tag:blogger.com,1999:blog-2499715909956774229.post2220401864617522684..comments2024-03-22T22:37:02.639-07:00Comments on Stephen Williamson: New Monetarist Economics: Money and BubblesStephen Williamsonhttp://www.blogger.com/profile/01434465858419028592noreply@blogger.comBlogger40125tag:blogger.com,1999:blog-2499715909956774229.post-4998357974624599942012-10-25T15:11:08.918-07:002012-10-25T15:11:08.918-07:00Yes, but that "coordinate on a unit of accoun...Yes, but that "coordinate on a unit of account" IS how asset values are derived. There can be no other way. <br /><br />If asset values arent derived from value of the money, what else are they derived from?Greghttps://www.blogger.com/profile/03139782404004492965noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-56821146610188552652012-10-25T09:24:30.682-07:002012-10-25T09:24:30.682-07:00In the case of fiat money someone equivalent to th...In the case of fiat money someone equivalent to the few collectors would be the government (who likes to get paid in its own currency). But in both cases there is a liquidity premium over that value. Does the government's preference turn fiat money into commodity money?CAnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-87599549762494587062012-10-25T04:31:47.929-07:002012-10-25T04:31:47.929-07:00That's more like a commodity money. There is s...That's more like a commodity money. There is someone out there that actually gets utility from having the thing.Stephen Williamsonhttps://www.blogger.com/profile/01434465858419028592noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-37150408782164303362012-10-24T16:27:30.438-07:002012-10-24T16:27:30.438-07:00Ok. All understood.
This is an interesting topic ...Ok. All understood.<br /><br />This is an interesting topic though. You differentiate between fiat and central bank money. Can you think of any examples of fiat money, either current or historical?JP Koninghttps://www.blogger.com/profile/02559687323828006535noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-34682032649365484722012-10-24T15:59:53.097-07:002012-10-24T15:59:53.097-07:00Stephen:Of course it's feasible for the fed to...Stephen:Of course it's feasible for the fed to sell off its assets and buy back its money. It just wouldn't be comfortable. Here's an interesting example of what happened when the American colonies did it.<br />--Mike Sproul<br /><br /> “The retirement of a large proportion of the circulating medium through annual taxation, regularly produced a stringency from which the legislature sought relief through postponement of the retirements. If the bills were not called in according to the terms of the acts of issue, public faith in them would lessen; if called in there would be a disturbance of the currency. On these points there was a permanent disagreement between the governor and the representatives, discussions concerning which reveal themselves in 1715 and traces of which are frequently found after that date.” (Davis, 1910.) Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-49802407758271281032012-10-24T15:43:19.132-07:002012-10-24T15:43:19.132-07:00So here is a story I had in mind. Assume that we p...So here is a story I had in mind. Assume that we perfect teletransportation (as in Star Trek) so cars become useless and their production and repair seizes. Assume also that, following a retro movie, cars become a fad, and people start collecting them. They go from having a price of zero to having a positive, potentially high price. Gradually, even people who don't share the fad become willing to accept them in exchange for money or other goods, because they hold their value well and their market is deep. Is this a bubble? If no, why not? If yes, how is it different than fiat money? CAnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-20629415909430121982012-10-24T12:53:34.222-07:002012-10-24T12:53:34.222-07:00Your problem is that you're not terribly brigh...Your problem is that you're not terribly bright. I'd rather have Steve's "problem".Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-37986391821354606752012-10-24T12:24:45.087-07:002012-10-24T12:24:45.087-07:00JP,
There is nothing that can stop Noah from sayi...JP,<br /><br />There is nothing that can stop Noah from saying silly things. When I said "money," I had a theoretical concept in my head - fiat money. Actual central banking is another thing altogether, though of course thinking about pure fiat money helps you understand what the central bank is up to. Note how I started this post. Words like "money" and "bubble" are loaded with baggage.Stephen Williamsonhttps://www.blogger.com/profile/01434465858419028592noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-41038289381515544722012-10-24T10:22:20.490-07:002012-10-24T10:22:20.490-07:00Oh, come on now Stephen, have you ever tried to ke...Oh, come on now Stephen, have you ever tried to keep up with an ambulance?CAnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-72702843732790205522012-10-24T08:32:27.579-07:002012-10-24T08:32:27.579-07:00Sure, it's important to coordinate on a unit o...Sure, it's important to coordinate on a unit of account. I didn't say it wasn't.Stephen Williamsonhttps://www.blogger.com/profile/01434465858419028592noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-11924087265671005052012-10-24T06:53:09.888-07:002012-10-24T06:53:09.888-07:00But Steve, you also said this:
"Money, for e...But Steve, you also said this:<br /><br />"Money, for example, is a pure bubble, as its fundamental is zero."<br /><br />So money, at least Federal Reserve liabilities, are not fundamentally worth zero. In hindsight, if you had put this front and centre in your first post you wouldn't have Noah saying silly things like all financial assets which pay out USD are pure bubbles.JP Koninghttps://www.blogger.com/profile/02559687323828006535noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-49944457712113113792012-10-24T06:23:53.340-07:002012-10-24T06:23:53.340-07:00"The payoffs on my stocks and bonds, and the ..."The payoffs on my stocks and bonds, and the sale of my house, may be denominated in dollars, but that does not mean that the value of those assets is somehow derived from the value of money"<br /><br /><br />You sure about that?<br /><br />The numeraire ($ in the case of the USA) is EXACTLY how we "derive" the value of an asset. Yes we can figure how to value it in Euros or Pounds or Yen too but its "valuation" is a derivation of the money system in place. With no money system in place the value would not be universal in any way. Your pigs might be worth 100 hours of my labor or 40 of my watermelons but my neighbor might give you none of his labor and two apples for the pig. Try and set up a society like we have with those operating principles at the microlevel.Greghttps://www.blogger.com/profile/03139782404004492965noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-7830676044302580482012-10-24T04:42:20.199-07:002012-10-24T04:42:20.199-07:00See my reply above.See my reply above.Stephen Williamsonhttps://www.blogger.com/profile/01434465858419028592noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-23831585126657798122012-10-24T04:41:27.042-07:002012-10-24T04:41:27.042-07:00Hi Mike,
I thought you might show up to complicat...Hi Mike,<br /><br />I thought you might show up to complicate things. Federal reserve liabilities are indeed not literally fiat money. Leaving out the unusual assets the Fed has recently purchased, their portfolio consists primarily of government debt, so we could think of the value of money as being linked to fiscal policy and the power to tax. That shows up in some macro theory - for example Sargent and Wallace's "Unpleasant Monetarist Arithmetic," and the fiscal theory of the price level.<br /><br />The Fed is a financial intermediary, which is important. Here's a question. What would happen if the Fed attempted to sell its entire asset portfolio and retire the stock of currency and reserves? Is that even feasible?Stephen Williamsonhttps://www.blogger.com/profile/01434465858419028592noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-57232544692730589512012-10-24T04:28:59.225-07:002012-10-24T04:28:59.225-07:00"...sophisticated lawyers..."
Isn't..."...sophisticated lawyers..."<br /><br />Isn't that an oxymoron?Stephen Williamsonhttps://www.blogger.com/profile/01434465858419028592noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-35462451237509611572012-10-24T04:26:56.604-07:002012-10-24T04:26:56.604-07:00It helps you think about the problem of explaining...It helps you think about the problem of explaining asset prices, which we do a poor job of. Basic asset pricing models determine asset prices as the present value of intrinsic payoffs. But those models fail to explain how asset prices behave - particularly the volatility. We might be successful if we model the role of assets in exchange and as collateral.Stephen Williamsonhttps://www.blogger.com/profile/01434465858419028592noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-36436736870006920892012-10-23T22:00:05.912-07:002012-10-23T22:00:05.912-07:00The fed, like all central banks, has assets. Those...The fed, like all central banks, has assets. Those assets back its money, just as private bank assets back the money issued by private banks. The dollar is currently inconvertible into gold. But 'inconvertible' does not equal 'unbacked'. The fed might not buy back its dollars with its gold, but it will buy back its dollars with its bonds, and it is possible that at some future date, the fed will even sell off its gold in exchange for federal reserve notes. (comment by Mike Sproul. The comment software is acting up.)Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-50521120489831013632012-10-23T18:22:00.382-07:002012-10-23T18:22:00.382-07:00my 2 cents is that you are blinded because you are...my 2 cents is that you are blinded because you are inside the economics silo.<br /><br />Law students (and lawyers) are poor generally at economics but that quickly understand that money is Coasean and the primary limiter of their livelihood. Without money, contracts (promises) for future performance would still be made but the paper (and legal work) would be immense.<br /><br />To the point, sophisticated lawyers laugh at economist who worry about "money." If you think that the gov't may print too much, hire a good lawyer and broker and write contracts that hedge all your positions.<br /><br />You will find that these services cost 5 to 7% of the contract price, but insurance can be obtained.<br /><br />Viewed in this light, the true nature of complaints about fiat money, etc., are exposed. The complainers are lazy and greedy, wanting someone to do their own work. CA is a prime example. He is just a welfare queen in different garb. If he has cash in a Mason jar in the back yard he could forward hedge, at a cost. He just wants a gov't subsidy.<br /><br />Do not take these remarks as carte blanch permission for the gov't to print money.<br /><br />Life is a confidence game and, generally, on of its rules is that excessive printing works against confidence.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-84845887215681069372012-10-23T18:08:41.027-07:002012-10-23T18:08:41.027-07:00false pretenses . . .
Munger invented a wonderful...false pretenses . . .<br /><br />Munger invented a wonderful word describing this problem, febezzlement, building on John Kenneth Galbraith who had come up with the term "bezzle" to describe the outright frauds<br /><br />The process is vicious---as with embezzlement, you think you are richer but you are actually poorer.<br /><br />The question is why, more than 5 years into the crisis, no one seems to have seriously attempted to quantify this most fundamental of issues.<br /><br />How are we supposed to know what effort will be required to repair the economy without first knowing or having good estimates of how badly it was damaged?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-48139226651415149242012-10-23T15:22:27.282-07:002012-10-23T15:22:27.282-07:00Your problem is that you are wedded to the obsolet...Your problem is that you are wedded to the obsolete and repeatedly discredited idea of value. There is no such thing as value. There are only prices. Once you get rid of value, you don't have these silly arguments about "intrinsic value" or "effective value" or "expected value". Kaleberghttps://www.blogger.com/profile/05283840743310507878noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-60862149628913926702012-10-23T13:47:59.203-07:002012-10-23T13:47:59.203-07:00Except there is no backing -- the Fed does not hav...Except there is no backing -- the Fed does not have to permit you to swap those notes for anything except different notes. The assets are not relevant.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-18066658902066719252012-10-23T13:39:05.775-07:002012-10-23T13:39:05.775-07:00"Money, for example, is a pure bubble, as its..."Money, for example, is a pure bubble, as its fundamental is zero."<br /><br />Well, the Fed does have assets, and federal reserve notes are a first claim against those assets. The fed currently has enough assets to buy back every dollar it has outstanding. So what if they don't buy them back right now? Maybe they will do it in 200 years. So the value of the dollar now is the present value of the expected price the fed will pay for its notes in 200 years. Sounds pretty fundamental to me.Mike Sproulhttp://www.csun.edu/~hceco008/realbills.htmnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-75374892853608976112012-10-23T13:20:25.833-07:002012-10-23T13:20:25.833-07:00Somehow I don't feel instructed.Somehow I don't feel instructed.Stephen Williamsonhttps://www.blogger.com/profile/01434465858419028592noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-71022771667533028972012-10-23T12:25:23.064-07:002012-10-23T12:25:23.064-07:00De Long's misses the part, however, where peop...De Long's misses the part, however, where people fed up with the government printing fiat money at excessive rates decide to give it up and conduct their transactions using other money. This happens you know, in which case your old fiat money has no use whatsoever, except perhaps in facilitating transactions with the government. <br /><br />Fiat money is the only asset I can think of that if all people tried to apply its use at the same time, exchange it for goods and services that is, the asset would seize to be useful. This is not to say that it is not a useful contraption. CAnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-36085175871459602632012-10-23T12:12:34.008-07:002012-10-23T12:12:34.008-07:00"My problem is that, by taking this logic to ..."My problem is that, by taking this logic to the extreme, nothing can ever be called a bubble. There was no derivatives bubble, the high price of mortgage-backed securities simply reflected their usefulness as a medium of exchange."<br /><br />That's a good thing. Take a dotcom stock. The stock's liquidity premium reflects its usefulness as a medium of exchange. But what drives the perception of the stock's liquidity premium isn't just how it performed as a medium in the past, but how it is expected to perform in the future. If people expect that even more people in the future will be willing to buy the stock, then the dotcom's liquidity premium rises. Its market price rises. <br /><br />Persistent increases in these expectations will create spikes in the dotcom's price... which are really just spikes in its liquidity premium. Of course, these spikes can't continue indefinitely since there are a finite number of people who can enter the market. Until then, it's rational to buy as long as you assume that you haven't approached the end of the chain. But it can end in tears too.JP Koninghttps://www.blogger.com/profile/02559687323828006535noreply@blogger.com