Coppola Comment

"I don’t think that the -coins we are seeing now are the last word in digital currency. They are experiments. And I do think there is a bubble in the making, which will burst noisily at some point. But  unlike others , I don’t regard this as a bad thing. Just as the dot-com bubble and bust was an essential part of the evolution of the Internet, so the bursting of the -coin bubble, when it comes, will enable a new digitized financial architecture to emerge. "So bring on the -coin bubble and bust. I want to see what grows in its place." Me, at Forbes .

I've been meaning to write this post for ages. It's about the democracy of ideas. We can only profit from our ideas when we share them with others, freely and without expectation of reward. By depriving the world of his ideas, John Galt chose his own death. Oh, and there are guest appearances by Old Holborn, Bitcoin and Robert Louis Stevenson. Read on here .

My new Forbes post is on the limitations of central bank forward guidance, in the light of the US's taper decision and the UK's rising gilt yields. Markets will only be guided in the direction in which they were going anyway..... Read on here .

Nick Edmonds objects to my assertion that real interest rates should be at or below the real growth rate of the economy (my emphasis): "Interest payments are just transfer payments, so their impact on stability has to be seen in the context of other transfer payments (principally taxes and benefits). Depending on the structure of these other transfers, there is no reason per se why the interest rate on safe assets has to be below the growth rate. (See for example http://www.levyinstitute.org/pubs/wp_494.pdf ) There is no public sector in Samuelson, so you don't get these transfer flows, but by the same token his assets aren't actually claims on anybody, so they can't really be thought of as safe assets.  " Of course, it may be that excessive interest rates entail tax and transfer rates that are unpalatable, but that's a different issue ." I don't think it's a different issue at all. It's the whole point. Not just "unpalatable...

My latest post at Pieria: "Three years ago, Nick Rowe produced  this post  describing a “weird world” – a world in which the equilibrium interest rate is at or below the long-term growth rate of the economy, rather than above it as we are used to. In such a world, bubbles are inevitably created as investors search for positive yield. This is also the world  recently described  by Larry Summers. "But I don’t think this world is weird. I think it is actually normal, and we have been living in a weird world of unstable Ponzi schemes that eventually crash and reset."  Read on here .

This comment from Mysjkin on my previous post about Germany has made me think about the effect of free movement of capital and harmonised interest rates in a currency union: "Imagine a German company going to a German bank, asking for a loan. The German bank answers: no we are not going to lend money to you because we can lend it for a higher interest rate to a company in Spain, but we will lend the money to you if you will also pay this higher rate. If the investment, at that interest rate, is still profitable for the company, it will borrow the money at the higher rate, problem solved. If the company (read: German corporations) does not want to borrow at this higher interest rate, it seems to me that monetary policy is not too loose, but too tight for German domestic conditions." The argument is that ECB interest rate policy prior to the Eurozone crisis resulted in interest rates that were too high for Germany and too low for the periphery. And indeed, a look at Germany...

We all know that Euro membership has been of doubtful benefit to periphery countries such as Greece and Portugal. But Germany has been a net beneficiary of the Euro, hasn't it? Not according to these charts from Albert Edwards (h/t Edward Harrison). (larger image here ) Note the point on both charts where the trend changed sharply. Yes, it's 2000 - when the Euro was introduced. Admittedly, Germany's gross fixed investment was already declining, but after 2000 it fell off a cliff. And the current account decomposition chart shows us why. Note the collapse in borrowing by non-financial corporations from 2000 onwards. That is disappearing domestic private sector investment. In fact in 2009-10 NFCs were net saving. This is distinctly unhelpful in an economy which has seen gross fixed investment falling for the last twenty years. To start with, it appears that government borrowing replaced private sector net borrowing. But even that declined from 2004 onwards, replaced...