Comments by "k98killer" (@k98killer) on "Infranomics" channel.

It would be better to have wage growth-driven CPI increases than consumer credit-driven CPI increases.
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Debt is slavery by roundabout means.
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I think the devaluation of labor is the bigger issue. Debasement of labor via fiat inflation is certainly a part of it, but if wages increased in real terms, homes would be more affordable. Also, gold's purchasing power does fluctuate in real terms over time: changes in its purchasing power are inverse to changes in confidence in the fiat system. On a long time scale, it tends to keep up with inflation, but that is only a small part of its dynamics -- there is also sovereign debasement, changes in central bank reserves/sovereign wealth fund assets, changes in the stock-to-flow ratio, commodity market leverage liquidations, etc. Creating a really accurate model for gold price movements is really difficult in my experience because of how many different factors have transient correlations.
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I am somewhat concerned by the elevated risk of a crack-up boom scenario. I think our best chance of fixing this is the Convention of States movement -- we need just a half a dozen or so States to pass the resolution to begin the process of reigning in the federal government. Hopefully, the constraints placed on it will be something like "except in times of war, for any given year, the Congress shall not appropriate more funds to be spent than the average annual amount of federal revenues calculated as the annual mean over the previous ten years", and "the federal government must constrain the issuance of liabilities by the Federal Reserve System or any subsequent federally chartered institution to the same regulatory standards applied to commercial financial institutions" or something to that effect.
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During the post-Great Depression era, they not only outlawed the possession of gold, but there was also a 50% capital gains tax on silver bullion. They made sure you couldn't escape the monetary debasement.
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If the Russian sovereign debt market is anything like the US Treasury market, the collapsing yield could be indicative of a financial crisis and collateral shortage. Apparently, credit delinquency rates in Russia are twice the peak experienced in the US during the GFC, and their central bank has authorized the printing of enough banknotes to double the circulating supply or something to that effect. The term "bull steepener" makes the phenomenon sound a lot better than it generally is when the move is this sudden.
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Meaningful clarification, since framing Q1 data as "tariffs aren't working" is a false framing considering that the tariffs were imposed at the beginning of Q2.
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I have heard that the majority of the effect of the Plaza Accord was due to market psychology, similarly to when the Fed announced it would buy corporate bonds and then didn't have to because people tried to front-run the action and thus caused the move themselves. I have not yet seen a good numerical analysis to back this idea, but theoretically the data should be ontainable (i.e. interventions from central banks, sovereign wealth funds, and market stabilization funds). If you can find the data, it would be an interesting video for sure.
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I have been reading through Ludwig von Mises' Theory of Money and Credit again recently. I am just over halfway through; it is quite a tome. In Part II, Mises explains how an abundance of money causes greater dearness (scarcity) in everything else through falsifying the economic calculation needed for capital creation through profitable production; through inflation, the state consumes the capital of the community. He also explained how the future-discounting function of the market causes the result of inflationary policies to be, paradoxically, a lack of adequate money to conduct commerce at previous levels: since the expectation is that the currency acquired in the morning will get less in exchange in the evening, prices rise high fast enough that commerce is choked out because those who would purchase no longer have enuugh money to compensate the would-be commercial parties for the expected devaluation. Inflationary policies thus erode the economy to the point of inevitable destruction.
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I can't be the only one who sees a stick figure on the right of the dot plot.
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Housing is more than just a place to live or savings to fund retirement: it is the backbone for affordable capital loans for people -- it is how boomers finance small business acquisitions and entrepreneurial activity. If your wages were never high enough to build up equity in a house, you were denied entry at the base level of the private sector's capital financing system.
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A video about stock market liquidity/order book depth would probably be worthwhile. My understanding is that dark liquidity pools are responsible for more trading activity than the public, regulated markets these days, which makes these prices unreliable.
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@kingdadu Agreed.
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One small point of clarification: the so-called "capital account" shows not the movement of actual capital per se but rather investment flows, presumably into financial assets that the investors believe to represent or be leveraged upon productive capital assets. Except with regard to banks, capital by definition is the physical means of production: land, plant, equipment, and commodities ready for use. This distinction gets lost because for banks, money is the majority of the capital they use to produce loans -- office buildings, equipment, etc are also considered capital assets for banks, but the relationship is reversed compared to businesses producing anything other than financial goods/services. When a nation experiences a capital account surplus, what is actually happening is that ownership of real capital is being transferred to foreign investors -- it is actually capital flowing out of the country in exchange for currency. In this way, we trade our nation's productive enterprises and farmland for cheap plastic crap, using the monetary system as an intermediary for indirect exchange. Anyway, I look forward to part 2.
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House affordability is typically calculated by comparing monthly payments to income rather than measuring closing price in median hours of labor. As such, people who have adopted differing metrics for affordability talk right past each other. Case in point, the MBSes: by buying them, the Fed caused mortgage rates to decline, temporarily improving affordability when measured as mortgage payment amount vs median income; however, in the long run, this caused prices to be bid up through inflating the sector. Adherents of "new consensus" economics observe that prices have inertia, which is related to the Cantillon effect: when underlying market conditions change, transactors take some time to adjust their prices.
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There is a video titled "Money Did Not Come From Barter - It Came From Blood Feuds" that is worth watching. The barter myth etiology is about as credible as a talking snake making humans eat a fruit that caused them to think too much. The historical and pre-historical records indicate that money was invented to settle debts (both blood debts as described in the video and inter-tribal debts as experienced in the indigenous American tribes), and that invention of final settlement was extrapolated to create prices, structure governments, and eventually create market economies. I am not sure how exactly this reframing of the origin of money will help your analysis, but it is always worthwhile to subject one's mental models to critical inquiry to align them more closely with reality.
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Hmm...that awarded-at-high measure might not be so great as a measure of auction health. Imagine an auction where 99% was awarded at a yield of 1 basis point above the starting bid; it would show a 99% awarded-at-high metric despite the fact that it would have been an obviously very strong auction result. Not sure what to make of this metric.
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I suspect that we are heading toward a debt jubilee and subsequent near-total prohibition. This system is maximally unhealthy -- our governments have spent so much time and effort saddling future generations with unrepayable debt, and the bill is starting to come due. Hopefully there is an economically sound system on the other side of this calamity for the survivors.
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It is a slight pet peeve of mine that FX charts are labeled "US Dollar / Japanese Yen" when the actual rate being shown is the opposite: the number on the chart represents JPY per USD, which in normal mathematical formulations would be JPY/USD. However, since both currencies are supposed to store and transmit value, it is described as a relative measurement of USD vs JPY such that the chart going up indicates USD strength against JPY. I still think it would be less confusing to just label the chart with the actual FX rate rather than the inverse of what it actually shows.
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From a philosophical and/or analytical perspective, which is the more dangerous practice: fractional reserve lending, or maturity transformation?
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That's somewhat scary. Thanks for the update.
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Gold's fiat price is a reasonable indicator for monetary debasement when measured in multi-decade chunks. But even as a year-to-year measure, it has had multi-year bear markets while M2 and M0 continued growing and multi-year bull markets where it outpaces M0 or M2 -- the chart shown demonstrates some pretty clear, long-lived divergences. Preferences for savings/store-of-value demand change over time, so gold's price relative to real goods and services changes over time as well. It tends to hold up over time in a very general sense while fiat tends to debase over time through explicit policy choice, but the notion that gold is somehow largely stable in its market price in an absolute sense is false. Fiat/credit money is more stable in the short term in an absolute sense, but it debases consistently as part of the stabilization mechanism and during recovery when stabilization mechanisms have failed and crises have occurred. Fundamentally, good money is naturally volatile, but people prefer an illusion of stability. All of that being said, the reasons for gold's inaccuracy are their own interesting rabbit hole that involve coordinated action by large financial institutions. It has been one of the most manipulated markets of the fiat era, and the manipulation schemes and subsequent unravelings are the likely cause of the divergences between gold's price and M0 or M2. As far as I can tell, the bulk of the manipulation has ended, so we appear to be in real price discovery territory at the moment.
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I just started Part III: Money and Banking of Mises' Theory of Money and Credit. The evolution from circulating bills of credit to checkable bank deposit accounts was well underway a century ago. I suspect as Hayek did that we will not get a good replacement for fiat money except by introducing something unstoppable in some sly, roundabout way, but I will go further and speculate that networks of correspondent credit between mutually trusted natural persons will be the way we get the state out of the business of ruining commerce through Cantillon effect parasitism.
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I really dislike when people quote JP Morgan's statement from over a hundred years ago as if it was some prophetic statement from God rather than a simple observation of the world around him. In the world as it exists today, there is no argument that "gold is money; everything else is credit" -- gold was explicitly demonetized in favor of credit money half a century ago and implicitly demonetized decades prior. The primary function of money is as a medium of exchange, not as a store of value (Ludwig von Mises, Theory of Money and Credit, 1912). Gold is objectively not money today except in rare circumstances.
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Just a quick clarification: when a bank creates a loan, they issue deposit liabilities against the loan. Those deposit liabilities are the bank credit money that goes into M2. The loan asset just stays on the bank's balance sheet, or in some cases might be sold to another financial institution. The somewhat amusing conclusion is that the bank creates fungible IOUs in exchange for nonfungible IOUs, and it controls the interest rate on both sides of the transaction.
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Who is buying Russian government bonds? I wonder if it is a potempkin market or a real one.
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@serheyyavotsky1246 I mean what are the structures that rely upon Russian bonds? Here in the US, long-dated Treasury bond demand has been largely from target date retirement funds, insurance companies, banks, and hedge funds, while T-bills are bought largely by money market funds/ETFs, high net-worth entities beyond the FDIC limits, and financial institutions who need collateral for various transactions.
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I haven't tried it yet, but it might make sense to annualize a moving average of month-over-month figures.
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@off6848 the short-sightedness against which critics of mainstream economics rightly rail is not limited merely to subtle effects on the forms of capital commonly subjected to monetary calculation (i.e. capital goods and human capital) -- there is a significant deficiency in calculating the costs or benefits to social capital and natural capital, and I suspect this is because people are so focused on monetary calculation that they cannot see beyond the extent of their ledgers.
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I really wish someone would ask the Fed mouthpieces if the Fed has any plans to recuperate their accumulated losses that now sit at over 5x their total capital. QE would probably help return them to profitability if they started purchases before dropping IOR and FFR.
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At this point, even though broad money is created by banks without regard to their reserve balances held at the Fed, one could make the argument that reserve balances contribute to inflation/debasement more than broad money because of the extreme financialization we have experienced in America. However, I still regard this with some suspicion. Reserve balances are not spent on eggs or gasoline; they could be used to clear/settle commodity transactions, but GSIBs can clear a lot of those transactions without resorting to shifting around reserve balances. Personally, I struggle to envision how the sort of transaction chains that would cause prices to rise would be prevented by IORB -- I think it is more a stealth bail-out for banks to buoy their balance sheets through accumulated NIM to offset the unrealized losses in their bond assets.
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A significant amount of the debt was accrued for military adventurism, and most of it was unpopular -- populism is largely a result of the debt burden created by military spending.
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The dotted red line was practically invisible on my screen; the higher contrast lines were much more apparent. I'm guessing that YouTube's video compression is not helping, but it could just be my screen.
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The Federal Reserve banking cartel has been a net negative for the American worker, but I doubt that partisan politics would be a better solution. I suspect the best way forward would be free market money and a prohibition of maturity transformation in bank credit creation. On the topic of consumer price changes from tariffs, they will only be inflationary if the price hikes are financed by consumer credit expansion and larger importer letters of credit. Otherwise, the result will be disinflation/deflation elsewhere in the economy as money flows are rerouted and reprioritized.
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@xmrmet stock market investments do not actually finance economic activity in practice these days. Most of the time, corporations borrow from bond holders to buy back their own shares; no additional production or employment results from this arrangement.
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FX is already pretty confusing. Layering paradoxical price action on top just makes it even more confusing. Iirc, I heard something about this being partially due to hedging costs eating away at the spread when previously foreign investors did not worry about FX hedging since the dollars was in a bull market. (Btw, ignore my earlier comment. I had seen the longer term chart, then looked away from the screen just before the chart changed and thought the description didn't make sense.)
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The Bitcoin deleveraging play might not work for very long going forward. Bitcoin price appreciation seems to fit a power law more closely than an exponential.
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Philosophically, I have to dosagree with the notion that SOFR is a "free market rate" simply because the use/threat of coercion prevents markets from being free. In this case, the threat is of state coercion to enforce debts. The second philosophical issue is in calling the interest rate the "value" or even the "price" of the dollar, since we know that interest rates rise during inflation (increase in supply of money) despite the real value of the currency demonstrably falling, which is precisely the opposite of normative supply-and-demand price action.
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Pretty good analysis. It has been a few years since the last time I did this kind of analysis -- my analytical focus recently has been the H.4.1 report from the Fed and the yield curve. The Fed had accumulated, realized losses in excess of 6 times their capital the last time I ran the numbers. However, there is one point of contention: the notion that gold is an accurate measure of inflation/debasement. Gold is a neutral reserve asset, but its utility for measuring debasement or inflation is typically limited to its direction generally -- it is not sufficiently accurate to use as a granular measure. As such, it is a worthwhile indicator, but it is often given undue significance. "Gold's value did not change" is a fundamentally inaccurate statement.
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10:50 Correction: if an offshore bank purchases a loan contract from a borrower, that bank issues new deposit liabilities in exchange for the loan agreement. Bank lending creates both liabilities and assets. A reduction in bank liabilities means a reduction in bank credit, not an extension. This was reported exactly backwards in this presentation.
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The "deferred asset" is counted with a negative liability. Most current (preliminary) H.4.1. report, table 1. Factors Affecting Reserve Balances of Depository Institutions (continued), line item "Other liabilities and capital": -181,865 (in millions of dollars). Table 5. Consolidated Statement of Condition of All Federal Reserve Banks (continued), line item "Other liabilities and accrued dividends": -227,131 (in millions of dollars). For comparison, the Total Capital in the same Table 5 is 45,553. So their realized losses are somewhere between 4x and 5x their total capital. They are bankrupt 3 or 4 times over according to their own numbers. The negative liability represents about a 3.4% impairment.
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I think that what many people fail to understand is that Bretton Woods was just an official recognition and pledge of official support of a global monetary order that had already emerged. The dollar was not imposed upon the market by bureaucrats and politicians -- the dollar was adopted by transactors, and then its status was recognized. Armed with a falsified interpretation of history with explicitly statist leanings, people then fantasize about how BRICS or some other group of statists will impose a new system. It will not happen, no matter how many times the BRICSheads annually announce their intention that they think they might want to contemplate working towards something. The replacement for the dollar will be whatever is adopted voluntarily by the market.
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One of my favorite philosophy essayists, Andrewism, recently published a video titled "It Is Time To Abolish Debt" about Debt: the First 5000 Years by David Graeber. I recommend giving it a listen sometime. The current systemic structure is not fit for purpose, and it is imperative that a viable alternative is discovered/created; the more people are contemplating it, the better chance we have of successfully navigating the inevitable unwind together and coming out the other side with a system that will benefit all instead of a system that benefits the few at the top at the expense of everyone else. (Graeber's book is on my to-read list after I finish Economics in One Lesson by Henry Hazlitt and Aion: Researches into the Phenomenology of the Self by Carl Jung, though I might get nerd sniped by The Theory of Money and Credit by Ludwig von Mises again and read another few hundred pages of it first.)
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Solid video, and it sounds like you have some very interesting videos in the works. One thing that I find fairly tricky is whether to use year-over-year numbers or annualized month-over-month/quarter-over-quarter numbers. The annualized figures tend to be a lot noisier, but using the yoy numbers could show the opposite movement of a shorter time frame, which is arguably a distortion. The question feels equal parts philosophical and analytical.
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