Sounds Good to Me

I'm not sure I agree about the $20 but yes, the main use of the $100 and $50 bills are illegal (tax evasion and illicit purchases/sales).  So drop them.  Of course if we're going to start changing up our money system we should also drop the $1 bill in favor of $1 coins and start minting $2 coins, drop the useless penny and really drop the almost as useless (and also money losing) nickel (note the only multiples of 5 cents that can't be made without a nickel are $0.05 and $0.15).

A part I thought was interesting that I would guess most people aren't aware of was when Rogoff said:

The tax evaders are at the upper part of the income distribution. Payment recipients, like cleaners, don’t owe taxes. And if they’re paid under the table, then when they reach retirement age and try to get their Social Security, there isn't any.

The general understanding of immigrants taking jobs, being paid under the table and not paying into the system is really a case of employers cheating the tax system.  Bringing undocumented immigrants out of the shadows, will help prevent this possibility.  I would guess that it would do a better job than abolishing the $100 and $50 would.

Incidentally after that statement the next back and forth was somewhat nonsensical (going from 2% to 4% inflation target would confuse people but negative interest is perfectly sensible?!?).  I think both issues would actually be solved by NGDP level targeting (say 5%) that doesn't have the inflation only "confusion" (which is really banker hysteria) or the goofiness of negative interest.

One Way: Bankruptcy

I'm not sure how the corporate law works in Germany for a VW bankruptcy and restructuring, but there's no reason to think that the world's nearly-largest automaker will cease to exist.

Capitalism Values

I feel like I'm the only person whose mind boggles that Apple is the highest valued company in the world (and by a huge margin). Apple is a gadget company.  They make toys.  They do innovate, but not really all that much when compared with the research done by companies in medical (incl. pharma) and energy markets.  At some level they don't even make their products, they just design them; a Chinese factory makes them, and Apple gets all the profit.

Their high valuation comes not because they make great products that enhance human welfare--everything they make is made by other companies, sometimes (often?) better, and almost always cheaper--but because their product market is massive (pretty much everyone on the globe), and they are able to sell those products with much higher profit margins than any of their competitors.  Buying an Apple product is like buying any luxury good: you spend a lot more money for something that isn't measurably better but that has the proper logo on it.  It's arguably worse since many luxury goods are measurably better than the non-luxury alternatives, whether that is nicer materials or better construction, or simply, somehow more (think houses or boats).

This isn't saying Apple is bad (it isn't) or people are stupid (we are but this isn't really a great example), but rather that capitalism values making money, and Apple is better at that than anyone else.

Most other large companies require huge capital investments to get going--oil companies need rigs, labs, land access, mineral rights..., pharma companies need lots of expensive laboratory equipment, as well as plants for scaling up.  Apple doesn't.

In most competitive markets the profit margins of products get driven down--Amazon's margins are sometimes negative.  Apple doesn't reduce its margins to gain advantage.

This should serve as a major indictment of capitalism (similar to the unhealthy profits and values of banks and other financial institutions).  I'm not sure why it doesn't, but I'm suspicious that the people most vocal about the "evils of capitalism" also happen to like and use Apple, and so can't see that the company that makes their computer is very representative of the problem.

It seems that if capitalism best served human welfare, then the largest companies would be the most welfare enhancing.  But the most welfare enhancing aspects of [most] societies are actually government run: health care, infrastructure (water, power, transportation), and social welfare programs (anti-poverty, unemployment, retirement) all contribute massively to increasing human welfare, but they are government operated precisely because they are not profitable enterprises which means capitalism wants nothing to do with them.

In reality it is neither capitalism nor socialism but some melding of the two that best serve society, but still, Apple's valuation is mind boggling.

10/28/2015 Update: Looks like Vox is following my blog.  Of course they come off more like fans than seeing this as an strange byproduct of the values of capitalism.

Seriously: Don't Use Brokers

Even before Wolf of Wall Street and now the Furman memo (first at Bloomberg but more fun read is Taibbi's). It was obvious to anyone who paid any attention that managed funds were a bad idea.  Tons of fees and most do worse than the market average (deducting fees even more are worse).  Yesterday's golden boy is tomorrow's goat--past success does not predict future success in finance.

Your best option is and has been to park your money in a couple low cost index funds (exchange traded or not) and then leave it there.  For balance split between total stocks and total bonds.  You can add REIT and international if you feel like it and the ratio of the split(s) should relate to your risk tolerance (more simply: to your age).  That's it.  Anyone who tells you differently is trying to take money from you and pocket it himself (well, maybe herself, but let's be honest: it's probably gonna be a dude).

Yes some people (and maybe you!) can get lucky and pick the right blend of stocks at the right times and make a killing: doing way better than the market.  But 00 may also come up on the roulette wheel, the dealer may not be sitting on 20 with that face card showing, and 7 could get rolled 3x in a row.  If you want to gamble, that's fine, and the stock market is as good a place to do it as any (and more respectable for some odd reason).  If you are just trying to save for retirement the best way possible, on the other hand, gambling isn't the wise choice.  You may hit the financial jackpot, but probably, you're going to be a lot poorer than you would be if you had just stuck with the simple, cheap option.

Helicopter Money

Simon Wren-Lewis has a good description of Helicopter money but I think he may be missing a couple things.

First is the perception of a "tax cut" vs. "free money".  At one level, if everyone gets $1000 it is the same either way.  If it is a tax cut, however, there is a perception that people who pay more in taxes are getting less out of the deal, and also, people who have little to no tax liability may receive nothing, and those are often the people most in need and most likely to spend.  Additionally, people seem to act differently about free money (read: they spend it) compared to earned money (which a tax cut is returning).

The second thing is the targeting/distribution aspect.  Tax cuts get money to all tax payers/filers.  Helicopter money can get money to everyone.  It could also target specific [debt] problems that may be holding back the economy (student loans, credit cards, mortgages).  True the latter is not exactly the same as helicopter money, but it isn't the same as the current QE strategy either, and everything else he said about it applies equally.

Personally the way I would like to see "helicopter money" distributed is via debt reduction to real people.  I am particularly fond of the fed buying and torching student loan debt, but I could also get behind credit card debt (which I don't really have) or mortgages, though with that last one I think I'd prefer a partial rather than complete buyout (up to maybe $50k per primary mortgage).

There is a lot of fear and uncertainty remaining in the US, and having lots of debt is a real issue for it.  People don't feel as free to spend money if they have these huge responsibilities hanging over them.  Even a fairly generous helicopter drop (via tax cut) isn't directly addressing the debt issue, and probably won't do enough to boost the economy.

Debt Itself Isn't an Evil

I think a lot of the austerity push is done by people who see debt and deficits as evils in and of themselves, so wile it's nice to see papers that point out how bad austerity is, I doubt they will be considered compelling to the people who push for austerity.

My confusion is really with the bizarre notion of debt as bad being held so broadly by people in finance who pretty much require debt to survive (where do you think bank profits [traditionally] come from?).  So many of these people actually believe in debt as a beneficial force in economies...just not from governments.  But that is the worst part of it.  If you had $1M and you wanted to loan that to someone to be paid back with interest you have a lot of options: banks, businesses, individuals, and governments.  Only one of those has a near zero probability of collapse: any of the first 3 could declare bankruptcy and you'd be out some or all of your investment.  The government...not so much, and frankly, if it does (particularly if it is your own/the US) then you probably have more to worry about than loss of your money, like reavers.  (Yes, a Firefly reference.)

Fuck You, Apple

Apple is really just the worst offender on this crap.  And they want a repatriation tax discount/holiday so that their behavior will go almost completely unpunished.  What we should do is state that US companies holding money overseas pay a 5% surtax on any profits not repatriated within 1 year, and no discounts for bringing it back.  Make it more expensive for them to keep their profits sheltered abroad.  Now this may mean more cooking the books to hide money, but at some point that becomes illegal and even if it isn't it would hurt share prices.

Inflation vs. Investments

As I was reading through this critique of Feldstein, I was once again struck by how clueless the "inflation is coming" nuts are.  It's not just that they are supposedly smart but keep being very wrong.  It is incongruous wrongness.

Just to note: if inflation is coming, then there isn't reason to fear what you think is a bubble (asset prices, stocks) other than, perhaps, bonds.  The reasoning is pretty simple: if we are about to have 10% inflation then expected price increases and cash flows will all be expected to go up pretty quickly.  This more than justifies higher prices today than you would expect otherwise.  If, on the other hand you think that things are very overvalued, then you are implicitly arguing that there is not going to be inflation (or, for that matter, much growth) over the coming few-several years. 

[Federal government] bonds are kind of a weird one, in that, while a high price may come down, the only way to lose value is to inflation.  This means that in order to justify any attempt to short them you have to have expectations of some serious inflation around the corner, but if that would really be the case, you should see many other asset classes as being at least as good if not better, and without the problematic shorting issues.

Also, too: hedge funds are really crappy places to put your money.  

Rubes

I still don't know why hedge funds are invested in by anyone.

Investing, whether for a huge pension fund or for an individual is really not hard: stock index fund (or 2 if some international is desired) for a fraction dependent on risk/reward--for pension funds, say 60%, for individuals start at 80-90% when younger and taper down to maybe 40-50% at retirement--and bond index fund for the rest.  Pension funds may also want to consider adding a broad REIT (all US, again, maybe a Global too), individuals may buy a house (though adding some REIT could be fine as well).

And that covers the vast majority of investors: people and companies saving for retirement [funds].  Anyone who wants to get more in depth, to try and beat the market, can, but even for them, hedge funds are a bad bet.  Those people should be doing their own research and picking individual investments.  Going to hedge funds to try and beat the market is a sucker's bet.

I'm Not Actually Against It

When I was talking about the boondoggle of private investment in public infrastructure I wasn't really clear that I was particularly against the banks and these other stupid schemes to skim more government money off to a handful of well connected individuals and businesses.

Private enterprise does, often and without problem, invest in public goods, including infrastructure.  The mechanism for this has been and should be bonds.  Those bonds can be targeted to a specific thing, and some dedicated revenue stream (taxes, tolls, ...) can be set up to be used only for payment on those bonds, but that is how "investment in infrastructure" has and should work.

Private Public Infrastructrure Boondoggle

I am also mystified by these "banks" but I'm even more perplexed by the entire notion of private investment in infrastructure. 

When the government builds infrastructure that is an investment because that infrastructure will contribute to higher GDP (increased/improved traffic or information tech leads to increased commerce and higher sales/incomes/business revenues) which results in greater tax revenues.  Private industry doesn't tax, however, so for them to build infrastructure as an investment they need to find some other way to extract money.  And because most private industry operates on much shorter time scales than the government, they need to do that fast, which generally means much larger rents than the market would support.

Imagine a road if it is funded by tax revenue then it is "free" to drive on, which means any business that wants to start up there has an advantage in that its employees and customers don't need to pay to get to them.  That is good, and it means that business is more likely to start there.  It may be 5 years before that business turns a profit and pays taxes (though it will likely pay employees which means some payroll/income taxes, but those may just be displaced from elsewhere).

Now imagine that same road funded by a company that wants to profit.  Either they are going to make it a toll road or there will be lots of parking fees, or they will charge any business/resident some fee for access points.  Any of those things will make starting a business (or building houses, or anything) on that road less desirable than the above, and so the build up would be even slower.  Slower buildup means that the company will need to charge more to see any return on its investment and we have a downward spiral.

This is a bad idea in every way imaginable, and yet it is one that is increasingly common as stupid, short sighted, or just rotten politicians try and make a quick buck at the expense of future revenues. 

Banks are for Suckers

Credit Unions vs. Banks is a lot like Exchange Traded vs. Mutual Funds.  All the advantages/benefits are on one side, yet most of the money is on the other. 

Related: I looked at Vanguard's compare/contrast between ETFs and mutuals...it seems that the "difference" is mostly the name (and which one your plan lets you get).

Finance is weird.  There is no reason for most fees/costs other than scamming/siphoning and other fraud, yet the vast majority of people (really, money) who participate do so via the worse options.  I don't get it.  Why would any sane person keep their paycheck at Chase when some local credit union is going to give them better rates and service?

Money and Happiness

A new paper comparing income to happiness, mostly as national GDP.

Wealthier countries having happier people makes sense: a wealthy country can afford to have a well fed, clothed, housed, and entertained populous. 

But at the same time the US serves as a counter example, and this also makes sense.  While GDP gains in many other advanced nations (e.g. most of Europe) have also lead to increases in social insurance (i.e. "welfare") programs, in the US the opposite has occurred.  We have had a big jump in GDP, but most programs for the poor have gotten less generous, and social security, medicare, and medicaid are constantly in danger of cuts by politicians [on the right...including Obama]. 

Our social safety net is getting weaker as our country has gotten wealthier.  That is a recipe for unhappy people, even when people in general have more money.  Someone making $30k/year who doesn't have to worry about losing health care, her house, and having problems getting food for her child is going to be more content than someone making twice as much that has to concern herself with those things.  Even someone making $100k a year in the US can quickly find herself in dire straits if she looses his job.  Mortgage/rent can eat through savings fast, and a single visit to the ER can be thousands of dollars (and COBRA is not cheap). 

Housing Recovery

On one side there are vast sums of money to be made in housing.  On the other the time scale is still too long for most investment types, particularly larger scale, so something like buying cheap houses, renting them for a few years, then selling them to realize huge capital gains is a really smart strategy.

I just don't think it will go as well as the bankers think.  If an individual wants to buy and manage 2 or three renal properties themselves, that can work (easier in some cities than others).  If a block of investors wants to buy and manage an apartment complex and/or a neighborhood worth of houses (well concentrated) then that can work.  But if a huge investment group wants to buy and manage dozens to hundreds of homes in disparate locations across the country?  That's a disaster waiting to happen.

The problem is location and distribution of profits.  One person can manage a small number of houses, provided all profits are going back to that one person.  An investment company, however, needs to be profitable while paying someone a salary to manage those houses.  This is normally done in rental markets with volume.  An apartment complex allows a small number of people to manage maybe hundreds of units.  Even accounting for empties this isn't too hard to manage a profit with. 

That same handful of people can't manage houses located hundreds of miles apart in different cites/states.  Also, you can't really cut back on management in such a way that 100 properties have the same total management costs.  So now the cost of management goes up by 10-fold, and it is that much harder to be profitable.  It isn't impossible, and come sale time, could still result in lots of money, but to manage the properties in the meantime probably means an operating loss for the investment company.

"Franchising" out the rental properties may be a solution to prevent/minimize losses without sacrificing management of properties (individuals bid on managing properties and get to take all the income from said properties over a 5 year period...think you can manage an average profit $700/month over 5 years, maybe you'll pay $12k upfront to do so).  This doesn't really do much for upfront investors, however, and so it seems very likely that poor to non-existent management will happen in many cases (I'm pretty sure that tenants being treated horribly is Atrios's fear here).

Revolving Credit Mystery (to me)

I'm sure someone knows, but if someone routinely charges $1500/month on his credit card and pays it off entirely each month, does that count as debt and savings?  I'm sure it all works out in the wash, but I am curious nevertheless.  If someone else charges $500 a month and pays it all off does she somehow get noted as saving* less since she is paying off less "debt" each month?

I guess I really want to know about how the balances work.  I'll be charging more this month than next, but because of that I will pay off more next month than this.  Because the charging and the payment are in different months, do I get noted as running net savings/debt in given months based on that.  If I were to increase spending each month by 0.5% would that show as me constantly increasing my debt load even though I am paying it off every month? 

Also, would I know the answers if I actually read the whole report?

*paying off debt counts as savings

The Restaurant Business is Brutal

There is a shuttered restaurant in the train station by my house.  Great location, had a bar, pretty good food, apparently popular for watching Phillies games.  Should be a slam dunk, but it wasn't.  It closed withing 3 months of my moving in and has been shut for something like 3 years now.  It is [still] for sale and the price just came down, but looking at the price and the setup, I'm not sure the restaurant could possibly do well enough. 

They are asking $700k, and that does not include the building (which leases for a "favorable" $3500/mo for at least the first couple years...the building had a published lease price of $6k/mo).  This means that the business needs to turn nearly $150k/year in profit (not including any salary the owner would need if working there as well).  Restaurant margins, particularly at startup are notoriously small, and a 5% profit margin would require $3 million per year in sales/revenue (or a bit over $8k/day).

Being kind about the lease and not taking that out of profit means only ~$100k profit per year, but adds the lease to the operating expenses cutting the margin by 1-2% and leaving the business in about the same position.  Really well managed/operated could bring margins up to maybe 12%, and then things are getting close.

But even those numbers assume that the $700k is good to go. In reality, there will be lots more upfront costs from cleaning and setup, to training new staff to advertising.  

Restaurants require lots of work, and good management.  I'd love to see this place succeed,and it could, but it will require someone capable and willing.

A-yup.

Even when HAMP was announced it didn't seem that great a thing.  As time went on it was pretty obvious that about the only folks who could possibly benefit were bankers.  Li'l Timmy is, by most accounts, a pretty smart guy, and he is certainly a very pro-financial institutions kind of guy, so that this program was deliberately designed to help the banks and not homeowners isn't really surprising to me.  That there is some form of evidence regarding this that is only now being brought to light is...well, not really surprising either. 

Debt is Hurting the Economy...

...Just not the way Republicans (and Germans) think.

In the US, the economy really sucks if you are un-/under- employed.  But there are still a lot of people who have jobs--even good ones--and they could provide a much needed boost if it wasn't for personal debt.

Young people buy lots of things.  We are just starting out, and need all sorts of things that we didn't have/couldn't afford in school: houses, cars, furniture, families, pets, vacation.  These all cost money, which helps the economy.  But now we are saddles with lots of debt--mostly student loan--so instead of getting/doing all these nice things with our new jobs, we are paying off debt.  In the 4 years since I started at my job I have paid off roughly $50,000 worth of debt that was accrued in some form or another while at school.

A more detailed breakdown:
~$22k on credit cards, of which about half was medical and moving expenses.
~$28k on student loans

I also paid off my car and some of my house, but I bought both of those since I started work. 

Of course it's worse than those numbers.  Interest means that closer to $70k was spent on debt reduction over that time frame.  That is $70k that couldn't help boost the economy at all.  Now if I had been debt free, a decent fraction of that would have ended up in savings/retirement accounts, to be sure, but a pretty good fraction would have gone for/would be going for house projects/rennovations, durable goods like furniture, toys like a road bicycle, probably more clothes/shoes (lots of holes in some of mine), ...

I still have student loans to go, so this is continuing, and I'm just one person.

If we handled education properly in this country, the debt levels would be dramatically lower for young people who have the most spending to do.  Managing health care properly would further reduce debt levels, especially for those who can't afford insurance but still manage to get hurt/sick.  This is excluding the immense good that could be done by properly handling the banks/housing mess.

Debt is hurting our economy badly, just not federal debt.  And more of the latter could fix the former.

Apparently, the purpose is to be an ass...

The fact that this obscenely wealthy person defending the obscenely wealthy is so very wrong pretty early on is reason enough to discount any argument he subsequently makes: 

Google’s contribution is obvious. What about investment banks, with their complicated financial derivatives and overleveraged balance sheets? Conard argues that they make the economy more efficient, too. The financial crisis, he writes, was not the result of corrupt bankers selling dodgy financial products. It was a simple, old-fashioned run on the banks, which, he says, were just doing their job. 

Really.  He argued that, thus demonstrating a complete lack of understanding of his own fucking industry.  Could any rational person believe that this guy is capable of positive contributions to society? In multiplier talk, I would argue that his wealth likely has less than a 1x multiplier, meaning he would produce more economic benefit if all his money were redistributed to people with a clue...or at least people who need to buy milk. I don't doubt that there are wealthy investors who have wealth multipliers >1, and in some cases maybe >>1, but this idiot isn't one of them. 

That said, let's assume that his multiplier is > 1.  If such a terribly stupid person, just by virtue of having wealth, had a multiplier or > 1, then there is nothing inherent to the wealthy that justifies any individual having such wealth other than the wealth itself.  It's a circular argument.  And it follows that if the only economic benefit that wealthy provide is simply having wealth, then there is a strong social good that could be done by having wealthy people not be assholes, and probably not be idiots as well.

If The Gubment Was Really a Business...

Then it would pretty much never enter into agreements like this. Just a quick question to any(republican) who thinks that a government leasing rights to any funding source is ever a good idea: If a private investor is willing to pay for it, don't you think that, maybe, the government has a better source of revenue than whatever pile of cash they could get for it? I was living there when this happened, and it seemed really, really dumb even then. I couldn't imagine how anyone could think that $500M was worth giving up 99 years (!) of revenue. Further, it seemed to me that the investors would wan to maximize their revenue, and so would increase rates. Guess what happened?

You really don't have to be very smart to realize that any lease that a private investor is going to go for will mean less money for the city/state/federal government. Also, it means that the citizens get screwed, particularly in the future, when the great, great grandchildren of the current politicians are paying fees that go straight to some private investor's bottom line. Stupid and evil, but mostly stupid.