The Awesome Science of Chinonomics

Once upon a time there was this Republic called Quirkistan. It was ruled by a hyper intelligent elite, possessors of the most shiny and reputed tokens. These tokens vested in them utmost respect and reverence, as only the most brilliant, capable, responsible, and deserving Quirkistanis were issued them. The tokens were granted with great pomp and circumstance by velour-robed Sages in solemn ceremonies, after listening to liturgy imparted by an elevated Sage in an annual ritual of initiation so full of symbolism and self-congratulation that for many, of the recipients the initiation represented the single most important day of their lives.  How could they think otherwise? That token granted them access to the upper echelons of Quirkistan. Attaining one was akin to the assurance of a life full of opulence, comfort, and the absence of suffering. The institutions that issued them prided themselves in hand-picking their future tokenholders from the most brilliant, meritoc...

9/11 changed our way of life. It eroded our liberties. The Patriot Act made us slaves to a new reality in which we now gladly accept to be taken pictures that penetrate our clothes by the TSA with the sole objective of confirming we will not hijack our plane and slam it into a landmark. COVID19 will erode our liberties too. Just like 9/11 makes us willfully pose naked in exchange for the right to fly, COVID19 will eventually and make us gladly share our location to cross-reference it with healthcare databases to know if we've been exposed to infected people in exchange for the right to walk into a restaurant, a stadium or visit grandma at the nursing home. Just like life on the streets went on after 9/11 --it in a slightly different way-- life will go on on the streets after COVID19 --in a slightly  different way. The change in the world of economics will be more pronounced, though. The stock market represents the present value of the cash flows to equity, not...

The dollar. The intangible monetary construct concocted  in its paper form in 1861 to finance the civil war is arguably the United States' most precious asset. Its solidity is underpinned by an enviable  rule of law . It gives good ol' U.S. of A the blessing of perennially low interest rates (which elevates the standard of living of Americans to the tune of $100bn annually ), and the ability to throw in the trash can any resemblance of fiscal restrain. Why be frugal when normal market rules don't apply to you? After all, there is no such thing as a U.S. Treasury bond market " vigilante ." Not in the same way they exist  for any other --more normal-- sovereign bond markets, anyway. We live under a de facto Dollar Standard. Nations hoard greenbacks to bulk up reserves (save some very wacky exceptions ) to have dry powder to prop up (or push down , as recently seen) their currencies when they're under attack, or to buy imported goods. It is a very exorbitant p...

The king of Qatar recently resigned from his post. According to the people with knowledge of the politics of the region, his health was in a very weak state, rendering the effectiveness of his actions meager. He declined in favor of his 33 year old son, who according to people in touch with the politics of the region has a very pro-western stance. Much like the abdication of the Qatari royal, the markets recently witnessed the initial steps leading up to the abdication of our monetary dictator. His actions were increasingly perceived as ineffective . Each decree carried less and less weight. After our MIT-trained monetary autocrat came out with the latest decree --that the Fed will very likely begin to withdraw the cash injections into the economy-- the markets reacted , although not exactly in the way our beloved leader wished . The old status quo , whereby the movements in the financial world were a direct consequence of the latest ruling of the monetary dictator, was shattered...

"One more round of QE  please. The world economy needs it. I am feeling the withdrawal." That is the market's plea to our MIT-trained monetary Dictator . The market's starvation for the much-needed next QE fix seems to be creating a never-ending game. "The market needs more accommodating monetary policy. We can't allow deflation to set in", the rational goes. The terror of deflation drives Central Bankers around the world into competitive devaluations, pushing everybody else into a self-accelerating monetary easing race that precipitates a monetary flood of epic proportions. USD $2.3 trillion in the United States. GBP £375 billion  in Great Britain. EUR €1.0 trillion in Europe via the ECB's LTRO , just to name a few significant examples. Central Banks around the world are forcibly participating in a game of one-upmanship , the likes of which we have never seen . Central Banks Balance Sheet size has almost tripled in 6 years. Graph by James Bi...

If you found a penny on the ground, would you pick it up? Most people would not. In fact many believe they should be discontinued . They argue that pennies are not commonly accepted, that they are worth more for their metal content than for their monetary (fiat) value, that they are impractical to carry around, and that they are an inefficient store of value (breaking 2 out of 3 qualities money must have: medium of exchange, store of value and unit of account). In sum, the penny is a vestigial remnant of an era long gone that has no purpose anymore - much like the appendix or the wisdom teeth in the human body. Does this mean that pennies are really worthless? Fiat money is a very funny thing. It is worth something because we are told so by decree and because we expect (or believe) that someone else will also expect (or believe) it will be worth something when they take it from us in exchange for a good or a service. Enter the key word: "expectations". We hear often abou...