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

while i feel if you pay him to "borrow" it for a short period you're in fact renting it

There's nothing in our agreement to stop me selling it; as long as he gets it back at the end of the month he's happy, and he's made £80 from something that was otherwise sitting on his shelf doing nothing.

The risk is mine: if it hadn't been resissed and the artist had died, the value could've increased and I'd've lost money.

i think pinefox and i are disagreeing w/you abt terminology here

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.

in the world of market-trading discussed in this thread (of stocks, bonds etc), something *like* fetter's manoeuvre is not just common, it is normal

• viz items passed across from trader A to trader B for a specified period
• trader B sells them to a third party C and repurchases them (ideally for a little less, so that trader B makes a small profit)
• the item is then returned per specified period

— what's different is that
(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)
(b) the market culture is expecting and indeed encouraging such activity, so that if the word "borrow" or "elnd" or "rent" is used, it doesn't vitiate the possibility of such behaviour (quite the opposite)
(c) ownership is more a contractual matter (with specified penalties if the project goes awry) than the kind of moral-personal matter entailed by borrowing between pals

• the item is then returned per specified period

this shd say: the item is then returned to trader A per specified period

given the nanosecond nature of sales in the digital context, trader B may well undertake such a project many many many time before returning it to trader A

Mark S: what you say indicates that the market world you mention is different from the normal world. So analogies between the two point up the distinction or incommensurability between them, rather than showing a continuum in which the finance world is really just like ours.

yes! i think we are moving back and forth between different worlds like an example from wittgenstein

except when i was out getting a coffee i thought of a COUNTEREXAMPLE (which some would call an EDGE CASE)

suppose:
• i am walking past __________ where you work and you come out and see me, and i say "pinefox! just the chap! can you lend me a tenner till tuesday?"
• and you (luckily for the story) say "of course my fine fellow!" and hand over the relevant crisp plastic note
• and then on tuesday i seek you out and hand you the correct crisp plastic note

i feel we would both find it unexpected behaviour if you then said "well mark, i happen to know that you took my ten pound note to a CAKE SHOP and immediately bought several items that you then ate on THAT VERY BENCH OVER THERE -- so in conclusion this is NOT the note i let you borrow but merely another exactly like it… and we can no longer be friends"

in conclusion: money itself passes between these worlds more comfortably (this is kind of the point of it: that it was never not your ten pounds but i am allowed to do as i please with it as long as you get it back in good time and in kind)

(of course this is somewhat why some argue that friends shd never lend to or borrow from friends: it blurs the worlds)

Interesting. I am quite convinced by this post.

Once again, I thank you for the charming narrative and personal quality of your fictional examples.

i haven't read the book you abandoned but i wonder if passing between worlds through the barrier of seeming incommensurability isn't roughly what grace blakeley means by "financialisation": viz the turning of something not ordinarily seen as money into money (with all its curious attendant customs and assumptions)

"A commodity appears, at first sight, a very trivial thing, and easily understood. Its analysis shows that it is, in reality, a very queer thing, abounding in metaphysical subtleties and theological niceties. … The form of wood, for instance, is altered, by making a table out of it. Yet, for all that, the table continues to be that common, every­day thing, wood. But, so soon as it steps forth as a commodity, it is changed into something transcendent. It not only stands with its feet on the ground, but, in relation to all other commodities, it stands on its head, and evolves out of its wooden brain grotesque ideas, far more wonderful than 'table­ turning' ever was."

this is why bonds are thought to convey expectations about changes in interest rates through the yield curve, a graph with yield on vertical axis and maturity on horizontal axis. the yield curve is typically upward sloping: higher maturity bonds (e.g. 10y) have higher yields than short (2y). this is due to the liquity premium (among other things). all else equal it's better to have a 2y than a 10y bond. even if you want a 10y bond, if they cost the same price, you could recreate a 10y bond by buying five 2y bonds, and then you'd have the option of re-evaluating each year whether you want to buy again. 10y bonds therefore have to sell at a lower price (higher yield) to make them attractive

if the yield on 10y bonds decreases relative to 2y, this suggests that people expect interest rates to decrease and stay low for a long time (which usually happens during a recession). this can cause the yield curve to flatten or invert

― flopson, Wednesday, November 2, 2022 4:47 AM (five hours ago)

a simpler way to explain why the yield on a 10y bond is higher than the yield on a 2y bond (usually expressed as a higher interest rate on the 10y bond than the 2y bond, if both bonds are issued at the same time) is that the 10y bond is a riskier investment, so the higher interest rate is supposed to compensate you for that increased risk. it is riskier for a number of reasons - risk of default by the issuer (if issued by a company and not the government - not so much if issued by the government, because governments are viewed as close to risk-free as you can get via ability to print more money), but also riskier to you in that central monetary authority in your country to move interest rates against you, making your bond worth less than it was before for the various reasons we've discussed itt

(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*