Typography

You may know by now that the final revision of U.S. first quarter GDP revealed a shocking 2.9% decline while its mirror image, gross domestic income (GDI), was off by 2.6%. As Scott Sumner has pointed out twice now , the huge decline in GDI is almost entirely due to a fall in corporate profits. Whereas employee compensation, the largest contributor to GDI, rose from $8.97 to $9.04 trillion between the fourth quarter of 2013 and the first quarter of 2014, corporate profits fell from $2.17 to $1.96 trillion (see blue line in the above chart) This incredible $198 billion loss represents a 36% annualized rate of decline! A number of commentators have pointed out the difficulty in squaring this data bloodbath with reality. After all, Wall Street has not been announcing 36% quarter on quarter profit declines. Rather, earnings per share growth has been pretty decent so far this year. If earnings were off by so much, then why are equity markets at record highs? Why have there been no layof...

The so-called corporate "roll up" lies at the conjunction of finance and monetary economics. For those monetary economists who aren't familiar with the term, a roll-up is a company that tries to consolidate an entire industry by serially acquiring competitors, usually using its own stock as currency. Valeant Pharmaceuticals, currently in the midst of a battle to take over botox-maker Allergan for $53 billion, is one of the more well-known roll-ups in the world of finance these days, having acquired around 75 companies in the specialty pharmaceutical niche over the last six years. But there have been many others over the years who have pursued the roll-up strategy. Plenty of analysts dislike the corporate roll-up. They criticize it for not creating value organically but merely accumulating other people's castaway businesses. Roll-up equity is generally viewed as ridiculously overvalued and destined to implode. Valeant, for instance, has been variously descr...

There's a fairly regular monetary phenomenon that needs a name. It's similar in nature to Gresham's law, yet the inverse version. Gresham's law is commonly stated as the phenomena by which "bad money drives out the good". But as any economist will tell you, that's not quite it. Bad money chases out the good, but only if authorities have chosen to enforce a fixed exchange rate between the two moneys. When the market ratio diverges from the fixed ratio, the undervalued money—the "good" one—will disappear from circulation while the overvalued money —the bad one—will become the exchange medium of choice. Bad money drives out good money because they pass by law at the same fixed price. That's the classic Gresham's law. However, it's possible to show how an authority can set a fixed price between two moneys yet rather than the bad coin chasing out the good, the opposite happens: the good coin chases out the bad. Before I show how, let'...

What causes a new currency to survive while others fail? Why do some cryptocoins never see the light of day while others enjoy successful launches? This post explores these questions by looking at the story of the Susan B. Anthony dollar, one of the great modern monetary failures. Canada came out with a $1 coin in 1987 that remains in circulation to this day. We affectionately refer to it as the loonie as it carries a picture of a loon swimming on its reverse side. (The obverse side of a coin is the one that usually carries a portrait, the reverse side is opposite to the obverse side). The U.S. came out with a $1 coin in 1979, popularly known as the Susan B. Anthony dollar due to the appearance of the social reformer's face on the obverse side of the coin. Oddly, to this day the Susan B. Anthony is nowhere in sight. Americans don't hold it in their wallets or purses, nor do retailers keep them in their tills for change. Why did one monetary experiment fail and the other succee...

This is a guest post by Mike Sproul . Mike's last guest post is here . Scott Sumner and I have argued about the backing theory of money (aka the real bills doctrine) quite a bit over the years, starting in 2009 and continuing to the present. ( link 1 , link 2 , link 3 , link 4 , …) Scott rejects the backing theory, while I favor it. I think that printing more money is not inflationary as long as the money is adequately backed, while Scott thinks that printing more money causes inflation even if it is adequately backed. Our discussions in the comments section of his Money Illusion blog extend well over 50 pages, so I’m going to try to condense those 50+ pages into two key points that cover the main arguments that Scott and I have had over the backing theory. (That’s John Law on the right. He was an early proponent of the real bills doctrine, oversaw a 60% increase in French industry in the space of two years, and was the architect of the western world’s first major hyperinflation an...