Globally Famous Biographies

The Pantheon project at the MIT Media Lab provides a database of humanity’s who is who. The geographic distribution of world renown philosophers: Pantheon map. And of scientists: Pantheon map. Country of birth vs. cultural domain: Pantheon matrix.

The top ten people: Aristotle, Plato, Jesus Christ, Socrates, Alexander the Great, Leonardo da Vinci, Confucius, Julius Caesar, Homer, Pythagoras.

Mathias Binswanger’s “Money Out of Nothing”

In his recent book Geld aus dem Nichts (Money out of Nothing), Mathias Binswanger discusses the role of banks in creating money, and money’s role in affecting the macro economy. The book is written for a non specialist audience and the arguments are often quite loose.

In the first part of the book, Binswanger describes how money mostly is created by commercial rather than central banks.

Part II provides a nice historical overview. Binswanger describes the origins of modern banking with goldsmiths first storing gold for their merchant clients, then lending some of the stored gold to third parties, and finally issuing more “receipts” than what corresponds to the gold deposits they actually accepted. From there, he argues, it was a small step to state licensed national banks like the Bank of England. On p. 120 Binswanger describes how minimum reserve requirements got out of fashion, not least because they suffered from circumvention when they were binding.

Part III lacks precision and is misguided (see also pp. 30 or 66). It covers the link between money creation and growth but confuses national accounting concepts and their relation to money and credit. Clearly, growth can occur without credit (think of an economy with just one agent to see this most directly) but Binswanger seems to dispute this point, in line with earlier writings by his father. A “model” on p. 144 does not help to clarify his views because it is orthogonal to the argument. Binswanger criticizes mainstream economics for refusing to accept the presence of long-run links between money and growth but this critique remains vain. Part IV deals with money creation and its effect on financial markets.

Part V, on reform, is sensible. Binswanger rejects proposals to move (back) to the gold standard or a 100%-money regime (or, essentially equivalent, “positive money”). His arguments against the Swiss “Vollgeld” initiative resonate with points I made here and elsewhere, including the point that it would be difficult to enforce a “Vollgeld” regime (see also p. 122). Binswanger criticizes the “Vollgeld” initiative’s vagueness concerning actual implementation of monetary policy. He ends with more limited, rather standard proposals (relating to regulation, monetary policy objectives and capital requirements) to address problems in financial markets.

Central Bank Reserves: Debt vs. Equity

In jusletter.ch, Corinne Zellweger-Gutknecht argues that the legal status of central bank reserves is more equity- than debt-like—at least as far as the Swiss National Bank (SNB) is concerned. According to Zellweger-Gutknecht, reserves constitute debt only if the SNB is legally obliged to redeem them in exchange for central bank assets.

If the SNB purchases dollars against Swiss Francs in an open market operation, it creates reserves which are equity-like. But if it acquires dollars against Swiss Francs and is committed to engage in a reverse transaction in the future (a swap), then it (temporarily) creates reserves which are debt-like.

Freedom of Expression at Universities

Over a year ago, the University of Chicago published a Report of the Committee on Freedom of Expression that reflected on the debates on the UoC campus (and elsewhere) over permissible speech. These are the Report’s three core paragraphs:

Of course, the ideas of different members of the University community will often and quite naturally conflict. But it is not the proper role of the University to attempt to shield individuals from ideas and opinions they find unwelcome, disagreeable, or even deeply offensive. Although the University greatly values civility, and although all members of the University community share in the responsibility for maintaining a climate of mutual respect, concerns about civility and mutual respect can never be used as a justification for closing off discussion of ideas, however offensive or disagreeable those ideas may be to some members of our community.

The freedom to debate and discuss the merits of competing ideas does not, of course, mean that individuals may say whatever they wish, wherever they wish. The University may restrict expression that violates the law, that falsely defames a specific individual, that constitutes a genuine threat or harassment, that unjustifiably invades substantial privacy or confidentiality interests, or that is otherwise directly incompatible with the functioning of the University. In addition, the University may reasonably regulate the time, place, and manner of expression to ensure that it does not disrupt the ordinary activities of the University. But these are narrow exceptions to the general principle of freedom of expression, and it is vitally important that these exceptions never be used in a manner that is inconsistent with the University’s commitment to a completely free and open discussion of ideas.

In a word, the University’s fundamental commitment is to the principle that debate or deliberation may not be suppressed because the ideas put forth are thought by some or even by most members of the University community to be offensive, unwise, immoral, or wrong-headed. It is for the individual members of the University community, not for the University as an institution, to make those judgments for themselves, and to act on those judgments not by seeking to suppress speech, but by openly and vigorously contesting the ideas that they oppose. Indeed, fostering the ability of members of the University community to engage in such debate and deliberation in an effective and responsible manner is an essential part of the University’s educational mission.

Goethe’s Genius

In the New Yorker, Adam Kirsch explains Johann Wolfgang von Goethe.

His genius. Some of his work, including “The Sorrows of Young Werther,” “Wilhelm Meister’s Apprenticeship,” or “Faust.” Goethe’s scientific endeavors and sense of holism. His fascination with Bildung—the “apprenticeship to life and society” with the aim to learn “who he really is and how he should live.”

[The] combination of earnestness and jovial detachment is what characterizes the mature Goethe, and what makes him unique; no other writer gives us the same sense that he has both seen life and seen through it.

Report on the Irish Banking Crisis (And the ECB’s Role)

In the Irish Times, Colin Gleeson summarizes the findings and recommendations of the main Report of the Oireachtas Banking Inquiry. They are:

  • Incentives were distorted.
  • Banks and the property sector ran out of control.
  • Regulators were too optimistic.
  • “IMF favoured imposing losses on senior bond holders in October/November 2010.”
  • “No Troika programme agreed in November 2010 if Government burned senior bond holders.”
  • “ECB position contributed to inappropriate placing of significant banking debts on Irish citizens.”

The European Commission’s Crisis Management

The European Court of Auditors’ special report “Financial assistance provided to countries in difficulties” criticizes the European Commission’s crisis management and suggests the following:

  • The Commission should establish an institution-wide framework allowing the rapid mobilization of the Commission’s staff and expertise if a financial assistance programme emerges. The Commission should also develop procedures in the context of the ‘two-pack’ regulations.
  • The forecasting process should be subject to more systematic quality control.
  • To ensure the factors underlying programme decisions are internally transparent, the Commission should enhance record-keeping and pay attention to it during quality reviews.
  • The Commission should ensure that proper procedures are in place for the quality review of programme management and of the content of programme documents.
  • For budget monitoring purposes, the Commission should include, in memoranda of understanding, variables that it can collect with short time lags.
  • The Commission should distinguish conditions by importance and target the truly important reforms.
  • For any future programmes, the Commission should attempt to formalize interinstitutional cooperation with other programme partners.
  • The debt management process should be more transparent.
  • The Commission should further analyse the key aspects of the countries’ adjustment.

Argentina’s Debt Negotiations

In the FT, Chris Giles, Gillian Tett, Elaine Moore and Benedict Mander report about the negotiations between Argentina and the country’s creditors that are about to start, now that the new government has taken office.

Argentina’s finance minister has announced that the country intends to honor the face value of outstanding debt but wishes to negotiate interest payments.

As a sign of support from the international community, Jack Lew, Treasury secretary, announced that the US had ended its formal opposition to the World Bank and other multilateral development banks’ lending to Argentina.

Observers expect that the IMF will soon be involved to provide technical assistance.

In an FT blog, Charles Blitzer argues that successful negotiations should start with a non-disclosure agreement. He links to the Institute of International Finance‘s Principles for Stable Capital Flows and Fair Debt Restructuring.

“Neue Geldpolitik, alte Optionen (New Monetary Policies, Old Policy Options),” FuW, 2016

Finanz und Wirtschaft, January 20, 2016. PDF. Ökonomenstimme, January 21, 2016. HTML.

The public’s perception of central banks has changed during the crisis—and has created expectations that cannot be met. Beyond the buzzwords, the fundamental options for monetary policy makers are the same as always.

Stable Inflation Expectations

In an Atlanta Fed blog post, Nikolay Gospodinov, Paula Tkac, and Bin We explain research suggesting that inflation expectations are stable, in spite of the rather dramatic drop in five-year/five-year forward TIPS breakeven inflation. They conclude:

To summarize, our analysis suggests that (1) long-run inflation expectations remain stable and anchored, (2) the seemingly large correlation of market-implied inflation compensation with oil prices arises mainly from the dynamics of the TIPS liquidity premium, and (3) long-run market- and survey-based inflation expectations are remarkably close in terms of level and dynamics over time.

Accounting for Leasing

In the FT, Kate Burgess, Harriet Agnew and Scheherazade Daneshkhu report about new accounting rules according to which companies will have to report leasing commitments as debt (and the leased assets as on-balance-sheet assets).

A new financial reporting standard — the culmination of decades of debate over “off-balance sheet” financing — will affect more than one in two public companies globally.

Retail, airline and hotel companies are expected to be affected most strongly.

“Fiscal and Monetary Policies,” Bern, Spring 2016

MA course at the University of Bern.

The classes follow section 5 in these notes and build on the material covered in section 2. Uni Bern’s official course page.

Main contents of lectures:

  1. Concepts. RA model with government spending and taxes.
  2. RA model: Equilibrium with lump sum or distorting taxes.
  3. Government debt in RA model.
  4. Government debt and social security in OLG model.
  5. Consolidated government budget constraint [2 lectures].
  6. Neutrality results in CIA model.
  7. Game of chicken. FTPL. Active and passive policies.
  8. Tax smoothing (Barro 1979).
  9. Tax smoothing (Lucas and Stokey 1983) [2 lectures].
  10. Time consistent tax policy (Lucas and Stokey 1983).
  11. Time consistent debt policy: Sovereign debt.
  12. Time consistent monetary policy (Barro and Gordon 1983) [time permitting].

Quasi-Sovereign Debt

In the FT, Elaine Moore and Jonathan Wheatley report about the increasing importance of sovereign-backed corporate and other debt in emerging markets.

New figures from JPMorgan and Bond Radar show that issuance of quasi-sovereign bonds outpaced that of sovereign bonds in emerging markets last year, raising the stock of such debt from $710bn in 2014 to a record $839bn by the end of 2015. By comparison, the stock of all external emerging market sovereign debt stood at $750bn at the end of last year, according to JPMorgan.

Quasi-sovereign borrowers include firms that are owned in large parts or controlled by the state, as well as local governments. Although the liabilities of these borrowers may be explicitly or implicitly guaranteed by the state, the official public debt statistics typically do not account for them.

 

Banks’ Debt Valuation Adjustments Will End

In the FT, Ben McLannahan reports about a change in US accounting standards concerning the valuation of bank debt.

Under the rules in place since 2007

banks were allowed to use market prices when valuing their own debt, meaning they could book profits when their debt fell in value and losses when it rose.

Particularly during the financial crisis this led to sizable effects of swings in debt prices on bank profits. Under pressure from financial institutions, the Financial Accounting Standards Board “threw in the towel” and follows the International Accounting Standards Board which already backtracked in 2014. Under the new rules the debt valuation adjustments are expected to become more or less irrelevant.

The intention of the 2007 rules was clear:

… if banks were going to book their assets at market value, rather than cost, they should also book their liabilities at market value. Companies should therefore be allowed to recognise gains when the value of their bonds fell below par, the FASB reasoned, on the assumption that they would be able to buy them back at a discount.

But this implied that banks “booked income in bad times and expenses in good times.”

The Academic Ghostwriting Business

In the NZZ, Katharina Bracher reports about the flourishing ‘academic’ ghostwriting market in Switzerland. Firms like GWriters, Acad Write oder Acadoo offer ‘advice’ for Master and PhD theses writers. Demand is particularly high for law and business theses. A PhD thesis costs roughly CHF 25’000.

A German court has ruled that

das auftragsweise Erstellen von Hochschul-Abschlussarbeiten und Dissertationen zwar gegen die «guten Sitten» verstosse. Es handle sich aber «lediglich um ein rechtlich missbilligtes Gewerbe». Ghostwriting steht damit auf einer Stufe mit der Prostitution: zwar sittenwidrig, aber nicht verboten.