Sunday, April 7, 2013

"Where Did All the Money Go?"

Over at The Economist, the Buttonwood column explains the way the international banking system works, or doesn’t… as the case may be. Provoked by the recent problems in Cyprus, it's entitled: "Where Did All the Money Go?"

I think it worthwhile that everyone have a better grasp of what is going on in the real world, and, like or not, money is where it’s at.

It's well worth your time and attention.


Anonymous said...

By now I think we all know the money went into the ether. It certainly didn't go to any "shovel ready" projects. Speaking of which... why is Obama not held to account for his giggling about "shovel ready." I think that's disgraceful.

Mort Zuckerman's had it right all along, and there is just this dark, Atlas Shrugged feel to this economy. A lot of people have dropped out of the labor force. The most recent unemployment figure is a fiction.

I was watching Charlie Rose's interview with David Stockman from last week. Stockman was scathing in his assessment of Ben Bernanke. I found his view of the difference between Wall Street and Main Street financial priorities to be refreshing.

Maybe we need a job training program for economists who just make @#$% up.


Anonymous said...

My background is electrical engineering, intellectual property law, and studying growth stock dynamics in the tradition of William J. O'Neil. But I have been studying the structure and dynamics of the financial system since the crisis.

Obviously traditional "Chigago school" economists don't really know shit about the economy.

First, nonfinancial wealth is all the stuff that exists, and for each thing that exists, someone owns the stuff. This means money and financial wealth are not "stuff" but claims to stuff which involve cash flow expectations about the future.

The cash flow expectations are based on principle of contract and accounting formailized in property laws. The psychological dynamic of these codified property laws are what we call "the financial markets."

Capitalism, then, is private property (control over the stock of nonfinancial wealth) with finance (the means to gain control over nonfinancial wealth).

Financial instruments include money and investments, which society generates "from thin air." The stock of money and investments attempts to grow at compound rates of interest in perpetuity in a finite world with competition to control the stock of nonfinancial wealth between the rich class and the middle class, leaving a bit for the poor class. This is a system that blows itself up due to market psychology and for no other reason!

Economists do not study the financial system as a generator or destroyer of financial instruments, because that reality is too hard for their simple minds to fathom, instead they make up shit about free markets and equilibrium models, which just do not exist except during short interludes in the process of the generation or destruction of financial instruments.

When society wants to convert money to investments, the money goes around in a circle and we crate new investments as IOUs from thin air. When society wants to convert investments to money, the business model of banks and other financial intermediaries does not support this process, instead the price of nonfinancial and financial assets must go down, as society tries to sell down its big pile of IOUs and hold government debt which does not go down in price.

The problems are systemic and economists should be concerned about the type of government finance which creates full employment and low inflation instead of letting rich players on Wall Street or in bed with Washington game-the-system under a pretext of how the markets work which is false based on study of the aggregate psychology and the system features causing cycles of generation and destruction of financial instruments.

Finance is a "memory" in the economy and it is this collective memory which causes instability. The theory of "free markets" abstracts away from the financial memory in the aggregate system.

Sam L. said...

Paper, or theoretical, profits expected are not real...and they dissipate into the ether from which they were formed. Clouds form; sometimes we think we see shapes in them. Then they dissipate.

See: Eggs, and counting chickens before they hatch.