Friday, October 21, 2016

Central Banks and Digital Currency

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We have reached a critical moment in the life of the institution known as a "central bank."

A central bank, as many of you likely know, is paradigmatically a bank that is NOT part of the government that it serves, an institution that has both private and public characteristics, and an institution that serves as the grease for macro-economic gears in the machinery of governance.

Alexander Hamilton, an admirer of the London model, brought the institution to The United States. We now have a rather peculiar form of central bank, the Federal Reserve Board, created by the Wilson administration more than a century ago. Its peculiarities need not interest us today.

But as I said above, we have reached a critical juncture. The central banks of the developed world appear to be running out of their usual arrows. They'll have to come up with something non-traditional when the traditional quiver is empty.

What might that be? They might adopt distributed ledger technology -- that is, they might use bitcoin-style digital currency as a supplement of sorts to the open market operations (which work through the bank accounts of private sector sellers of T-bills)  that have long been the central bankers'm├ętier.

The idea is not mine -- it is being bruited about among greybeards and consultancies. There is some   
irony in it, though. For many of the enthusiasts of bitcoin, its and its and its imitators are the cure to the disease of state controlled money and the authority of their poohbahs too decide upon its quantity. 
The idea, then, that a central bank's own digital currency could be used to provide countercyclical stimulus without some of the impediments that limit ordinary "quantitative easing," in part because it could be injected into the system by means easier that the usual bond-buying open market operations, must be galling.
I have no real point to make, except that the idea is out there, it might be acted upon, and if it is, some of you will have heard it here first.

Thursday, October 20, 2016

China and the IMF

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October 1, 2016 was an important day for international money (monies) and an important day in the history of the People's Republic of China.

The International Monetary Fund added the Chinese yuan to a basket of currencies that it uses for its loans, known as the Special Drawing Rights currencies. The SDR list also includes the US dollar, the Japanese yen, the British pound, and the euro. That's it. Full stop. With the addition of the yuan there are bow as many SFR currencies as there are veto power countries in the UN Security Council.

One confusing fact about the yuan is semantic: it seems to be used as a synonym with "renminbi." Actually, the yuan is the base unit, the renminbi is the currency, in much the same way that the "pound" is the base unit of the British "sterling." But over the last few decades, "pound" has become the most customary term in any context, and "sterling" is finding itself moving into the linguistic retirement home.  Likewise, "yuan" is slowly pushing the three syllable related term into retirement.

"The inclusion into the SDR is a milestone in the internationalization of the renminbi, and is an affirmation of the success of China's economic development and results of the reform and opening up of the financial sector," the People's Bank of China said in a statement celebrating October 1.

As it happens, October 1 is also the PRC's national holiday, the anniversary of its founding on that day in 1949. That the inclusion in the SDR came about on that day seems to have been from the PRC's point of view a lucky accident (from the IMF's point of view, the much more important fact abut October 1 is that it began a new financial quarter).

Sunday, October 16, 2016

Muscular Christianity


It was a trend that I associate with some passages of the Sinclair Lewis novel ELMER GANTRY. More specifically, with the character of Judson Roberts in that novel, a small figure but one with a critical role in the protagonist's career.

"It" is "muscular Christianity," and a blogger I admire, one who goes by the pixel name Ciceronianus, has recently discussed it with erudition and analytical zeal. Here is a link to that blog entry:

I'll expound no more, but leave the rest to Ciceronianus.

Saturday, October 15, 2016

Remembering Bre-X

At the movies recently I saw a preview for a soon-to-be released movie called GOLD, which will be a fictionalized version of the true story of Bre-X, a Canadian company that lost investors billions in the 1990s as a result of a spectacular rise in stock price and then a sudden fall, based first on a fraudulent claim to the discovery of vast gold reserves in Indonesia and then to the unravelling of those claims.

In 1999 the Royal Canadian Mounted Police wrapped up a criminal investigation. The RCMP brought no charges. Somebody was presumably responsible, but proving who ... that seemed, and still seems, murky.

The story is a fascinating one and although at the time it was  rather overshadowed (for those of us in the US anyhow) by the  dotcom madness on the one hand and the related rise-and-fall of Enron on the other, the Bre-X saga has its own archaic quality that makes it stand out in recollection. It was a tale that was in the 1990s but of an earlier time.

It was a tale that reminded some onlookers of the Humphrey Bogart movie, Treasure of the Sierra Madre.

 I imagine some quick cutting between boardroom scenes in Canada and the Caymans on the one hand, and jungle scenes in Indonesia on the other.

Friday, October 14, 2016

Donald Trump's energy policy answer

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Does anyone else understand this?

In the second debate, asked about energy policy, Trump responded with an example of his customary stream-of-consciousness. I won't quote it or try to dissect it all.

But it ended with this. Trump talked about how foreign companies are buying US companies in the oil & gas market, in order to get a hold on their plants. They are "buying so many of our different plants and then rejiggering the plant so they can take care of their oil."


I don't know what he means by this and nobody yet has been able to enlighten me. Let's take a stab at it: he means buying oil companies to get their refineries?

Let's try to be specific. In 2011, a major international oil company, Statoil, spent $4.4 billion Brigham Resources, a small but innovative shale-oil firm active in North Dakota.  Statoil is 67% owned by the Kingdom of Norway.

So is Norway having refineries (or "plants" in any sense) rejiggered so they can take care of their oil?

No. First, because Brigham is an exploration company, it isn't an integrated concern so it doesn't have any plants. It has wells, leases, intellectual property, etc.

But assume it had plants, just to continue. Does Norway need or want oil that is different in specifications from the oil demanded in the US? So that a refinery would have to be "rejiggered to take care of their oil" and presumably send it across the Atlantic?

If that were so, wouldn't it make more sense to spend some small portion of that $4.4 billion building the necessary refineries in Norway? to make that special Norway desired goop?

Was Trump just babbling or is there some grain of truth in this "rejiggering the plants" talk that I'm missing?  Just in case the latter is the case, I've put a photo of some grains of truths above this post.

Thursday, October 13, 2016

Making Us Wait: The Nobel Prize in Literature

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I went to bed Wednesday night, October 5, believing that there was a reasonable chance that, when I awoke, Philip Roth would at last have won a Nobel Prize in Literature.

This was a mistake. The first problem was the scheduling. The Prizes are usually announced over the course of a single week, one announcement per day, and in the 'natural' course of events, the Lit Prize would have been announced after each of the 'hard sciences' on the list" medicine, physics, chemistry, had had its turn in the spotlight. So, that would have been last Thursday.

Unbeknowst to me, though, the Lit panel had announced back in September, before I was paying attention, that it was taking longer than usual to make its decision, and that it would not bestow its prize this year until the Thursday after everybody else had bestowed the others.

Maybe they're tired of always coming in the middle, after the hard sciences, before the Huge Publicity events of Peace and Economics. Maybe this is a publicity gimmick to finally be the ones that wrap up Oscar season, or the egghead analog thereto.

I believed, and still believe, that Roth is deserving. As a caveat, allow me to say that my personal favorite near-contemporary novelist, John Updike, has passed on.  So, under the rules, he is no longer eligible.

But back to Roth. Far more than the non-entities that have received the prize in some recent years, more so even than Pearl S. Buck, who won the Prize in 1938 for THE GOOD EARTH. Buck was not a non-entity, but the figure she cuts seems smaller as the decades move by. In this respect she is more like Philip Rahv than Philip Roth. (That's Rahv, portrayed above.)

One point that strikes me about Roth is personal to me. He was born in March 1933. My father, Clinton James Faille, was also born in that month and year as well. Dad has been gone since June 2003, and it is good to see notable people of the same cohort surviving, and thriving.

The second problem with my view on the evening of October 5th of course was that when the  award came down, this morning, the winner was ... Bob Dylan.

Good for him, but that is a surprise, given the usual novel-based focus of the awards panel. And Roth will have to wait for another year.

Sunday, October 9, 2016

The Supreme Court, completing a list

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As regular readers will have noticed, I've been creating a multi-entry list of Supreme Court decisions, naming just one stand-out decision per year. Here is my final entry on that theme, bringing us up to date.

Supreme Court cases, 2010 to the present

2010: McDonald v. Chicago -- second amendment
2011: Snyder v. Phelps -- limit on tort liability for emotional distress (Westboro Baptists and the first amendment)
2012: NFIB v. Sebelius -- the big Obamacare decision
2013: Association for Molecular Pathology v. Myriad Genetics -- genes and patents
2014: Halliburton v. Erica P. John Fund -- class certification and securities fraud
2015: Obergefell v. Hodges -- marriage equality
2016: Merrill Lynch v. Manning -- state courts have concurrent jurisdiction on certain securities fraud civil liability issues with the federal courts.

I've now listed a total of 47 SCOTUS decisions in this very subjective way. There should be some broader generalizations here as to which SCOTUS decisions catch my eye. Though perhaps that doesn't strike even my sympathetic readers as the world's most pressing question.

Still, on looking over the whole list, my first impression is that criminal procedure issues are very thoroughly represented. The first such case on this list is U.S. v. Nixon, which at its base is about the extent of a claimed evidentiary privilege. My death penalty case, Gregg, comes under this heading, as does Ybarra and several others.

Also, two of the clauses of the first amendment are well represented. There are at least four free speech cases on this list: Pacifica, Pruneyard, Liquormart, Snyder. One might also include Harper & Row, making the number five. The other clause from that amendment? the establishment clause. My list includes Edwards, Kiryas Joel, The Good News Club, and Zelma. For no good reason the other clauses of the same amendment, as represented for example by such landmarks within this period as Gertz v. Welch  (free press)  or Burwell v. Hobby Lobby (freedom of religion) didn't get onto my list.

One might of course chose to see the Pentagon Papers case, which did get onto this list, as a free press case. But if I understand it rightly it actually turned on the court's view of the relationship between the executive and legislative branches, not on the first amendment's limits to the power of either and/or both of them.

Constitutional structure, especially the relations among the branches, is another recurring theme of this list.  The Pentagon Papers case starts off that theme, and of course we could double-count U.S. v. Nixon to include it here. That is also a factor in the inclusion of Chadha, Chevron, Morrison.

Fourteen, or roughly 30%, of these cases aren't constitutional, they are wholly or chiefly matters of statutory interpretation. This includes three antitrust law cases, three on securities fraud, and four on intellectual property issues.

But enough! you cry, so I comply.