Typography

This post is about the Alberta Prosperity Certificate , one of the world's stranger monetary experiments. Issued in late 1936 and early 1937 by the newly-elected Alberta government, these monetary instruments are the largest-scale example of Silvio Gesell's "shrinking money," or stamp scrip, in action. Gesell, a German business man and self taught economist, had written a treatise in 1891 in which he described a currency that depreciated in value, thus preventing hoarding and encouraging spending. To make this more interesting, let's jump forward in time. In 2014, Greece's Finance Minister Yanis Varoufakis wrote a blog post that described a new Greek financial instrument that could be used to make payments while circulating in parallel with the already-existing euro. Varoufakis's post, combined with constant rumors that Greece may be planning to issue its own parallel currency in order to make internal payments,* means that a revisitation of Alberta...

The FT makes a hullabaloo out of Greece using special drawing rights (SDR) to pay the IMF earlier this week, referring to the step as "unusual." Zero Hedge predictably  grabs the baton and runs as far as it can go with the story. It's a good opportunity to revisit the SDR, a topic I last wrote about back in 2013. The FT claims that the payment of SDRs to the IMF is "the equivalent of taking out a low-interest loan from the fund to pay off another." Here the FT has committed cardinal error #1 when it comes to understanding how SDRs work—SDRs are not lent out by the IMF. I like to think of the SDR mechanism as comprised of 188 lines of credit issued to each of the IMF's 188 members. These lines of credit are denominated in SDR and apportioned according to each countries' relative economic size. Any line of credit needs a creditor. In the case of SDRs, who fills this role? Why, the 188 members of the IMF do. The SDR system is a mutual credit system, or...

Measuring liquidity is a pain in the ass. The value of a good, say an apple, is easy to calculate; just look at the market price for apples. Unfortunately, doing the same for liquidity is much more difficult because liquidity lacks its own unique marketplace. Liquidity is like a remora , it never exists on its own, choosing instead to attach itself to another good or asset. For instance, a bond provides an investor with both an investment return in the form of interest and a consumption return in the form of a flow of liquidity services. Since the price of this combined Frankenstein reflects the value that an investor attributes to both returns, we can't easily disentangle the value of the one from the other. Here's a symmetrical (and equally valid) way to think about this. If liquidity is a good then illiquidity is a bad , where a bad is anything with negative value to a consumer. This bad doesn't exist on its own but, like a virus, infects other goods and assets. While a...

It would be wrong to blame the economics blogosphere's failure to foresee the 2008 credit crisis on complacency. Better to say that bloggers were distracted. Instead of sifting through sub-prime and CDO data, they were grappling with an entirely different threat, the impending Wile E. Coyote moment in the U.S. dollar. The perpetual racking-up of ever larger debts by the U.S. to the rest of the world for the sake of funding current consumption, and the eventual dollar collapse that this implied, was believed to be tripping point numero uno at the time. Look no further than Paul Krugman, who in September 2007 (in just his fourth blog post) had this to say: The argument I and others have made is that the U.S. trade deficit is, fundamentally, not sustainable in the long run, which means that sooner or later the dollar has to decline a lot. But international investors have been buying U.S. bonds at real interest rates barely higher than those offered in euros or yen — in effect, the...