indeed, again, I cannot understand the logic of it. If you were to explain to me why it was my turn to buy lunch as per your example I would not be able to follow what you said.

In an old job, a group of coworkers who frequently lunched together and took turns paying the bill kept a spreadsheet of each person's tab. So you could pay down your tab by picking up the check, even though the person who had paid for your lunch might not be present at the lunch you paid for.

I appreciate this anecdote, o.nate.

But it then makes me think: if you are obsessive enough about who pays for lunch to start some kind of computer program about it, why not just everyone pay their own lunch?

Seems like a strangely complicated way to deal with the obsession, when the simpler solution is at hand.

pinefox, when you eat out with a group of friends, do you only pay for what you ordered or are you okay with an even split? not really related to the debt question, just curious.

why not just everyone pay their own lunch?

Frequently restaurants frown on splitting a tab too many ways. I agree it would've been about the same amount of work, except for the social opprobrium. Nowadays I think a group like this would probably settle the tab using Venmo, Zelle, or a similar payment app.

Also, it should be mentioned that even in those days of yore, no one ever carried cash. That would've been the simplest way, I guess.

Really? I cannot imagine this scenario happening.

― the pinefox, Thursday, November 10, 2022 7:37 AM (forty-two minutes ago)

the loan shark and car dealer scenarios posed upthread -- what about those scenarios?

Sarahell: that's different, though I have not personally experienced them. I accept that they, apparently, actually happen. Knowing nothing of them, I should not comment.

pinefox, when you eat out with a group of friends, do you only pay for what you ordered or are you okay with an even split? not really related to the debt question, just curious.

― 龜, Thursday, November 10, 2022

I don't express strong views about this. I don't think the difference between the figures is likely to be too great. Maybe if it is, then there could be reason for someone to object and want to split a bill more precisely.

often it is simpler to make debt fungible the pinefox, or at least it's more convenient and can dissolve problems. i am thinking of when i went to high school up the street from a burger joint, in the heady days of the early millennium:

1) 龜 and i walk down there after school; i'm skint so 龜 pays. don't worry-- i get my allowance tonight. burgers are on me tomorrow.

2) later that afternoon, 龜 buys a nintendo ds with many months of savings-- a long-planned and large-scale investment. between this and having to pick up the whole tab at the burger place, 龜 is now flat broke.

3) well, 龜 thinks, at least i won't go hungry tomorrow, since it is difficult listening hour's sacred obligation to buy me a burger after school, and i have been assured he will have the money.

3) but disaster-- when 龜 arrives at school i am not there! (i am at home vomiting because of this disgusting burger place we go to.) i will probably be back the next day and 龜 still has no doubt i will honor my debt then, but in the meantime 龜 must go burgerless. 龜's thumb already feels weaker against the crisp new nintendo ds d-pad.

4) rescue-- you, the pinefox, a mutual friend, have engaged 龜 in a passionate discussion of economics, and also you are feeling hungry after school. you invite 龜 down to the burger place, but 龜 is broke. no problem, you say (not wanting to interrupt the discourse)-- i can handle it! the only thing is that this weekend i, the pinefox, will be visiting a nearby mid-sized city that actually has decent bookstores, from one of which i am planning to buy an (already reserved) signed first edition of vol. 2 (a buyer's market) of a dance to the music of time, so i can't afford to spend too much this week. but you, 龜, can just pay me back soon, right? in the next couple days?

5) well, actually, 龜 says, i just bought a nintendo ds. it will be a while before i have treat-your-friends-to-lunch money. so no. but-- here it comes--

6) --difficult listening hour can. he owes me. he'll be back tomorrow, and he just got his allowance. buy me a burger now, and he'll pay you back tomorrow.

7) oh okay! you say, sure.

without the leap of the step 6) transfer-- in which 龜 offers to sell you my debt, for the price of a burger-- you, the hungry pinefox, would have to choose between abandoning 龜 now or cancelling your hold on the highly collectible volume of anthony powell. (龜, who is finding your company frankly more stimulating than mine and would also like to continue talking to you this afternoon, would already have chosen buying a nintendo ds over being able to do so, without even knowing that this, specifically, would be the cost.) with the step 6) leap, you can happily continue your conversation and be paid back tomorrow-- even though by then it will be 龜 who is home sick, or at least pretending to be, lying in bed playing the legend of zelda: phantom hourglass.

Difficult hour, I like the detail and passion of your narrative. Thank you.

Or imagine you are a gentleman of Venice in the 12th century. You have been obligated by virtue of your noble standing to purchase a Venetian perpetual annuity that pays you a steady fixed stream of interest payments, as required by law, year in and year out. You fall on hard times and need to raise some cash. A-ha, you say! Why don't I sell a piece of my future income so I can pay off the gondola repairman?

a perpetual annuity is also known as a "consol", which used to be issued by the english and american governments (but are no longer), and have made appearances in several books of literature, per wikipedia.

https://en.wikipedia.org/wiki/Consol_(bond)

References in literature
Given their long history, references to consols can be found in many places, including Pride and Prejudice by Jane Austen, David Copperfield by Charles Dickens, Howards End by E. M. Forster, Vanity Fair by William Makepeace Thackeray, Of Human Bondage by William Somerset Maugham and The Forsyte Saga by John Galsworthy.

https://www.immediateannuities.com/annuitymuseum/images/docs/10129-f-full-mid.jpg

I know the word annuity, but have not encountered one.

"You have been obligated by virtue of your noble standing to purchase a Venetian perpetual annuity that pays you a steady fixed stream of interest payments"

You are obliged to spend money on ... loaning money to someone?

So this is like the 'bond' discussion somewhere upthread but the law says you have to buy the bond? Which, as I recall, meant: loaning money to the government.

"Why don't I sell a piece of my future income so I can pay off the gondola repairman?" -- you've lost me there, o.nate. I don't have any future income. Only, at best, what money I have already acquired.

It was a reference to the history of the prestiti in Venice:

Venice introduced the prestiti in the twelfth century. Subscriptions were obligatory on wealthy citizens in proportion to their wealth, and the elites of Venice found forced loans preferable to outright taxation.

when you loan money to somebody, that is a form of spending money. xp

big Harold Skimpole energy in this thread

You are obliged to spend money on ... loaning money to someone?

this is like the antecedent to the famous scene in the history of the 2008 financial crisis where all the CEOs of the biggest investment banks have to come together and are forced to merge with one another and buy the worthless assets of the most failing banks