Zero Hedge — Hundreds Of Billions In Gold And Cash Are Quietly Disappearing

"Squirreling money under the mattress?" 😮

Zero Hedge
Hundreds Of Billions In Gold And Cash Are Quietly Disappearing

Tyler Durden

With the Hong Kong protests showing no sign of letting up, a new narrative has emerged; that anti-government activists are "sliding into terrorism with home-made bombs" designed to inflict mass casualties.

On Sunday, Hong Kong police reported that they foiled a second bomb plot in under a week - arresting three men who were allegedly testing home-made devices and chemicals in a secluded area, according to SCMP....

Zero Hedge
Hong Kong Police Report Second Bomb Plot Foiled

Tyler Durden

Lars P. Syll’s Blog Krugman vs Kelton on the fiscal-monetary tradeoff

The battle of the titans. Or maybe better, David and Goliath.

We have to free ourselves from the loanable funds theory — and scholastic gibbering about ZLB — and start using good old Keynesian fiscal policies. Keynes — as did Lerner, Kaldor, Kalecki, and Robinson — showed that it was possible to promote economic growth with an “appropriate size of the budget deficit.” The stimulus a well-functioning fiscal policy aimed at full employment may have on investment and productivity does not necessarily have to be offset by higher interest rates.

Lars P. Syll’s Blog
Krugman vs Kelton on the fiscal-monetary tradeoff
Lars P. Syll | Professor, Malmo University

Dirk Ehnts — A short comment on Temin and Vines on Keynes

… For those that want to understand how Keynes is relevant for the 21st century I would recommend reading the original books – now in public domain – or modern books from Post-Keynesian/Modern Monetary Theory authors.

econoblog 101
A short comment on Temin and Vines on Keynes
Dirk Ehnts | Lecturer at Bard College Berlin

Nick Rowe — "Profits = Investment - Saving"

"Profits = Investment - Saving"

Or, "Profits = Expenditure - Income". Those are just alternative ways of saying the same thing, for a closed economy, if investment and saving include government investment and saving.

Most economists will say that's wrong. And it is wrong by standard definitions, where aggregate expenditure and income are the same thing, and investment and saving are also the same thing (for a closed economy, including government investment and saving).

But let me tell you a story:

Worthwhile Canadian Initiative
"Profits = Investment - Saving"
Nick Rowe | Associate Professor of Economics at Carleton University, Ottawa, Canada

Ramanan — Christine Lagarde On Germany’s Balance Of Payments

Insightful post on international finance. Short.

The Case for Concerted Action
Christine Lagarde On Germany’s Balance Of Payments
V. Ramanan

Brad DeLong — John Maynard Keynes: Essays In Biography

Brad rates this as a should-read. For anyone interested in Keynesianism, Post Keynesianism and MMT, the history of economics, or economic theory, it is a must-read.

Conventional economists have apparently concluded that they don't need to read it if they even thought about, which most probably haven't, being under the spell of the "normal paradigm" in spite of its poor results empirically.

Washington Center for Equitable Growth
John Maynard Keynes: Essays In Biography

Brad DeLong

Here is a link to download Keynes's Essays in Biography (1933) as a PDF.

Another must-read from Brad.

 I think the very smart Jeffrey Friedman gets this… not quite right. The case for the empirical benefits of capitalism is very strong—but only if one is willing to remove libertarian blinders and focus on eliminating the market failures (in distributions, in aggregate demand, in externalities, in information, etc.) that keep the function the market maximizes from being a good proxy for societal well-being. And once one has the market properly supported and disciplined, the philosophical discussion can commence: Jeffrey Friedman: What’s Wrong with Libertarianism: “Libertarian arguments about the empirical benefits of capitalism are, as yet, inadequate…

From the Marxian and Institutionalist points of view,  economic liberalism, of which contemporary Libertarianism is a variant, provides the philosophical framework for bourgeois capitalism. Its fundamental weakness is prioritizing economic liberalism over social and political liberalism, which gives rise to many paradoxes of liberalism that result in illiberality such as have been pointed out many time here at MNE.

Brad also provides another keeper Keynes quote.

Here is an excerpt:

But, above all, individualism, if it can be purged of its defects and its abuses, is the best safeguard of personal liberty in the sense that, compared with any other system, it greatly widens the field for the exercise of personal choice.

Individualism as the pursuit of self-interest does not lead to the greatest good for the greatest number the spontaneous emergence of natural order, unless "natural order" is conceived as the outcome of social Darwinism. This result is so grossly unfair that overtime it becomes unstable politically.

Keynes is saying here that individualism only works as a guiding principle of liberalism if collective consciousness is sufficiently high, which is manifested in a society's culture and institutions. The fact that civil and criminal law are needed goes to show that collective consciousness alone is not that high presently. In addition, the level of social and political dysfunctionality in liberal countries shows that the culture and institutions of the society are insufficient to bridle narrow self-interest to the degree necessary to generate a harmonious society and balanced social, political and economic conditions.

This is a design problem.

Jeffrey Friedman: What’s Wrong with Libertarianism

More from BDL:

Three Books for 2017: Economics for the Common Good, Janesville, Economism

Weekend Reading: Richard Thaler: Behavioral Economics

Kevin Erdmann — Leverage is not a sign of risk seeking, a continuing series

A contrarian view.

Idiosyncratic Whisk
Leverage is not a sign of risk seeking, a continuing series
Kevin Erdmann

Peter Cooper — Short & Simple 9 – Spending Determines Income

We understand that, as a rule, total spending must equal total income (this was explained in part 4 of the series). But this raises a question. Is it spending that determines income or, instead, income that determines spending?

heteconomist
Short & Simple 9 – Spending Determines Income
Peter Cooper

Dirk Ehnts — Structuralist Macroeconomics

I have recently ordered a copy of “Structuralist Macroeconomics – Applicable Models for the Third World” by Lance Taylor. However, I did not read very far into the book. Let me explain why. On p. 12, chapter 2 – titled “Adjustment Mechanisms – the Real Side” – starts with the sentence:

“MACROECONOMICS begins with the notion that the value of saving generated by all participants in the economy must by one means or another come into equality with the value of investment in the short run.”

While most economists will probably nod their heads, I don’t. Informed by a book chapter written by Basil Moore (download) and my own research, let me point out the fundamental problems with this statement. The first is trivial, the second not so....

econoblog 101
Structuralist Macroeconomics
Dirk Ehnts | Lecturer at Bard College Berlin

Jeff Desjardins — How You Can Build Wealth on Minimum Wage

Simple living. 

Not for everybody. But it works for some.

Visual Capitalist
How You Can Build Wealth on Minimum Wage
Jeff Desjardins

J. W. Mason — Saving and Borrowing: A Response to Klein

Yes, we are still arguing over terms like "saving" and "borrowing." JW Mason clears some of it up.

J. W. Mason's Blog
Saving and Borrowing: A Response to Klein
JW Mason | Assistant Professor of Economics, John Jay College, City University of New York

Lars P. Syll — The true nature of saving

Keynes quote.

Lars P. Syll’s Blog
The true nature of saving
Lars P. Syll | Professor, Malmo University

Dirk Ehnts — Investment equals savings: Keynes in the General Theory (1936)

Bank loans that create "new money" finance investment and create saving.

When bank approves a loan it creates a deposit equal to the loan amount in the borrower's account at the bank. This deposit circulates as money is spent and the money that created by the loan is destroyed when the depositor pays off the loan in full.

This means that the funds that resulted from credit extension both fund the amount of investment and remain in the money supply until the loan is paid down.

A bank creates "new money" by crediting accounts. Banks do not lend out deposits or bank reserves. they "lend against" capital, that is, put equity at risk in making loans. For this risk-assumption, they receive interest, which they calculate as commensurate with risk plus associated costs, including the interest rate set by the central bank.

Thus the loan creates the saving that funds it, and the loan funds investment.

This is how a monetary production works in the context of endogenous money.

econoblog 101
Investment equals savings: Keynes in the General Theory (1936)

Dirk Ehnts | Lecturer at Bard College Berlin

Kimball Corson — A Note on Liquidity Preference

Short summary of the liquidity trap.

Wandering the Oceans: SailBlogs
A Note on Liquidity Preference
Kimball Corson

Heiner Flassbeck — Deflation is a master from Germany – and the ECB is its victim

Savers.

flassbeck economics international
Deflation is a master from Germany – and the ECB is its victim
Heiner Flassbeck

Jason Smith — Does saving make sense?

Jason Smith jumps in on "saving."

Information Transfer Economics
Does saving make sense?
Jason Smith

Joanna Masel — How Your Savings Plan Fuels an Arms Race on Wall Street

Policy makers are keen to encourage people to save more money for retirement, e.g. via tax incentives. This is great advice for individuals; the more money an individual saves, the more comfortable their retirement. But is it also a good idea for society as a whole? What happens when everybody tries to save money at the same time?

To answer this, we need to understand the distinction between relative and absolute competitions. Think about a running race. An absolute competition pits each runner against the clock. In an evolutionary contest, where anyone who finishes the race in less than a certain time is allowed to have children, those with stumpy legs and flat feet will be replaced by the children of the fast runners. In future generations, the average person runs faster.

In contrast, in a relative competition, where competitors race in pairs against one another instead of against the clock, rules of fair play do not apply. One competitor is super fast. Unfortunately, he gets tackled from behind. In the ensuing brawl, he receives a solid blow to the head and passes out. The slower guy then wins. In each generation, the competition gets tougher, but not necessarily because the new generation runs faster. Strictly speaking, this relative competition does not favor being fast. What it favors is crossing the finish line before your competitor. Running fast is one way of crossing the finish line first. But evolution is a creative process, and there are many different ways of achieving the same goal. It is hard to predict which of the many solutions will triumph, and not all of the solutions are ones that we like.

If saving for retirement is an absolute contest, then policy makers are doing the right thing when they encourage people to save for retirement. But if saving for retirement is a relative contest, the incentives we give for retirement plans may achieve nothing, or even worse, do economic harm.

In the real world, it’s sometimes hard to figure out which competitions are relative and which are absolute. But the mathematics behind the two are different, and so are their outcomes. During my training in evolutionary biology, I learned to use a standard mathematical model in which competition was relative. In contrast, economists learn standard mathematical models that are based on absolute competitions. These default assumptions, built into the curriculum, can shape the way someone approaches a problem for the rest of their career.

As a result, economists are biased towards assuming that competitions increase prosperity. Evolutionary biologists like me are trained to have the opposite bias, instead assuming that competitions are zero-sum. In both cases, the truth is probably somewhere in between, but how we are trained affects which situations we see as “normal” and which as “special”, and which sort of mistakes we are most likely to make.
My recent book argues that saving for retirement has become a relative contest, but that economists dangerously mistake it for an absolute one.

Saving does not cause investment.

Evonomics
How Your Savings Plan Fuels an Arms Race on Wall Street
Joanna Masel

David Glasner — There Is No Intertemporal Budget Constraint

Somewhat wonkish, but if you have been following the debate that Nick Rowe started, you may find it interesting.

Uneasy Money

There Is No Intertemporal Budget Constraint

David Glasner | Economist at the Federal Trade Commission

Brian Romanchuk — Money Hoarding Versus Saving, And Economic Growth

Brian digs into the implications of the saving versus hoarding distinction.

Bond Economics
Money Hoarding Versus Saving, And Economic Growth
Brian Romanchuk

Ramanan — Nick ROKE, Thrift, And Hoarding

On the difference between saving and hoarding.

The Case for Concerted Action
Nick ROKE, Thrift, And Hoarding
V. Ramanan