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an t solve problems that way we mustn t solve problems that way take a step back and consider the possibility that our problems are self created we have too little competition too much dominance by single companies maybe such common problems are the result of existing policy an unintended consequence so to speak the business tax structure favors bigness the more you can spend the more you can avoid tax that s the driving force behind merger and acquisition kevin drum brings up the returns to scale i read a kiplinger letter decades back where they wondered why agribusiness grows beyond its economies of scale it s not only agribusiness that grows beyond economies of scale it s business in general and it s the business tax system favoring bigness that drives it posted by the arthurian at 4 00 am 0 comments wednesday march 16 2016 presidential politics in 1932 by william e leuchtenburg at the democratic national convention late in june the anti roosevelt coalition came within an ace of success roosevelt took a decided lead on the first ballot with 666¼ votes to smith s 201¾ garner s 90¼ and scattered support for favorite sons yet he was still more than a hundred votes short of the needed two thirds when the convention recessed after the third ballot the roosevelt leaders had a margin of only a few hours in which to try to save the day late that afternoon when the fourth roll call reached california the rangy straight backed william mcadoo strode to the platform california he announced had come to chicago not to deadlock a convention but to nominate a president quickly the meaning of his words became clear california had abandoned garner and was casting its forty four votes for roosevelt with the switch of california it was all over the other states all save the diehard smith forces climbed on the band wagon and within minutes franklin roosevelt had been named as the democratic nominee upsetting all precedents roosevelt flew to chicago in a tri motored plane that was buffeted by squalls and twice had to land to refuel to deliver the first acceptance speech ever made to a nominating convention the democratic convention displayed little more interest than the republican in the crucial problems of the depression roosevelt s platform drafted at the governor s request by a mitchell palmer was a conservative document senator key pittman protested the platform has the merit of being short and the demerit of being cold there is not a word in it with regard to the forgotten man at both conventions the delegates showed far more concern over prohibition than over unemployment here we are wrote john dewey in the midst of the greatest crisis since the civil war and the only thing the two national parties seem to want to debate is booze while the platform aroused little enthusiasm the nominee kindled little more roosevelt s campaign did little to reassure critics who thought him a vacillating politician his speeches sounded painfully discordant themes yet all this was as nothing compared to his oscillations on fiscal policy he would increase aid to the unemployed but he would slash federal spending on this one point he was specific he would cut government spending 25 per cent at sioux city iowa in september governor roosevelt stated i accuse the present administration of being the greatest spending administration in peace times in all our history it is an administration that has piled bureau on bureau commission on commission and has failed to anticipate the dire needs and the reduced earning power of the people in pittsburgh the next month he declared i regard reduction in federal spending as one of the most important issues of this campaign in my opinion it is the most direct and effective contribution that government can make to business one of his new deal administrators reflected subsequently given later developments the campaign speeches often read like a giant misprint in which roosevelt and hoover speak each other s lines leuchtenburg william e franklin d roosevelt and the new deal 1932 1940 new york harper row 1963 from chapter 1 for the record this is what franklin roosevelt actually did total public and private debt relative to the money available to pay down debt posted by the arthurian at 4 00 am 1 comments tuesday march 15 2016 velocity and interest rates move together okay i slept on it oilfield trash commented on my previous post the 3 month treasury bill yield as a function of liquidity preference i exp 4 27 45 5 m py where m monetary base and py is nominal gpd you get a pretty good fit he says i drew it up graph 1 the interest rate blue and the result of calculation red you get a pretty good fit the blue line is the 3 month treasury bill secondary market rate the red line is calculated using some carefully chosen constants along with the st louis adjusted monetary base and a measure of gdp i used annual data from fred i showed the economic data the m py from the calculation in light gray using the right side vertical scale it moves in the opposite direction from the calculated red line has to do with m py being subtracted in the calculation if we were adding it i expect the red line would move in the same direction as the gray rather than opposite looking at the red and blue lines the first thing i noticed was that on the uphill from 1934 to 1981 the red line tends to run low on the blue on the downhill after 1981 the red tends to run high on the blue at first i thought that might be a fluke result of the calculation but i don t see how that can be because the red line comes from base money and gdp and a couple constants and nothing else there are no flukes in the calculation looking at the graph again now it occurs to me that on the way up the fed was fighting inflation all the while on and off but all the while so then the red runs relatively low on the uphill because the fed kept pushing interest rates up to fight inflation on the downhill side then it looks like the fed kept trying to boost growth by repeatedly reducing interest rates and the red runs relatively high as a result or maybe it wasn t even the fed doing it maybe it was the result of the mass of economic decisions made by you know people participating in economic activity some people say the fed follows the market the red line is a lot less wiggly than the blue the wiggles show the pattern of business cycles draped over the longer term path established by the m py ratio as of course you know the m of m py is money p is the price level and y is real output together those three variables constitute three quarters of the equation of exchange mv py what s missing is v velocity if you take the equation of exchange and divide both sides by m you get v py m invert both sides and you get 1 v m py wait a minute now m py is part of the calculation the calculation from oilfield trash says that the interest rate is equal to the exponent of one number minus another number times m py but m py is equal to 1 v so the calculation says that the interest rate is equal to one number minus another number divided by the velocity of money so there is a relation between the interest rate and the velocity of money why would that be it s pretty easy to say things that are more common are cheaper things that are less common are more expensive when money is moving fast when velocity is high does money seem more common or less common what does the graph say the gray line m py is the same as 1 v in recent years for example the line goes up like crazy because of all the qe money became more common relative to gdp and the interest rate went down but that s 1 v what about v itself when 1 v goes up like in the recent years v goes down v goes down and interest rates go down so velocity and interest rates move together velocity and interest rates move together perhaps because things that are more common are cheaper and things that are less common are more expensive it seems to work but you know what i shouldn t have asked i shouldn t have asked why the fact is velocity and interest rates move together that s the fact it will probably help me to remember that fact thinking things that are more common are cheaper but i don t know if that s the reason it s only a theory the fact is velocity and interest rates move together base velocity anyway see also http www hussmanfunds com wmc wmc110124 htm posted by the arthurian at 6 17 am 4 comments monday march 14 2016 insights from an interest rate simulation interest rate and simulation george lucas might not agree but if you want to design economic policy you need to create a simulation of the economy in a spreadsheet your simulation needn t exactly duplicate each twist and turn of every real world variable but it has to be a decent facsimile and the calculations that produce the numbers for your sim have to be based on real world economic forces otherwise it s not a simulation it s a fantasy robert lucas i mean in that noahpinion post i was railing about the other day noah links to the leverage cycle pdf 58 pages by john geanakoplos i ve come across geanakoplos before i like his thinking i checked out noah s link this detail from the pdf stuck in my head in standard economic theory the equilibrium of supply and demand determines the interest rate on loans that makes sense i thought it was more complicated now i want to look at it maybe i can come up with a calculation of real world factors that give me numbers i can use to simulate an interest rate for the simulation i ve been wanting to create since jimmy carter was president no rush design i did the following graphs and worked out the calculations already once this morning taking notes i ll do it all again now hopefully a little more organized and presentable to simulate the interest rate i want to base my calculation on the years before inflation became a problem so when i design the calc i won t look at data after 1965 i wanted to start right after world war two but some of the data doesn t start until the end of 1951 that s okay it s good actually because it gets me past the fed treasury accord i want to ignore the recessions and the changes in policy intended to create or to recover from recessions i think that will give me a smoother simulated path of interest rates i can already imagine that rates go up due to the demand for loans until rising rates cause recession and then falling rates allow the decline in borrowing to bottom out and then increase again i don t need to complicate the sim calc with all of that not yet at least similarly i want to ignore inflation solved a lot of that problem just by stopping at 1965 and then i want to look at consumer debt changes in consumer debt as a measure of the demand for new credit existing debt is the measure of demand for total credit in use i m thinking interest rates pretty much move in sync for consumers and for everybody else and i have data i can use for consumers and this is a first effort i can revise the thing later if i get bigger ideas so i ve got the price of credit the interest rate and i ve got the demand for credit consumer debt and i ve got nothing for the supply of credit that s okay i m assuming the supply is constant or growing at a constant rate that s what i get by ignoring policy responses to inflation and recession and come to think of it ignoring such unusual moments is probably what john geanakoplos meant by the equilibrium of supply and demand if i have success simulating the interest rate while ignoring supply i can still try to improve it later by looking at supply so that s the plan development for an interest rate i figured i d use the federal funds rate but at fred the fedfunds rate only goes back to 1954 so i got the 3 month treasury bill secondary market rate instead that goes back to 1934 and runs real close to fedfunds since 54 should be good here s what i m thinking graph 1 the price of credit the interest rate something like that the red line shows the general area i m looking at to design my calculation and the general shape i expect to get from my calculated numbers it would be nice though when i extend the red line all the way to the end if it follows the actual interest rate better than the red line here that will be my test i figure a sim interest rate based on the years 1952 to 1965 then using that calculation i extend the line out all the way to 2016 if my sim line goes crazy i wasted my time figuring and you wasted your time reading unless you re just here for the laughs but if my simulated interest rate seems to follow the actual interest rate then i ll be happy with my calculation and i ll be one step closer to actually creating a simulation of the economy on a spreadsheet i know other people have probably done that already no problem i get satisfaction from trying to do it and more satisfaction if i succeed so that s the interest rate the price of credit i looked next at the demand component consumer debt for now i m taking supply as given remember first the quarterly change in consumer debt graph 2 quarterly change in consumer debt i m showing demand in red in these graphs by the way i rejected graph 2 at a glance it shows instability in the last three years of the 1960s to my eye but doesn t show increase until the 1970s by contrast the price of credit graph 1 shows increase right from the start from 1950 persistent increase graph 2 does not show the growth of demand for credit that would be needed to generate the increase visible on graph 1 i changed graph 2 to show the quarterly change as a percent of gdp that made it worse higher in the mid 1950s than the mid 1960s it should have been low early and high later and the downslope from 1964 to 1967 was more sharply down down just when inflation was picking up it was exactly wrong i thought i need to multiply it by something that shows increase i knew immediately then what to bring in to the calculation accumulated consumer debt relative to gdp i revised the calculation and put it on the same graph with the interest rate from graph 1 graph 3 the interest rate blue and my calculation red oh the red line shrunk down to make room for the blue line that s always a surprise but it s easy to fix i just multiplied the calculation by 7 to scale the red line up so i could compare it by eye to the blue graph 4 my calculation red sized to fit the interest rate hey i think i got something there pretty good simulation up to 1965 there are some wiggles where the lines differ but the red line starts out a good match to the blue and it s a good match from 1960 to 1965 give or take and that is what i was going for to design the calculation based on the years before inflation became a problem the years before 1965 the goal was to get satisfactory results from my calculation for the period before 1965 the sim does appear to fall apart by 1965 i think what i m seeing is the blue line rising with inflation and the red line not but remember i said that i m ignori...
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