Posts

Bitcoin fixes Microstrategy (or does it?)

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Do you have a poorly-performing company that you don't know what to do with? Bitcoin fixes this!  At least, that's what Michael Saylor seems to think. Since August 2020, Microstrategy, the company of which he is simultaneously CEO, chairman and principal investor, has invested heavily in Bitcoin. And Saylor has joined the select group of billionaires fronting the campaign to promote Bitcoin's widespread adoption (and talk up its price).  Microstrategy has been bumping along the bottom for quite some time. MarketWatch helpfully reports the income statements for the last five years . They make grim reading. Here are the bottom-line net income and key financial metrics from 2015 to 2019 inclusive: Yes, there's been some improvement in net income, but just look at that EBITDA.... The financials reveal a company that is making little money, generating little free cash and repeatedly reporting operating losses. Sales are disappointing and operating costs are high. At the time

Reconciling IS-LM and endogenous money

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This post was sparked by conversations with people who have opposing views of how money creation works. Some people think that classical models such as IS-LM don't work with endogenous money theory, therefore the models need to be discarded: others think that there's nothing wrong with the model and the problem is endogenous money theory. Personally I think that simple models like IS-LM can be powerful tools to explain aspects of the working of a market economy, and it behooves us therefore to find ways of adapting them to work with an endogenous fiat money system. So this is my attempt to reconcile IS-LM with endogenous money. I don't claim that it is anything like the final word on the subject, so comments are welcome.  The IS-LM model looks like this: : where M is the quantity of money in circulation, L is the "liquidity preference" (the degree to which investors prefer to hold interest-bearing, less liquid assets rather than to zero-interest, highly liquid mon

The asymmetric mechanics of Tether

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Tether is the issuer of the cryptocurrrency world's premier stablecoin, USDT. Stablecoins aim to guarantee the value of cryptocurrencies in dollar terms, hedging volatility risk and making it easier to realise notional gains from cryptocurrency's wild price rises. But Tether's relationship with the main cryptocurrencies, particularly Bitcoin, is controversial. There is a raging battle between those who think that USDT issuance pumps up the price of Bitcoin, and those who argue that USDT issuance has nothing to do with Bitcoin's price. But in my view, the truth is more complex. Tether's asymmetric mechanics both support and disprove the arguments of both sides.  USDT, Tether's "token", is a representation of the US dollar that can be readily traded on cryptocurrency markets. People exchange dollars for USDT, then use the USDT to buy and sell cryptocurrencies. They do so secure in the belief that each USDT token is always worth 1 US dollar. And so far, U

Trade, saving and an economic disaster

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 The UK is running a trade surplus. No, really, I am not joking. This is from the ONS's latest trade statistics release : The UK total trade surplus, excluding non-monetary gold and other precious metals, increased £3.8 billion to £7.7 billion in the three months to August 2020, as exports grew by £21.4 billion and imports grew by a lesser £17.5 billion It's the first time the UK has run a trade surplus since the late 1990s:  And if you were thinking this was because of the lockdown, you would be wrong. The UK has been running a trade surplus since the beginning of 2020: Admittedly, the trade surplus widened under lockdown. But the UK economy reopened to some degree from June to August - and yet the trade surplus continues to widen. This is no doubt music to the ears of balance of payments obsessives. Could the UK at last be pivoting away from a consumption-led growth model to an export-led one?  At first sight, it appears so. Exports have increased more than imports. And the s

A Financial View of Labour Markets

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We are used to thinking of workers as free agents who sell their labour in a market place. They bid a price, companies offer a lower price and the market clearing rate is somewhere between the two. Free market economics, pure and simple.  But actually that's not quite right. The financial motivations of workers and companies are entirely different. To a worker, the financial benefit from getting a job is an income stream, which can be ended by either side at any time. But to a company, a worker is a capital asset.  This is not entirely obvious in a free labour market. But in another sort of labour market it is much more obvious. I'm talking about slavery.  Yes, I know slavery raises all sorts of emotional and political hackles. But bear with me. I am only going to look at this financially. From a financial point of view, there are more similarities than differences between the slave/slaver relationship and the worker/company relationship - and the differences are not necessaril

Statistics for state pension age campaigners

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Another day, another takedown of claims made by women's state pension age campaigners. This time, it's figures for benefit claims by women in their early 60s. David Hencke claims that sharp rises in the number of women in this age group claiming unfit-for-work benefits (ESA and legacy incapacity benefits) proves that losing their state pension entitlement is wrecking the health of women in this age group. And he argues that this calls into question the DWP's recent victory in the Court of Appeal: The disclosure of these figures -obviously not available at the time of the hearing – does undermine the forceful case made by Sir James Eadie, QC, who represented the Department of Work and Pensions, that any poverty or ill health suffered by these women could not be linked to the rise in the pension age to 66. Unfortunately, it doesn't.   The figures released by the Commons Library on 18th September 2020 do indeed look damning. Here's an excerpt from their table, in whic

The inhumanity of Ofqual's algorithm

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 To everyone's relief, the Government eventually caved in over the awarding of grades to A/AS level and GCSE students who had not been able to take their exams. The algorithm that awarded aspiring young people grades they did not expect and did not deserve was discarded in favour of grades set by their schools and colleges. But only if the grades awarded were too low. Those to whom the algorithm awarded over-high grades got to keep them. As a result, the "rampant grade inflation" that the Education Secretary was so desperate to prevent is now even worse than it would be if only the centre-assessed grades were used. What a mess.  But it is not the current mess that bothers me, bad though it is. Nor even the mess there will probably be next year, when universities are faced with cramming next year's cohort into intakes already partially filled by deferrals from this year. No, it is what this algorithm tells us about the way officials at the Department of Education, OfQu