How Two Guys in a Room Invented a New Kind of Money Here is the standard story of the 2008 financial crisis: Shady lenders gave ridiculous mortgages to unqualified buyers of overpriced houses.The ridiculous mortgages were then bundled together, sliced up, and sold off to investors.When housing prices started to fall, the unqualified buyers couldn’t … Continue reading Jacob Goldstein: How Two Guys in a Room Invented a New Kind of Money [Money market mutual fund]
while I learned many things as a broker, the one lesson that stands out to me is that there is no requirement to actually understand the monetary system to do high finance. Consider this metaphor. An artist might paint beautiful pictures, and yet know nothing about how paint is produced, or even what it is. … Continue reading “Financial professionals are just ordinary people captured in a system they largely did not create, and largely do not understand, but who learn how to operate small parts of it.”
Source: Positively Negative: Stock-Bond Correlation an Its Implications for Investors (2019) The relationship between the returns of equities and government bonds seems to be perpetually on the minds of investors. This is understandable. U.S. government bonds have come to be viewed as a safe-haven asset, providing relative stability in times of economic uncertainty and an effective … Continue reading Stock-Bond Correlation
This article discusses the key underlying causes of the “Great Inflation” of the 1970s and identifies its main lessons for monetary policy. Evidence points towards a crucial role played by policy mistakes in generating the Great Inflation. First, a comparison between the US experience and that of Germany 1 and Switzerland – which, during the … Continue reading The Great Inflation, 1965–1982
This study analyses two hypotheses that ascribe the US financial crisis of 2008 to capital inflows. The Asian savings glut posits that net inflows into high-grade US public bonds from countries running current account surpluses led to the housing boom and bust. In sum, an excess of savings over investment abroad led to an excess … Continue reading The 2008 GFC: Asian savings glut or European banking glut?
Introduction This paper is about external imbalances, in particular the causes of current account deficits in the run-up to a financial crisis. Financial crises have occurred in many countries following the collapse of the Bretton Woods system in 1971 and the move towards floating exchange rates. There have been several waves of financial crises during … Continue reading Iceland’s financial crisis
An orthodox currency board issues notes and coins convertible on demand into a foreign anchor currency at a fixed rate of exchange. As reserves, it holds low-risk, interest-bearing bonds denominated in the anchor currency and typically some gold. The reserve levels (both floors and ceilings) are set by law and are equal to 100%, or … Continue reading Steve Hanke: Currency Boards
1) Five years ago, Ken Langone asked Stan Druckenmiller, "What is the biggest mistake you made and what did you learn from it?" 2) Druck said in 1999, after Yahoo and AOL had already gone up ten-fold, he decided to short internet stocks. He placed a $200 million bet in February and was down $600 … Continue reading Stanley Druckenmiller: What is the biggest mistake you made and what did you learn from it? [Dotcom bubble]
Housing was the business cycle Residential investment is not the macroeconomic force it used to be Americans have long understood the link between the state of the housing market and the health of the wider economy. When Paul Volcker, then the chairman of the Federal Reserve, raised interest rates to eye-watering levels in the early … Continue reading Housing was the business cycle
Measuring the current account The current account can be expressed as the difference between the value of exports of goods and services and the value of imports of goods and services. A deficit then means that the country is importing more goods and services than it is exporting—although the current account also includes net income … Continue reading Current Account Deficits: Is There a Problem?