Notes on life, art, photography and technology, by a Danish dropout bohemian.
When you drink the water, remember the river.
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Friday, February 19, 2010
Speculation vs. investment
I've updated the money article with a note about the difference between investment and speculation. This is something which is not often made clear, and which made a big difference to me when I first heard about it.
Don't get suckered into worrying about inflation right now. Money is a symbolic measure that can be readily exchanged for real value, and all fluid financial products are (by definition) readily exchanged for currency that is (by definition) readily exchanged for real value, so they're all money by the transitive property. The housing bubble was driven by insiders being allowed to make endless naked derivatives (side bets) on the likelihood of mortgage defaults, thereby creating money; it piled up over the years like snow from blizzards, and the inevitable avalanche destroyed trillions of dollars.
As a result, the usual rule of thumb about the inverse relationship between structural (unavoidable) unemployment and real (inflation-adjusted) interest rates currently holds that the Fed should be offering something south of negative five percent, which is clearly impossible. It will be years before the slow public creation of money catches up with the recent massive private destruction of money. Any public figure who is still an inflation hawk under these extremely deflationary conditions is therefore a dogmatic barstool economist who must be ignored for the common good.
P.S. By public figures, I mean to criticize those who have the special trust of expressing an opinion from a position of authority or on mass media, such as our elected officials and radio talk show hosts. Not regular folks (such as you and me) who happen to be able to self-publish on the interwebs, same as everyone else.
Don't get suckered into worrying about inflation right now. Money is a symbolic measure that can be readily exchanged for real value, and all fluid financial products are (by definition) readily exchanged for currency that is (by definition) readily exchanged for real value, so they're all money by the transitive property. The housing bubble was driven by insiders being allowed to make endless naked derivatives (side bets) on the likelihood of mortgage defaults, thereby creating money; it piled up over the years like snow from blizzards, and the inevitable avalanche destroyed trillions of dollars.
ReplyDeleteAs a result, the usual rule of thumb about the inverse relationship between structural (unavoidable) unemployment and real (inflation-adjusted) interest rates currently holds that the Fed should be offering something south of negative five percent, which is clearly impossible. It will be years before the slow public creation of money catches up with the recent massive private destruction of money. Any public figure who is still an inflation hawk under these extremely deflationary conditions is therefore a dogmatic barstool economist who must be ignored for the common good.
P.S. By public figures, I mean to criticize those who have the special trust of expressing an opinion from a position of authority or on mass media, such as our elected officials and radio talk show hosts. Not regular folks (such as you and me) who happen to be able to self-publish on the interwebs, same as everyone else.
ReplyDeleteJust to be clear. ;)
Thanks for the info, I had been quite worried about inflation. It's a bitch for savers like me.
ReplyDelete