Sorry MMTers – Banks Do Not Create Money

There’s a much easier manner of explaining why banks don’t just create money. Which is to note that there are different types of money. There is M0, which is created by the central bank, there are M3 and M4 which are that after the influence of the banking system and the velocity of circulation of money. M0 is not the same as M3 or M4. Thus we are talking abut at least slightly different things. Perhaps narrow money and wide money but best described as money and credit.

See More

The Problem With Peer To Peer Lending

There’s only the one major problem with peer to peer lending. It doesn’t work.

The peer-to-peer industry has been dealt another blow after lending firm MoneyThing announced it was closing down with immediate effect.

Moneything will no longer accept any new investments or customers and will wind down its outstanding loans by the end of next year.

Almost half of the company’s loan book was in default at the time of closure, meaning borrowers were struggling to pay their debt back.

See More

How We Know That Avinash Persaud Is Blowing Smoke About The Financial Transactions Tax

It’s possible to the actual work on a financial transactions tax and prove that it’s pensioners that pay it, it shrinks the economy, doesn’t increase – rather decreases – total tax revenues and so on. As I have done in fact.

It’s also possible to take just a quick look and conclude that Persaud’s blowing smoke.

The mastermind of Jeremy Corbyn’s planned raid on the City is this weekend revealed as a supporter and user of the offshore tax havens on which the Labour leader has pledged a crackdown.

See More

Nick Shaxson Entirely Misses The Point Of Comparative Advantage

Sure, we can forgive people for not grasping the point or detail of comparative advantage. It is, after all, the only non-trivial and non-obvious result in all of the social sciences (most of which is different ways of saying “People sure do some strange stuff”). It’s also rather difficult to grasp as is obvious given the number of people who don’t manage to.

However, those who would tell us who the entire socioeconomic system should be operated need to be held to a higher standard.…

See More

WeWork As A Proof Of The Efficient Markets Hypothesis

The little jokule about the efficient markets hypothesis is that Eugene Fama got the Nobel for proving it, Lars Hansen for doing the maths, Robert Shiller for disproving it. The awards all being offered at the same time.

WeWork being an interesting exemplar of the point:

This was a business that reported a net loss of $1.6bn in 2018 on revenues of $1.8bn. Yet Softbank, in the last private funding round, had injected the last portion of its investment at a valuation of $47bn (£37bn).

See More

Why Invest So Little In Property?

The Questor column in the Telegraph outlines how property is “the best income asset”. Yet they allocate only a small portion of their model portfolio in income producing property and companies that own it.

Why?

Without being willing to pay to peek behind the paywall I can only guess. But there is good economic reason.

Which is that we all invest far too much in property already. That thing you’re living in? That’s an investment. Perhaps it shouldn’t be, the world might well be better if it were the mere consumption good it should be – and used to be.…

See More

Muddying the Waters

Here in our dismal pit, we perked up a bit as we read the following headline in the Grauniad:

Clarity on Burford Capital is needed after Muddy Waters treatment

A bit of background on this. The hedge fund Muddy Waters, which has no connection to McKinley Morganfield, aka Muddy Waters, the blues singer-songwriter—but perhaps it should have—issued a nice little report putting the knife into listed company Burford Capital which caused a huge drop in the latter’s share price.…

See More

Blimey, Banks Close Branches In Poor Places, Not Rich Ones

The Guardian seems to have a certain difficulty in understanding what a bank is, what a bank is for, here. It’s a mechanism by which the shareholders hope to enrich themselves. Sure, things can go wrong with that desire but that is the function of such an organisation. Once we’ve understood that then the rest here makes sense:

Banks are closing branches in deprived communities in England four times faster than in wealthy areas. High street banks have collectively closed 990 branches in the most deprived areas of the country since 2010, compared with 230 in the richest local authorities.

See More

De Fault Is In The Stars

Yeah, a really bad pun, but we specialise in such. So what recently caught our eye here in our dark scribbler’s pit was a recent news report about the travails of certain U.S. private equity groups. If you work at the private equity groups Lone Star and Oaktree Capital you’re busily kicking yourself, as the Financial Times reported here

Shopping centres breach loan terms after stores fail

Now it couldn’t have happened to a nicer group of people, really.…

See More

The Equation That Drives The Bitcoin Price

Now all we need to do is find the empirical values to plug into this equation. Even better, be able to predict them:

Speculation and the price of virtual currency
Wilko Bolt, Maarten R C van Oordt 14 May 2019

What drives the volatility of Bitcoin? This column explains a theoretical framework to link exchange rates to currency creation, speculative behaviour, and real growth in goods and services transactions. It suggests that the exchange rate will be less sensitive to speculators’ beliefs when a virtual currency becomes more established as a means of payment.…

See More