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Archive for August, 2011

Trade gift games for items on steam (beta)!  I know, you can’t trade used games.  Interestingly, this will create additional mild demand for games, adding value as a currency (and increased liquidity).

I wonder if that means some indie games will become common currencies.  Also, if I were feeling speculative, I’d open a fresh steam account, trade currency games into it, wait for their value to become inflated, and then sell the currency account on ebay to get a return on my investment.

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You can’t sit on millions and millions of additional unemployed people and not look like you’re helping them.  Eventually, they’ll decide they have nothing left to lose.

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Two articles off the Big Picture, both discussing the S&Ps downgrade (which, by the way, seriously?  You guys rated toxic waste CDS compiled from fraudulent RMBS AAA, which then proceeded to blow up the economy, and have the gall to rate the United States of America lower?).  This one and this one.  Both assert the US funds itself via taxation, which is equivalent to asserting a bank funds itself through reserves and is equally false.

Banks do not fund themselves through reserves, and governments (especially currency issuing governments) do not fund themselves through taxes.  Banks acquire reserves in order to shore up capital reuirements for liabilities already issued; governments tax for a similar reason.

This shouldn’t be that confusing, though I guess we’re all mostly still bogged down with the notion that you lend money to a bank which then lends it back out ad infinitum through “fractional reserve lending”.  What hogwash.  Why would any banker tether themself to such a system?  Think about that for a bit.  In the meantime, go read this guy.  While he’s more MMT and I lean to the Ciruitist reading (I find Circuitist systems to be more theoretically sound, and consider MMT to be a specific application which describes a more limited set of models than a Circuitist mode), he’s nevertheless incisive and refreshing.  And contrarian.  Always listen to your naysmiths.

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When markets tank, investors start looking to re-distribute their capital allocations…unloading high-risk and medium-risk  assets in favor of low-risk investments…because the risk premium just collapsed.

And just when that’s happening, the government is looking at reducing spending and therefore cutting into bond sales, reducing supply for one of the best risk-free options on the table.  That will will cut into yields, which will in turn cut into private investment cash flows.

And wouldn’t that reduce the floor under the risk premium?  I think so.  Gold, by the way, becomes a dangerous option when liquidity dries up in the face of demand.  As long as people are buying into gold in order to hold it, and doing so faster than the rate of supply, the price will continue to grow…but the volume of the actual gold market will decline.  As liquidity declines, price volatility tends to increase (because relative supply and demand compresses…this tends to increase the impacts of price shifts).  If this is driven by growing problems in other potential assets, as soon as those other assets stabilize, investors will exit gold.

That will undercut the price, potentially drastically.

Bear in mind that gold is a poor investment, generally, for a very simple reason: it offers no cash flow.  It is poor as capital.  I’m not saying don’t use it as an investment hedge; do that, please!  It is a way to hedge against outside factors impacting the value of currencies, for instance.  However, as a straight-up capital or financial investment, its fundamentals are poor in a healthy economy, as it produces no cash flow.

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Precisely

My thoughts exactly.

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I was skimming through this article on Naked Capitalism (yeah, yeah, lots of links from there), and I realized that the article refers to markets as…predators.  Then I noticed this is a common reference, that markets are thought of as a sort of parasite, sucking the capital from an area until it dies, and scurrying for cover.

Except markets don’t do that…market players do.  See, if there’s something for a part of the market to feed on, then another part of the market is offering that for sale.  And it says something that we consider the predators to be doing the right thing, while the prey, who the predators have by the balls, can get shellacked and it’s their fault.  They shouldn’t have played ball with the big boys.

But how, exactly, do you escape the Hobbesian state of a Global Market place (which by definition is rather inescapable)?  And what’s left when the hyenas have cracked the bones and suckled the marrow from even the meanest of suckers?

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