The day after tomorrow, redux

By -
An updated version of my post from September 2012, "The Day after Tomorrow", is now up at Pieria. Read it here.


The original is still up on Coppola Comment, too.

Comments

Post a Comment

Popular posts from this blog

JP Morgan's Coffee Machine

By -
Image
  It's now widely accepted, though still not universally, that banks create money when they lend. But it seems to be much less widely known that they also create money when they spend. I don't just mean when they buy securities, which is rightly regarded as simply another form of lending. I mean when they buy what is now colloquially known as "stuff". Computers, for example. Or coffee machines.  Imagine that a major bank - JP Morgan, for example - wants to buy a new coffee machine for one of its New York offices (yes, it has more than one). It orders a top-of-the-range espresso machine worth $10,000 from the Goodlife Coffee Company, and pays for it by electronic funds transfer to the company's account. At the end of the transaction JP Morgan has a new coffee machine and Goodlife has $10,000 in its deposit account.  What exactly is this money, and how is it created? I had a long argument with people on twitter who insisted that JP Morgan would pay for the coffee ma
Read more

The high price of dollar safety

By -
Image
The world is saving like crazy. Corporations are building up cash mountains that they can’t or won’t invest in expanding their businesses. Individuals are building up pensions and precautionary savings. Governments, especially in developing countries, are building up FX reserves. The “ savings glut ,” as former Fed chairman Ben Bernanke dubbed it, shows no signs of dissipating. It is sloshing around the world looking for a productive home. But there isn’t one - or at least, not one that offers the safety that fearful investors desperately crave. That, fundamentally, is what is driving down the returns on assets. It is also the primary cause of the wide US trade deficit. The President likes to think that the reason for the US’s persistent trade deficits is unfair trade practices and currency manipulation. And for some countries, these are undoubtedly contributing factors. But the biggest reason by far is the global dominance of the dollar, and above all, the pre-eminence of dollar
Read more

Crypto's Weimar

By -
Image
  A cryptocurrency has just re-enacted the Weimar hyperinflation. Yesterday, the price of the cryptocurrency TITAN crashed to zero, and its related stablecoin IRON fell off its USD peg, trading as low as 69 cents to the dollar. It was a sudden and dramatic collapse that left investors shocked and bewildered. Equally shocked and confused, the coins' issuer launched an immediate investigation:  Iron Finance issued its post mortem a few hours later. This is the key paragraph: Later, at around 3pm UTC, a few big holders started selling again. This time, after they started, a lot of users panicked and started to redeem IRON and sell their TITAN. Because of how the 10mins TWAP oracle works, TITAN spot price drops even further in comparison to the TWAP redemption price. This caused a negative feedback loop, as more TITAN was created (as a result of IRON redemptions) and the price kept going down. A classic definition of an irrational and panicked event also known as a bank run. At the ti
Read more