Results for “zerohedge”
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Monday assorted links

1. The FATF crypto recommendations.

2. Markets in everything.

3. “The swan in question has been terrorizing the neighbourhood with its persistent door-knocking over the last five years, residents say.

4. Survey on body-worn police cameras, mostly positive results.

5. Funny (yet sort of true?) that I (along with @pmarca!) am viewed as the big socializer on this list.

6. Vaccinated people should return to greater socializing.  And good news on the South African strain.

Wednesday assorted links

1. “In Iran, where Telegram usage takes up 60 percent of the country’s internet bandwidth…” (NYT).

2. Update on on-line Oklahoma charter schools.

3. Facts about Indian farmer rebellions (you may not agree with all of the analysis).

4. Peeps marshmallow hot tamale fierce cinnamon markets in everything.

5. James Flynn obituary (NYT).

6. The cancellation of monkey slavery coconut milk?

7. What is up with GameStop? And this comment seems to be true.

Sunday assorted links

1. On-line dating in China (NYT).

2. In economics, time demands are endogenous.

3. “If I told you that the painting was bought for 60,000 bitcoins, would that make it easier to stomach?

4. TLS books of the year, always one of the best lists.

5. Claims about hypersonic weapons, speculative.  And micro assassination dronesThe State of the Union.

6. David Brooks on the siege mentality (NYT).  And Ross Douthat on Kenneth Starr (NYT).  They’re both right.

Monday assorted links

1. The dull men’s club.

2. “Jessica Adams, the astrologer for Cosmopolitan magazine in Australia, said she heard from “an avalanche of people worried that they were no longer a Leo and concerned that astrology is a fraud”.”  The political economy of zodiac realignment.

3. Some reasons why many Colombians voted no.  I am myself a Coasean, and I don’t believe in holding grudges — at all.  Yet when you consider the notion of seats in the legislature, or transitional payments that non-terrorist Colombians won’t receive, rejection of this referendum should hardly come as a surprise.  How many electorates would have voted for something comparable?  It just wasn’t a peace deal that could be sold so readily to a people who have fought against FARC for over fifty years.  It’s easy enough to blame the process of referendum (which by the way I do not in general favor), but maybe something also was wrong with the peace deal and with the peace preconditions themselves.  Would the deal actually have ended the civil war?  Is “ending the civil war” really what voters rejected?  Here is further Monkey Cage commentary.

4. Yes there are some valid outrages in the overall story, but it’s worth stressing that tax-loss carryforwards really are very common, including for HRC and the NYT.  The quality of discussion on this issue has been weak, including from some very smart people.  I’m also stunned but not surprised by how “possibly might not have paid (some kinds of) taxes for eighteen years” has morphed into “did not pay taxes for eighteen years.”  Imagine the button, people!

5. Medical marijuana increases labor supply for older adults.

6. Some results and correlations on financial markets and the elections: “In the two months prior to the conventions, the S&P 500 had a strong, positive relationship with Republican likelihood of winning the election. On the other hand, for the two months after July, the relationship shifts to a strong, positive relationship with Democrats’ likelihood of winning.”  But here is Matthew A. Winkler: “Prices of U.S. debt and equities are showing the narrowest fluctuations for any presidential election year in at least two decades…”  the Mexican peso, however, is another story.

Thursday assorted links

1. 16 economists on Brexit (videos).

2. My post on Romneycare, from ten years ago.

3. Does inequality lead to credit growth?  Testing the Rajan hypothesis.

4. Maybe Fitbit doesn’t work?  And the NYT version.

5. I don’t agree with everything in this Zero Hedge post, and some of it is flat out wrong, but it does cast serious doubt on the new, happy median income growth figures: “the Census Bureau’s own report shows that the median nominal earnings of full-time male workers in 2015 grew by 1.6% and for full-time female workers by 2.8%. That hardly squares with 5.7% average aggregate growth of incomes for all workers—unless main street households was suddenly showered with windfalls from stock dividends they don’t own, bank accounts that pay no interest or rental incomes from properties registered in someone else’s name.”

6. The culture that is youth sports.

Italian banking is the next shoe to drop

Scott Sumner refers to The Second DominoVia Kevin Drum, the WSJ reports:

In Italy, 17% of banks’ loans are sour. That is nearly 10 times the level in the U.S., where, even at the worst of the 2008-09 financial crisis, it was only 5%. Among publicly traded banks in the eurozone, Italian lenders account for nearly half of total bad loans.

This is potentially a bigger story than Brexit, as it has the potential to bring the entire eurozone to its knees.  The notion of a bail-in already has been discarded, with Merkel’s blessing, as most people realize that would lead to unmanageable runs on eurozone banks.

Italy is the third largest economy in the eurozone, and so it is not so easy to bail out on a large scale.  Germany and France have elections pending, and they are not keen to put in money in any case, not after the Greek debacle.  In terms of per capita income, Italy has not seen real growth in over fifteen years, and so a bigger than expected bank bailout would be tough for them to swallow.

Here is Zero Hedge for one of the more dramatic views.

In principle an Italian wealth tax could pay off the implied debts, but that is probably unacceptable; an attempt at such a tax was repealed rather rapidly a few years ago.  Otherwise Italy is short of money and Germany doesn’t want to be left holding the bag, with that commitment being tougher to swallow once various country “exits” are on the table.  In terms of politics, Italy is possibly facing a constitutional crisis and governance vacuum of sorts, with a pending referendum and no option in sight to make the people happy.

The key is to avoid potential bank runs and Italy and elsewhere, but how?  It’s not that hard or costly to switch money from one eurozone bank to another, and the Italian government is counting on a lot of inertia here.  So this is a tough one.

Sunday assorted links

1. Gelman on Douglas Campbell on genetic distance.

2. This is so much asking the wrong question.

3. Why was the Fed’s rate hike technically so smooth?

4. Merry Xmas slide show, using math and math alone.

5. “The total absence of a cultural footprint for Avatar is fascinating…Hey. Right now. Try to quote Avatar, the highest-grossing movie of all time. Quote ANY line. Or name 2 characters. No cheating.”  Twitter link is here.

Should Iceland abolish fractional reserve banking?

You are all familiar with their recent financial mishaps in Iceland, note also theirs is not a history of financial stability:

It is fair to say that Iceland’s monetary history has been a turbulent one.  Currency controls in the 1920s to the 1950s were followed by chronic inflation in the 1970s to 1980s, with annual inflation reaching a high of 83% in 1983.  In 1981 it was considered necessary to redenominate the krona with 100 units being replaced by 1 new unit.

That is from a new Frosti Sigurjónsson report (pdf) advocating 100 percent reserve banking for Iceland.  In the “good old days” we had so many arguments against this arrangement — “disintermediation!” — but do those critiques hold up when so many nominal interest rates are in any case negative or close to zero?  In many countries banks may be fated to become money warehouses as it is.

An interesting question is whether Iceland can, with its current size and export profile, ever have monetary and financial stability.  With their exports and thus gdp so depending on fish and aluminum smelting and tourism, no other country shares their economic fluctuations, even roughly.  A fixed rate thus means a non-optimum currency, but a floating rate for 323,002 people may mean perpetual whipsawing from international capital flows, not to mention the risk of acquiring an oversized, hard to bail out banking system, as Iceland did before its Great Recession.

Should I file under Department of Why Not?  What if Scott Sumner asks me how to do this without inducing a collapse in nominal gdp?  If I interpret p.78 of the study correctly, the government will create new money by printing and injecting it into the economy through fiscal policy, as a means of forestalling this problem if need be.  Under this scenario, how powerful does the state become?  On what do they spend the money?

Frosti’s report, by the way, was commissioned by the Prime Minister and it is being taken very seriously.

I believe I first saw notice of this link from Stephen Kinsella.  Here are some responses to the idea.  Zero Hedge seems sympathetic.

Monday assorted links

1. Myths about Bitcoin and the block chain.  And a decentralized lie detector.  And faster now! (with lasers).

2. Will Brazil be seeing a resurgent free market movement?

3. The origins of dishonesty.

4. For which major religion is the work ethic strongest?

5. “What was even the point of websites? Were they just weird slow apps with nobody in them?”

6. Fortunately, most of the statues destroyed by ISIS were fakes.

7. Actually confronting the ethics of self-driving vehicles.

8. Bias against Asian instructors.

What will European QE look like? And will it work?

Claire Jones at the FT reports:

The European Central Bank is set to unveil a programme of mass bond buying next week to save the eurozone from deflation, but has bowed to German pressure to ensure that its taxpayers are not liable for any losses incurred on other countries’ debt.

This is not a surprise.  Alen Mattich had a good Twitter comment:

How could you trust ECB promise to “do whatever it takes” if it doesn’t accept the risk of holding national sov debt on its books?

Guntram B. Wolff has an excellent, detailed analysis, worth reading in full, here is one bit:

So the purely national purchase of national sovereign debt would either leave the private creditors as junior creditors, or the national central bank has to accept negative equity. What would negative equity mean for a central bank? De facto it would mean that the national central bank, that has created euros to buy government debt, would have lost the claim on the government. It would still owe the euros it has created to the rest of the Eurosystem.(4) The Eurosystem could now either ask the national central bank to return that liability, which it is unable to do without a recapitalisation of its government. Or, the Eurosystem could decide to leave the claim standing relative to the national central bank. In that case, the loss made on the sovereign debt would de facto have been transferred to the Eurosystem. In other words, the attempt to leave default risk with the national central bank will have failed.

…Overall, this discussion shows that monetary policy in the monetary union reaches the limits of feasibility if the principle of joint and several liability at the level of the Eurosystem is given up.

An important open issue is whether the ECB could buy Greek bonds, given that they are up for restructuring and (presumably) the Bank cannot voluntarily relieve Greece of any debt (see Wolff’s discussion).  There are plenty of rumors that Greece will indeed be excluded from any QE program, unless you imagine they settle things with the Troika rather more quickly than they are likely to.  Yet a bond-buying program without Hellenic participation doesn’t seem so far from hurling an “eurozone heraus!” painted brick through their front window in the middle of the night.

Overall, shuffling assets and risk profiles between national monetary authorities and national fiscal authorities would seem to accomplish…nothing.  Not buying up the debt of your biggest problem country also seems to accomplish nothing, in fact it is worth than doing nothing.

Here is my 2012 column on how the eurozone needs to agree on who is picking up the check.  They still haven’t agreed!  In the meantime, Grexit is a very real possibility, through deposit flight, no matter how badly Greek citizens may wish their country to stay in.

So, so far I am not so optimistic about this whole eurozone QE business, even though in principle I very much favor the idea.  It is again a case of politics getting in the way of a problem which does indeed have a (partial) economic solution.  The only way it (partially) works is if it (implicitly) bundles debt relief with higher rates of price inflation.  Have a nice day.

Assorted links

1. Capital controls for Belarus, and worse.

2. The word is that Doug Elmendorf will not be reappointed at CBO.  Doug has done a very good job and he deserves our plaudits.  And Kaiser on the Medicare spending slowdown.  Excellent piece, and if nothing else it shows what a fiscal conservative Elmendorf has been.

3. Interview with Piketty, more than just the usual, recommended, he also needs some PR training.

4. List of films that most frequently use the word “fuck” (yes, someone seems to have counted).

5. “Conspicuous authenticity”?

6. More women get gun gifts.

Assorted links

1. Are fish smarter and more sentient than we think?

2. The rental housing shortage.

3. Reddit forum on what’s the most ****ed up thing you’ve ever done for money.

4. Mystery object (?) on Titan, Saturn’s moon.

5. Francisco Goldman is skeptical about Mexico’s reforms.  And the economics of the paywall at the FT.

6. Is Western civilization hardy or fragile?  And how often do men think about sex?

7. Conflicting data on the Chinese economy.

Ukraine seems to win the “next financial crisis” award

And they win the award by having a much larger crisis overall.  Russia has suspended financial aid to Ukraine.  There are rumors of runs on banks and long queues at ATMs.  There are rumors of Ukraine possibly splitting into two countries.  Here is a NYT Q&A.

Here is the one-year CDS chart.  The Russian ruble is declining to record lows.

Here are interesting remarks from Timothy Garton Ash.:

I have argued that, in our time, 1989 supplanted 1789 as the default model of revolution. Rather than progressive radicalization, violence and the guillotine, we look for peaceful mass protest followed by negotiated transition. That model has taken a battering of late, not only in Ukraine but also in the violent fall that followed the Arab Spring.

When the Soviet Union first split apart, I expected something like the current scenario to happen rather quickly.  Obviously it did not.  It is interesting to ponder what assumptions are required to produce a 25-year lag for a similar result.

If you know of interesting or good sources on what is happening in Ukraine, please leave them in the comments.

China, and the soaring price of Bitcoin

Here is one clue as to what is going on:

To what does he [Zennon Kapron] attribute bitcoin’s popularity in China, and how could others benefit from it?

“There’s BTC China’s no-fee trading for starters. You can leave your money on the platform, your coins on the platform, and trade in and out for free,”  he said.

The entry and exit points aren’t free, with a 0.5% Tenpay (China’s PayPal equivalent) cash in/out fee, and a 1% bank transfer fee.

Capital controls in China are strict. It’s easy to bring money into the country, but getting it out (to invest or spend) is more difficult. That means there are are plenty of wealthy Chinese citizens and residents looking to move their money around the world with greater freedom.

There is more here.  And here is a map of Bitcoin flows, recommended.  In other words, more entrepreneurs in China are holding Bitcoin and accepting the volatility of its value, in order to sell the asset to those looking to get money out of China.

Those using Bitcoin may wish to diversify their portfolios, they may need to make payments abroad, or they may think the Chinese currency is currently overvalued, or some mix of the above.  Bitcoin has become increasingly popular in China, and the largest Bitcoin exchange is in China, yet the currency has hardly any retail use in the country.  Still, the number of yuan-based Bitcoin trades has risen thirty-fold in the last two months, according to Bloomberg.

Right now, you can think of the value of Bitcoin being set in the same way that the value of an export license might be set through bids.  If/when China fully liberalizes capital flows, the value of Bitcoin likely will fall.  A lot.  To the extent the shadow market value of the yuan rises, and approaches the level of the current quasi-peg, the value of Bitcoin will fall, by how much is not clear.  Or maybe getting money out through Hong Kong (or Shanghai) will become easier and again the value of Bitcoin would fall.  If Beijing shuts down BTC China, the main broker, which by the way accounts for about 1/3 of all Bitcoin transactions in the world, the value of Bitcoin very likely will fall.  A lot.  You will recall that the Chinese government shut down the virtual currency QQ in 2009; admittedly stopping Bitcoin could prove harder but still they could thwart or limit it.

If you are long Bitcoin for any appreciable amount of time, it seems you are betting that the Chinese economy will do poorly and capital controls will remain.  Then more people will be increasingly desperate to get more money out of the country.  Or you may be betting that the Chinese use of Bitcoin to launder money will increase due to the mere spread of the idea, through social contagion.  According to this source, the value of Bitcoin is up by a factor of 66 this year in China.

To the extent the price of Bitcoin incorporates expectations about the future strength of the social contagion effect in China, the price of Bitcoin may become more volatile.  Expectations about the future strength of social contagion effects are probably not so stable.

In theory these points might give you a way to hedge the value of Bitcoin.  Or hedge the value of China.  Here is an interesting post about how Bitcoin prices in yuan do not so closely mirror Bitcoin prices in dollars.  If you are a resident of China and have a BTC account there are numerous interesting possibilities, none of which I recommend for the faint-hearted.  (Justin Wolfers doesn’t have to like this, but how can he think it is not interesting?)

I do not recommend that you go either long or short in Bitcoin, unless it is a small amount of money and done “for kicks.”

By the way, Ben Bernanke, by “talking up” the price of Bitcoin, is placing an implicit tax on the Chinese Johnny-come-latelys to this market, whether he intends it or not.  He also is raising the price for circumventing Chinese capital controls and perhaps thus delaying a fall in the actual market value of the yuan.

For related ideas behind this post, I am indebted to a series of tweets by Izabella Kaminska.

Addendum: Izabella comments here.