(Roughly) Daily

Posts Tagged ‘currency

“It has been said that arguing against globalization is like arguing against the laws of gravity”*…

 

globalization

 

The preponderance of evidence suggests that financial globalization – especially unrestricted hot money – aggravates macroeconomic instability, creates the conditions for financial crises, and dampens long-run growth by making the tradable sector less competitive. Few economists would list financial globalization as an essential prerequisite for sustained long-term development or macroeconomic stability. And arguments made in its favor presume that every country has already met highly demanding regulatory requirements. Most have not and probably cannot, except over the long run.

While the International Monetary Fund has begun to make some allowance for restrictions on capital flows, albeit only as a temporary last resort for weathering cyclical surges, the dogma of financial globalization remains intact. One reason, perhaps, is that development economics has not shed its resource/savings fundamentalism, which attributed underdevelopment to a lack of domestic savings. The implication was that developing and emerging economies should attract resources in the form of foreign aid or, after skepticism about aid became widespread, foreign private capital.

Alternatively, the orthodoxy may owe its resilience to the power of entrenched financial interests that have stood in the way of new controls on cross-border capital flows. Wealthy elites in several countries – especially in Latin America and South Africa – embraced financial globalization early on because they saw it as offering a useful escape route for their wealth. In these cases, policy inertia and possible reputational costs made it difficult suddenly to start advocating a reversal. Global financial elites had long relied on a narrative that equates capital controls with expropriation, and responsible policymakers did not want to be seen as violating property rights…

Although much of the intellectual consensus behind neoliberalism has collapsed, the idea that emerging markets should throw their borders open to foreign financial flows is still taken for granted in policymaking circles.  Until that changes, Arvind Subramanian and Dani Rodrik argue, the developing world will suffer from unnecessary volatility, periodic crises, and lost dynamism: “The Puzzling Lure of Financial Globalization.”

* Kofi Annan

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As we cache our cash, we might recall that this was a bad day for inclusiveness in Massachusetts in 1635: the General Court of the then-Colony banished Roger Williams for speaking out for the separation of church and state and against the right of civil authorities to punish religious dissension and to confiscate Indian land.  Williams moved out to edge of the Narragansett Bay, where with the assistance of the Narragansett tribe, he established a settlement at the junction of two rivers near Narragansett Bay, located in (what is now) Rhode Island. He declared the settlement open to all those seeking freedom of conscience and the removal of the church from civil matters– and many dissatisfied Puritans came. Taking the success of the venture as a sign from God, Williams named the community “Providence.”

Williams stayed close to the Narragansett Indians and continued to protect them from the land greed of European settlers. His respect for the Indians, his fair treatment of them, and his knowledge of their language enabled him to carry on peace negotiations between natives and Europeans, until the eventual outbreak of King Philip’s War in the 1670s.  And although Williams preached to the Narragansett, he practiced his principle of religious freedom by refraining from attempts to convert them.

Roger Williams statue, Roger Williams Park, Providence, R.I.

source

 

 

“If you’re a lobbyist who never gave us money, I didn’t talk to you. If you’re a lobbyist who gave us money, I might talk to you”*…

 

electionFunds-460x290

 

Everyone always talks about how much money there is in politics. This is the wrong framing. The right framing is Ansolabehere et al’s: why is there so little money in politics? But Ansolabehere focuses on elections, and the mystery is wider than that.

Sure, during the 2018 election, candidates, parties, PACs, and outsiders combined spent about $5 billion – $2.5 billion on Democrats, $2 billion on Republicans, and $0.5 billion on third parties. And although that sounds like a lot of money to you or me, on the national scale, it’s puny. The US almond industry earns $12 billion per year. Americans spent about 2.5x as much on almonds as on candidates last year.

But also, what about lobbying? Open Secrets reports $3.5 billion in lobbying spending in 2018. Again, sounds like a lot. But when we add $3.5 billion in lobbying to the $5 billion in election spending, we only get $8.5 billion – still less than almonds.

What about think tanks? Based on numbers discussed in this post, I estimate that the budget for all US think tanks, liberal and conservative combined, is probably around $500 million per year. Again, an amount of money that I wish I had. But add it to the total, and we’re only at $9 billion. Still less than almonds!

What about political activist organizations? The National Rifle Association, the two-ton gorilla of advocacy groups, has a yearly budget of $400 million. The ACLU is a little smaller, at $234 million. AIPAC is $80 million. The NAACP is $24 million. None of them are anywhere close to the first-person shooter video game “Overwatch”, which made $1 billion last year. And when we add them all to the total, we’re still less than almonds.

Add up all US spending on candidates, PACs, lobbying, think tanks, and advocacy organizations – liberal and conservative combined – and we’re still $2 billion short of what we spend on almonds each year. In fact, we’re still less than Elon Musk’s personal fortune; Musk could personally fund the entire US political ecosystem on both sides for a whole two-year election cycle…

[A consideration of the factors that limit political giving/spending]

I don’t want more money in politics. But the same factors that keep money out of politics keep it out of charity too.

The politics case is interesting because it’s so obvious. Nobody’s going to cynically declare “Oh, people don’t really care who wins the election, they just pretend to.” It’s coordination problems! It has to be!

So when I hear stories like that Americans could end homelessness by redirecting the money they spend on Christmas decorations, I don’t think that’s because they’re evil or hypocritical or don’t really care about the issue. I think they would if they could but the coordination problem gets in the way.

This is one reason I’m so gung ho about people pledging to donate 10% of their income to charity. It mows through these kinds of problems. I may not be a great person. But I spend more each year on the things I consider most important than I do on almonds, and this is the kind of thing that doesn’t happen naturally. It’s the kind of thing where I have to force myself to ignore the feeling of “just a drop in the ocean”, ignore whether I feel like other people are free-riding on me, and just do it. Pledging to donate money (and then figuring out what to do with it later) ensures I will take that effort, and not end up with revealed preferences that seem ridiculous in light of my values.

Scott Alexander with a counter-intuitive– and provocative– take on politics and money: “Too much dark money in almonds.”

[Image above: source]

* Mick Mulvaney, Director of the Office of Management and Budget (OMB), as well as acting White House Chief of Staff, in 2018, while serving as interim head of the Consumer Financial Protection Bureau

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As we take the pledge, we might recall that it was on this date in 1957 that the words “In God We Trust” first appeared on U.S. paper currency– when the updated one-dollar silver certificate entered circulation that day.

Though it had only been adopted by Congress as the official motto of the U.S. the prior year, the phrase had appeared occasionally (as had variations on the theme) on coinage since Civil War times; regularly– despite Theodore Roosevelt’s conviction that it was sacrilegious– from 1908.

220px-1in_god_we_trust source

 

Written by LW

October 1, 2019 at 1:01 am

“A nickel ain’t worth a dime anymore”*…

 

money

 

The instruments of trade and finance are inventions, in the same way that creations of art and discoveries of science are inventions—products of the human imagination. Paper money, backed by the authority of the state, was an astonishing innovation, one that reshaped the world. That’s hard to remember: we grow used to the ways we pay our bills and are paid for our work, to the dance of numbers in our bank balances and credit-card statements. It’s only at moments when the system buckles that we start to wonder why these things are worth what they seem to be worth. The credit crunch in 2008 triggered a panic when people throughout the financial system wondered whether the numbers on balance sheets meant what they were supposed to mean. As a direct response to the crisis, in October, 2008, Satoshi Nakamoto, whoever he or she or they might be, published the white paper that outlined the idea of Bitcoin, a new form of money based on nothing but the power of cryptography.

The quest for new forms of money hasn’t gone away. In June of this year, Facebook unveiled Libra, global currency that draws on the architecture of Bitcoin. The idea is that the value of the new money is derived not from the imprimatur of any state but from a combination of mathematics, global connectedness, and the trust that resides in the world’s biggest social network. That’s the plan, anyway. How safe is it? How do we know what libras or bitcoins are worth, or whether they’re worth anything? Satoshi Nakamoto’s acolytes would immediately turn those questions around and ask, How do you know what the cash in your pocket is worth?

The present moment in financial invention therefore has some similarities with the period when money in the form we currently understand it—a paper currency backed by state guarantees—was first created. The hero of that origin story is the nation-state. In all good stories, the hero wants something but faces an obstacle. In the case of the nation-state, what it wants to do is wage war, and the obstacle it faces is how to pay for it…

The ever-illuminating John Lanchester explains how, over three centuries, the heresies of two bankers became the basis of our modern economy: “The Invention of Money.”

[Lanchester’s latest novel, The Wall, was just long-listed for the Booker.]

* Yogi Berra

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As we learn from the past, we might recall that it was on this date in 1861 that the U.S. government, in anticipation of the expense of the looming Civil War, levied its first income tax as part of the Revenue Act of 1861.  It assessed 3% of all incomes over $800, but included no enforcement mechanism, and so generated very little revenue.  It was revised in 1862 in a more effective form, then rescinded in 1872.

The first peace-time income tax was established in 1894, but was ruled unconstitutional by the Supreme Court (the 10th amendment forbade any powers not expressed in the US Constitution, and the Constitution provided no power to impose any other than a direct tax by apportionment).  It was in 1913, with the Sixteenth Amendment to the United States Constitution, that income tax became a permanent fixture in the U.S. tax system.

HR54_Revenue_Act source

 

Written by LW

August 5, 2019 at 1:01 am

“It’s All About The Benjamins”*…

 

Hundred-Dollar-Bill

A funny thing happened on the way to a world of cryptocurrencies and mobile payments. Cash became more popular than ever. The main reason? The one hundred dollar bill.

In 2017, for the first time ever, the one hundred dollar bill became the most popular US bill in circulation, beating out the one dollar bill. It is quite the turn of events for Benjamin Franklin-faced banknote. Just 10 years ago, it was less common than both the $20 and the $1.

The share of US dollars in circulation as a share of GDP rose from about 6% in 2010 to 9% in 2018, according to the Federal Reserve. Increased use of $100 bills has been the primary driver…

Why cash is king: “There are now more $100 bills than $1 bills in the world.”

* Puff Daddy

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As we contemplate currency, we might spare a thought for Franco Modigliani; he died on this date in 2003.  An economist, he originated the life-cycle hypothesis, which attempts to explain the level of saving in the economy, suggesting that consumers aim for a stable level of consumption throughout their  lifetime (for example by saving during their working years and then spending during their retirement)– for which he was awarded the Nobel Prize in Economics in 1985.

Among his other accomplishments, he initiated the Monetary/Fiscal Debate when he (and co-author Albert Ando) wrote a scathing critique of an early 1960s paper by Milton Friedman and David Meiselman.  Freidman and Meiselman had argued (in effect) that monetary policy was the only effective tool in managing an economy; Modigliani and Ando pointed out flaws in their analysis and made the case for fiscal measures (effectively, government spending) as equally-effective tools.  The debate– known by the antagonists’ initials as the AM/FM Debate– rages to this day.

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“Many people take no care of their money till they come nearly to the end of it”*…

 

(Roughly) Daily has taken a look at the obscure corner of the U.S. Treasury once devoted (literally) to laundering money (“Cleanliness is Next to Godliness“); today we visit that operation’s forensic cousin…

The colorfully named Mutilated Currency Division at the Bureau of Engraving and Printing is a small office of crack forensics that spend their days poring over all manner of defaced dollars. Provided for free as a public service, the Mutilated Currency employees labor to identify bits and fragments of identifiable denominations that can be redeemed at face value.

Established by Congress in 1866—less than five years after the government started issuing paper money—the Mutilated Currency Division handles about 30,000 cases a year, returning currency valued at over $30 million. As long as more than half of the note remains, or the Treasury can be satisfied that the missing portions have been destroyed, the Mutilated Currency Division will redeem the amount of money that has been damaged by fire, water, chemicals, and acts of god…

Cash in your burnt, moldy, or soiled greenbacks at “The Mutilated Currency Division.”

* Johann Wolfgang von Goethe

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As we take it to the bank, we might recall that it was on this date in 1928, after more than 130 years of trading, that the New York Stock Exchange finally had its first day on which more than 5 million shares trade hands, as total daily volume hit 5,252,425 shares.  Just over a year later, on Black Tuesday, volume spiked to over 16 million shares…  as traders dumped their holdings and the Wall Street Crash of 1929 began (presaging the Great Depression).

Average daily volume (over the last three months) on the NYSE today is 880,564,865 shares.

Trading floor of the New York Stock Exchange, 1929

source

 

“Cleanliness is next to godliness”*…

 

One woman feeds bills into the washing machine as another collects the clean bills

Long before the term “money laundering” entered the popular lexicon, the U.S. Treasury Department had an actual laundry shop for grimy greenbacks. The mostly female “redemptive division” worked out of the basement and cleaned up to 80,000 soiled bills a day using mechanical scrubbers…

Come clean at: “Treasury Department Laundry.”

And for an insightful look at the dirty business that money laundering has become, see “The Russian Laundromat Exposed.”

* A colloquial expression (used by Francis Bacon, e.g., but popularized by John Wesley), rooted in an interpretation of Acts 9:32-10:23

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As we love the lave, we might recall that it was on this date in 1939 that The Viking Press published John Steinbeck’s The Grapes of Wrath.  The story of the Joads, a poor family of tenant farmers driven from their Oklahoma home by economic hardship– drought, agricultural industry changes, and bank foreclosures forcing tenant farmers out of work– it won the National Book Award and Pulitzer Prize for fiction, and was cited prominently when Steinbeck was awarded the Nobel Prize for Literature in 1962.

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Written by LW

April 14, 2017 at 1:01 am

“The best way to destroy the capitalist system is to debauch the currency”*…

 

In a world full of smartphone payments and cryptocurrency, 85% of all transactions are still done in cash. Australia actually sees cash demand rising at a steady 6% to 7% per year with no decline on the horizon.

As printers and scanners become more sophisticated, the government has moved to ensure that its currency is safe. “What we noticed in recent years, with the availability of technology—particularly around reproduction technology like scanners and printers—counterfeiting in Australia had started to increase. We’re in the fortunate position where it’s still pretty low but it is rising,” says James Holloway, deputy head of note issue at Reserve Bank of Australia. “We thought we just don’t want it to keep rising in a sustained fashion, so the time had come around upgrading security”…

How Australia means to frustrate counterfeiters: “The Painstaking, Secretive Process Of Designing New Money.”

* Vladimir Lenin

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As we bite our coins, we might recall that it was on this date in 1789 that President George Washington named Alexander Hamilton as the first U.S. Secretary of the Treasury.  A founding Father, Hamilton created the Federalist Party, the world’s first voter-based political party, the the United States Coast Guard, and the The New York Post newspaper.  As Treasury Secretary Hamilton stabilized the nation’s economy and paid back the mountainous debt resulting from the Revolutionary War.  He established the first national bank and created the U.S. Mint in (the precursor of) the form in which we know it today.

 source

 

Written by LW

September 11, 2016 at 1:01 am

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