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Index » Internet/Computer » The Web » Economix Page: 1, 2, 3 ... 201, 202, 203  Next
Post to this Topic
sirdroseph

sirdroseph Avatar

Location: Yes
Gender: Male


Posted: Apr 10, 2021 - 4:50am

Jeff Bezos Just Endorsed Corporate Tax Hikes. Here’s Why Amazon’s Support Should Be a Giant Red Flag

 
 
 
R_P

R_P Avatar



Posted: Apr 7, 2021 - 12:58pm


GeneP59

GeneP59 Avatar

Location: On the edge of tomorrow looking back at yesterday.
Gender: Male


Posted: Apr 7, 2021 - 11:53am

 black321 wrote:


 GeneP59 wrote:
Just a perspective since I don’t want to read that much.

We are witnessing the fall of Rome all over since we do not learn from the past.

 And for perspective it’s a 5:1 population ratio in Communist China’s favor.

Time to wake up and smell the coffee. 
 

Yes.
Questions are:
Will the Chinese people remain satisfied with an authoritarian regime and individual freedoms repressed, for the sake of economic stability?
And how far will Western cultures go to increase authoritarian measures, in attempts to address inequalities?
 
With the way the Chinese government crushes their people i.e. Hong Kong, Taiwan and the unwillingness for the West to step in and intervene and not rock the status quo it might end up in an armed conflict. That is what I’m concerned with. You can see the way that they are posturing in the Sea of Japan with naval movements and disregard for other nations sovereignty. They’re flexing their muscles more and more worldwide and trying to insert their influence everywhere.

On a podcast I listen to this morning there are more billionaires being created in China than anywhere else in the world as of last year. They might have the influence to change the Chinese population away from communism and towards a capitalistic society because they’re dependent on continuing their freedom to do what they want to.

I’m glad I don’t have to solve the worlds problems. {#Eek}
black321

black321 Avatar

Location: An earth without maps
Gender: Male


Posted: Apr 7, 2021 - 10:56am



 GeneP59 wrote:
Just a perspective since I don’t want to read that much.

We are witnessing the fall of Rome all over since we do not learn from the past.

 And for perspective it’s a 5:1 population ratio in Communist China’s favor.

Time to wake up and smell the coffee. 
 

Yes.
Questions are:
Will the Chinese people remain satisfied with an authoritarian regime and individual freedoms repressed, for the sake of economic stability?
And how far will Western cultures go to increase authoritarian measures, in attempts to address inequalities?
GeneP59

GeneP59 Avatar

Location: On the edge of tomorrow looking back at yesterday.
Gender: Male


Posted: Apr 7, 2021 - 10:51am

Just a perspective since I don’t want to read that much.

We are witnessing the fall of Rome all over since we do not learn from the past.

 And for perspective it’s a 5:1 population ratio in Communist China’s favor.

Time to wake up and smell the coffee. 
black321

black321 Avatar

Location: An earth without maps
Gender: Male


Posted: Apr 7, 2021 - 10:42am

Story on the new Bidenomics from Wall Street Journal.  I think what a large part of this new economic theory ignores is that the low inflation over the past three decades is not because taxes, spending and deficits don't matter, but because pricing benefitted from globalization (lower labor and commodity prices).  Whether we like it or not, it appears the shift has already occurred, and our system IS reliant on deficit spending, and low/cheap credit...which is a problem. And, I think the most likely solution to this problem is new cheap, clean energy.


If you studied, practiced or wrote about economic policy in the past few decades you probably absorbed certain rules about how the world worked: governments should avoid deficits, liberalize trade and trust in markets. Taxes and social programs shouldn’t discourage work.

This canon came to be known globally as the “Washington consensus” and in the U.S. as neoliberalism. The latter label has always been more popular with its critics than its adherents. Nonetheless, by fusing the free-market foundations of classical liberalism with some redistribution and regulation, the term broadly described the economic policy of western leaders from Ronald Reagan and Margaret Thatcher through Bill Clinton and Tony Blair to George W. Bush, Barack Obama and David Cameron.

Neoliberalism has since fallen from grace under former President Donald Trump and now President Biden. But where Mr. Trump’s populism was never grounded in economics, Mr. Biden’s embrace of bigger government is: not the economics of the establishment but of left-wing thinkers in academia and think tanks and on Twitter.

Their views aren’t unified or entirely original. They lean heavily on ideas first advanced by Britain’s John Maynard Keynes in the 1930s, Democratic presidential advisers Walter Heller, James Tobin and Arthur Okun in the 1960s and Larry Summers in the 2010s—who, ironically, is often branded as being the embodiment of neoliberalism. All considered fiscal policy critical to achieving full employment.


So while the successor to neoliberalism lacks a label, Bidenomics will do for now. Here are some differences between the old and new thinking, though this doesn’t capture the breadth of views across both camps and in the Biden administration itself.


Growth
Old view: Scarcity is the default condition of economies: the demand for goods, services, labor and capital is limitless, their supply is limited. Over time the economy tends to operate at potential, i.e. full employment, so faster growth requires raising potential by increasing incentives to work and invest. Macroeconomic tools—monetary and fiscal policy—are only occasionally needed to deal with recessions and inflation.

New view: Slack is the default condition of economies. Growth is held back not by supply but chronic lack of demand, calling for continuously stimulative fiscal and monetary policy. J.W. Mason, an economics professor at John Jay College of Criminal Justice whose writing is a sort of handbook of post-neoliberal thought, explained on Twitter: The “economy doesn’t operate at potential on average, but is normally (at least in recent decades) somewhere well below it.” That suggests, he said, that “‘depression economics’ applies basically all of the time.”

Inflation and Fiscal Policy
Old view: Fiscal policy shouldn’t push unemployment below the level that causes inflation to rise, which would force the Federal Reserve to raise interest rates.

New view: Fiscal and monetary policy should push unemployment as low as they can because low unemployment doesn’t cause inflation and if eventually it does, that’s socially much less costly than persistent unemployment.


    Debts and Deficits
    Old view: Because savings are scarce, government budget deficits push up interest rates and crowd out private investment and should be avoided except during recessions.

    New view: Low interest rates globally show that savings are plentiful and demand is chronically weak, so deficits aren’t harmful and may be necessary. Mr. Summers has labeled this secular stagnation. “Modern monetary theory”—which few economists, even on the left, embrace—goes further, arguing deficits never crowd out private investment or raise interest rates.

    Social Programs
    Old view: Aid should be targeted to those who need it most because money is scarce. Aid should encourage work because that raises gross domestic product and confers dignity. Thus, unemployment insurance is better than rebate checks and support for the poor should be linked to work.

    New view: Because money isn’t scarce—see above—aid can and should be universal so that no one falls between the cracks. GDP and paid work are overrated because much of what makes life worthwhile, such as caregiving, is generated outside the market. This is the rationale for universal basic income and, to some extent, Mr. Biden’s expanded child tax credit.

    Markets and Incentives
    Old view: High tax rates on income and profits discourage work and investment while high minimum wages reduce employment for the low skilled. Market mechanisms can achieve social goals such as lower greenhouse gas emissions more cheaply than fiat regulations.

    New view: Monopoly power and barriers to market entry are pervasive, enabling the rich and corporations to accumulate far more wealth and profits—and pay workers less—than a truly competitive market would permit. Higher tax rates have little effect on incentives and higher minimum wages have no effect on employment. Market mechanisms like carbon prices perpetuate existing inequities.



    Bidenomics in part reflects what economists have observed in the past 20 years: government debt rose sharply while interest rates fell and unemployment hit historic lows without unleashing inflation. New research found policies like minimum wages and tax cuts affected behavior much less than textbooks predicted.

    But Bidenomics is more a political movement than a school of economic thought. The Democratic base has moved left, energized by inequality, climate change and the coronavirus pandemic, as well as by Mr. Trump and the Republican Party’s rightward shift. That base now seeks, through Mr. Biden, to reshape the economy and society for years to come.

    The problem with economic policies subordinated to political imperatives is that they have no limiting principle: if $3 trillion in stimulus is OK, why not $6 trillion? If a $15 minimum wage is harmless, why not $30?

    Mr. Biden can ignore limiting principles for now for one reason above all: interest rates are near zero. In fact, Fed Chairman Jerome Powell is the single most important player in Bidenomics. But low rates and the Fed’s relaxed attitude toward inflation are products of today’s circumstances, not permanent new features of the economy. The longer Bidenomics proceeds as if limits don’t exist, the more likely it is to hit them.

    sirdroseph

    sirdroseph Avatar

    Location: Yes
    Gender: Male


    Posted: Apr 7, 2021 - 3:54am

     westslope wrote:


     black321 wrote:

    China is betting that the West is in irreversible decline

    The country’s leaders see their moment, and are seizing it
    Its gaze fixed on the prize of becoming rich and strong, China has spent the past 40 years as a risk-averse bully. Quick to inflict pain on smaller powers, it has been more cautious around any country capable of punching back. Recently, however, China’s risk calculations have seemed to change. First Yang Jiechi, the Communist Party’s foreign-policy chief, lectured American diplomats at a bilateral meeting in Alaska, pointing out the failings of American democracy. That earned him hero status back home. Then China imposed sanctions on British, Canadian and European Union politicians, diplomats, academics, lawyers and democracy campaigners. Those sweeping curbs were in retaliation for narrower Western sanctions targeting officials accused of repressing Muslims in the north-western region of Xinjiang.

    China’s foreign ministry declares that horrors such as the Atlantic slave trade, colonialism and the Holocaust, as well as the deaths of so many Americans and Europeans from covid-19, should make Western governments ashamed to question China’s record on human rights. Most recently Chinese diplomats and propagandists have denounced as “lies and disinformation” reports that coerced labour is used to pick or process cotton in Xinjiang.

    https://www.economist.com/chin...
     
    Yes and no.   The USA created the opportunity.

    And yes, whether the West is in irreversible decline is debatable but the USA is clearly in irreversible decline.

    I always expected US hegemony to decline as the first-mover advantage coming out of WW II would eventually dissipate.  I never expected it to pick up speed like it did under President Donald J. Trump's administration.  

    I have little or no confidence in the Democrats to turn around the long term decline of the USA.  

    Why will the USA continue to decline?

    - a widely shared culture of mendacity.   What was really interesting about all the lies Trump told about China was how quickly American liberals and so-called progressives picked up, repeated and amplified those lies.     

    -  a strong consensus has emerged in the USA that it is very acceptable for American powerful special interests and political and economic elites in general to mislead, lie and manipulate their patriotic, ordinary citizens.     What is not allowed?  Foreigners misleading, lying and manipulating US citizens is strictly forbidden!

    - a common shared love of killing innocents.   A shared belief that Americans can BS the world with their War on Terrorism.  Probably because WW II was such an enjoyable experience for so many Americans.     And nobody knows the key role that Palestinian Jewish terrorist heroes played in creating the modern state of Israel.  

    - a common shared belief that secure economic property rights are absolutely vital for good economic outcomes but that it is incumbent upon culturally superior Americans and their proxy partners Israelis to make racial, ethnic and other sectarian exceptions.  

    -  US gun culture 

    -  the US obesity-sitting-dementia epidemic will continue to get worse, in part due to much vaunted US exceptionalism.   US voters are so much smarter than everybody else..... 

    -  the US constitution was created by paternalistic, racist white men in the 18th century, has not evolved much and is unlikely to evolve in the near future.   The winner-takes-all attitude (appropriate for sporting events) will continue to be widely supported by voting Americans.   

     
    I like to crack my babies in half and suck the blood out, then enjoy the soft morsels.  Oh you Canucks don't eat babies?  You guys are soft that is your problem, I always pick out at least one baby to snack on when I am on a rampage.
     
     
    westslope

    westslope Avatar

    Location: BC sage brush steppe


    Posted: Apr 6, 2021 - 1:22pm



     black321 wrote:

    China is betting that the West is in irreversible decline

    The country’s leaders see their moment, and are seizing it


    Its gaze fixed on the prize of becoming rich and strong, China has spent the past 40 years as a risk-averse bully. Quick to inflict pain on smaller powers, it has been more cautious around any country capable of punching back. Recently, however, China’s risk calculations have seemed to change. First Yang Jiechi, the Communist Party’s foreign-policy chief, lectured American diplomats at a bilateral meeting in Alaska, pointing out the failings of American democracy. That earned him hero status back home. Then China imposed sanctions on British, Canadian and European Union politicians, diplomats, academics, lawyers and democracy campaigners. Those sweeping curbs were in retaliation for narrower Western sanctions targeting officials accused of repressing Muslims in the north-western region of Xinjiang.

    China’s foreign ministry declares that horrors such as the Atlantic slave trade, colonialism and the Holocaust, as well as the deaths of so many Americans and Europeans from covid-19, should make Western governments ashamed to question China’s record on human rights. Most recently Chinese diplomats and propagandists have denounced as “lies and disinformation” reports that coerced labour is used to pick or process cotton in Xinjiang.

    https://www.economist.com/chin...
     
    Yes and no.   The USA created the opportunity.

    And yes, whether the West is in irreversible decline is debatable but the USA is clearly in irreversible decline.

    I always expected US hegemony to decline as the first-mover advantage coming out of WW II would eventually dissipate.  I never expected it to pick up speed like it did under President Donald J. Trump's administration.  

    I have little or no confidence in the Democrats to turn around the long term decline of the USA.  

    Why will the USA continue to decline?

    - a widely shared culture of mendacity.   What was really interesting about all the lies Trump told about China was how quickly American liberals and so-called progressives picked up, repeated and amplified those lies.     

    -  a strong consensus has emerged in the USA that it is very acceptable for American powerful special interests and political and economic elites in general to mislead, lie and manipulate their patriotic, ordinary citizens.     What is not allowed?  Foreigners misleading, lying and manipulating US citizens is strictly forbidden!

    - a common shared love of killing innocents.   A shared belief that Americans can BS the world with their War on Terrorism.  Probably because WW II was such an enjoyable experience for so many Americans.     And nobody knows the key role that Palestinian Jewish terrorist heroes played in creating the modern state of Israel.  

    - a common shared belief that secure economic property rights are absolutely vital for good economic outcomes but that it is incumbent upon culturally superior Americans and their proxy partners Israelis to make racial, ethnic and other sectarian exceptions.  

    -  US gun culture 

    -  the US obesity-sitting-dementia epidemic will continue to get worse, in part due to much vaunted US exceptionalism.   US voters are so much smarter than everybody else..... 

    -  the US constitution was created by paternalistic, racist white men in the 18th century, has not evolved much and is unlikely to evolve in the near future.   The winner-takes-all attitude (appropriate for sporting events) will continue to be widely supported by voting Americans.   

    sirdroseph

    sirdroseph Avatar

    Location: Yes
    Gender: Male


    Posted: Apr 6, 2021 - 11:56am

    black321

    black321 Avatar

    Location: An earth without maps
    Gender: Male


    Posted: Apr 6, 2021 - 10:14am



     miamizsun wrote:


    china's government is absolutely horrible

    and predictably, authoritarian regimes are much better at snuffing out dissent

    i feel for the chinese people
     
    I would agree,
    but wonder if it depends on who (chinese people) you ask.



    miamizsun

    miamizsun Avatar

    Location: (3261.3 Miles SE of RP)
    Gender: Male


    Posted: Apr 6, 2021 - 4:30am

     black321 wrote:

    China is betting that the West is in irreversible decline

    The country’s leaders see their moment, and are seizing it
    Its gaze fixed on the prize of becoming rich and strong, China has spent the past 40 years as a risk-averse bully. Quick to inflict pain on smaller powers, it has been more cautious around any country capable of punching back. Recently, however, China’s risk calculations have seemed to change. First Yang Jiechi, the Communist Party’s foreign-policy chief, lectured American diplomats at a bilateral meeting in Alaska, pointing out the failings of American democracy. That earned him hero status back home. Then China imposed sanctions on British, Canadian and European Union politicians, diplomats, academics, lawyers and democracy campaigners. Those sweeping curbs were in retaliation for narrower Western sanctions targeting officials accused of repressing Muslims in the north-western region of Xinjiang.

    China’s foreign ministry declares that horrors such as the Atlantic slave trade, colonialism and the Holocaust, as well as the deaths of so many Americans and Europeans from covid-19, should make Western governments ashamed to question China’s record on human rights. Most recently Chinese diplomats and propagandists have denounced as “lies and disinformation” reports that coerced labour is used to pick or process cotton in Xinjiang.

    https://www.economist.com/chin...
     

    china's government is absolutely horrible

    and predictably, authoritarian regimes are much better at snuffing out dissent

    i feel for the chinese people
    black321

    black321 Avatar

    Location: An earth without maps
    Gender: Male


    Posted: Apr 5, 2021 - 10:45am

    China is betting that the West is in irreversible decline

    The country’s leaders see their moment, and are seizing it


    Its gaze fixed on the prize of becoming rich and strong, China has spent the past 40 years as a risk-averse bully. Quick to inflict pain on smaller powers, it has been more cautious around any country capable of punching back. Recently, however, China’s risk calculations have seemed to change. First Yang Jiechi, the Communist Party’s foreign-policy chief, lectured American diplomats at a bilateral meeting in Alaska, pointing out the failings of American democracy. That earned him hero status back home. Then China imposed sanctions on British, Canadian and European Union politicians, diplomats, academics, lawyers and democracy campaigners. Those sweeping curbs were in retaliation for narrower Western sanctions targeting officials accused of repressing Muslims in the north-western region of Xinjiang.

    China’s foreign ministry declares that horrors such as the Atlantic slave trade, colonialism and the Holocaust, as well as the deaths of so many Americans and Europeans from covid-19, should make Western governments ashamed to question China’s record on human rights. Most recently Chinese diplomats and propagandists have denounced as “lies and disinformation” reports that coerced labour is used to pick or process cotton in Xinjiang.

    https://www.economist.com/chin...
    black321

    black321 Avatar

    Location: An earth without maps
    Gender: Male


    Posted: Apr 5, 2021 - 10:39am

    China Creates its Own Digital Currency, a First for Major Economy

    A cyber yuan stands to give Beijing power to track spending in real time, plus money that isn’t linked to the dollar-dominated global financial system

    China’s version of a digital currency is controlled by its central bank, which will issue the new electronic money. It is expected to give China’s government vast new tools to monitor both its economy and its people. By design, the digital yuan will negate one of bitcoin’s major draws: anonymity for the user.

    Beijing is also positioning the digital yuan for international use and designing it to be untethered to the global financial system, where the U.S. dollar has been king since World War II. China is embracing digitization in many forms, including money, in a bid to gain more centralized control while getting a head start on technologies of the future that it regards as up for grabs.
    https://www.wsj.com/articles/c...
    miamizsun

    miamizsun Avatar

    Location: (3261.3 Miles SE of RP)
    Gender: Male


    Posted: Mar 22, 2021 - 10:16am

    maybe a nuanced view of hedging may mean something different in various apps

    to me? a form of insurance/risk management (floors, stop loss, tec.)

    options and derivatives in my world are usually time sensitive and leveraged (see greeks) and volatility can be huge

    traded on exchanges or bourses and they usually make a small commission for facilitating the trade

    some strategies are simple and some are very complex (usually lots of math involved)

    large percentage expire worthless

     
    rexi

    rexi Avatar

    Location: Zurich, Switzerland


    Posted: Mar 22, 2021 - 9:55am

    an architect aye? for an architect you are extremely well versed in political philosophy!

    Likewise for a finance guy, or was it IT?

    Full disclosure: I had to leave NZ cause I was surrounded by architects. I'll tell you about it one day.

    Oh dear. But we're innocent! 

    anyway as far as hedge accounting goes, it should be a zero sum game. If it is not then it is not an effective hedge. In accounting you have to document and measure designated hedges, make sure you do not add any sauce, but leave them to simmer until maturity, that kind of thing.

    Basic idea is I have a contract to deliver goods to a customer in some country with a different currency, like China. Billing will be done in that currency and the Chinese customer is only going to pay once I deliver when I finish making the good three months down the road, meaning I get 1 million in Chinese renminbi in six months time.
    In the meantime the exchange rate can go all over the place. So I have a risk I want to nullify so I enter into a currency swap for precisely the opposite of my underlying contract to sell goods. That way if the exchange falls to my loss on the underlying, I gain exactly the same amount on the derivative (called a critical terms match), so it is a zero sum game for the manufacturer. The Bank (the counterparty) will do the same thing with its side of the contract or bundle that exposure with other similar ones and hedge them. So it should be theoretically a zero sum game for them too.

    Black321 was talking about speculative traders when he said "without an underlying". These are guys who will act as a counterparty to the derivative or a bundle of them on the assumption that they have better knowledge and see a net gain on the instrument (in our case they are confident the renminbi is going to fall (because South China Sea for example) and they then consciously accept the risk in the hope of a return (which can be quite large).

    Sure, if they are right they profit from the hedging instrument (the derivative) and the manufacturer loses, but then again, in this case, the manufacturer must have made an equal gain on the underlying trade, so no loss.

    Clear?

    Not yet, but I'll get there. 

    I promise to deliver a machine for which I expect to receive $1Mio to cover costs and make a profit. My chinese customer says he will pay me RMB 10 Mio when he receives my machine which, at current exchange rate is the 1 Mio I want / need. But it may not be 6 months down the road.

    Fearing I may receive less than I need to cover my costs because the RMB will fall against USD, I look for someone who promises to cover the loss, should that event come to pass. 

    Luckily, my bank, as intermediary, offers such a contract where I can 'insure' my forex risk. The counter party to that contract is whoever buys that risk because he reckons the opposite will happen of what I fear. The bank earns a commission for the service, so no risk there.

    But the contract cannot exist without the conter party. A special case, at least in theoretical terms, is when the trader who works at the bank takes on the risk on behalf of the firm's other stakeholders (capital), whether temporarily or for the duration of the contract.

    But to get back to the original question (was there one? :-)): do the counter parties know what they're buying and can they handle the implications?
    rgio

    rgio Avatar

    Location: West Jersey
    Gender: Male


    Posted: Mar 22, 2021 - 6:35am



     NoEnzLefttoSplit wrote:
    ...

    Sure, if they are right they profit from the hedging instrument (the derivative) and the manufacturer loses, but then again, in this case, the manufacturer must have made an equal gain on the underlying trade, so no loss.

    Clear?
     
    Wow...I generally come to RP for the conspiracy theory... not Keynesian.

    Two issues for serious players are fees and control.  The casino (banks, traders, brokers) is going to take a commission on the transactions, so for them, friction is good.  The more hedging and trading...the more in fees.  No home runs there, but it's a good business if you can start and end at $1, and get commissions from multiple parties surrounding the trades.  Part of what's driving the Gamestop anger is the lack of friction for the little guys now.  Competing on an even playing field isn't something the big players enjoy.

    The larger issue is control.  I haven't followed it too closely, but again to use Gamestop.... The little guys got together and exerted control over the covering of shorts...knowing that there were a lot of big money investors who were waiting for the collapse.  If you can prevent the collapse, pretty soon the shorts need to cover their exposure and buy shares.  Share buying increases prices.  As soon as one player folds, the price of folding gets higher...an so on.  When you have a lot of money to risk, you can maneuver to exert pressure on others to do what you want.  The game is rigged.


    NoEnzLefttoSplit

    NoEnzLefttoSplit Avatar

    Gender: Male


    Posted: Mar 22, 2021 - 5:46am

     rexi wrote:


     black321 wrote:


     rexi wrote:

     
     
    No industry expert here, but I fear so-called transparency is not going to help much. For derivatives of the nth degree I would imagine such transparency would have to be a 200 page disclaimer that nobody reads and nobody, other than those who wrote it, understand. Whom does that serve?

    Seeing as all type of hedging is zero sum, I think one would want to ask whether the parties are actually entering a symmetrical contract and whether they are, under reasonable assumptions, able to take the downside blow? I.e., is and can all risk that was purportedly assumed, actually be assumed in the event? Or is, say, just fended off by an army of savvy lawyers who were also involved in designing the original contract? And is that true for both sides (in which case, OK I guess) or do you end up with a bunch of pensioners vs. an inpenetrable front of corporate lawyers?

    And who pays for systemic risk (up front)? How do you force financial institutions to price in the possibility of a systemic meltdown which their product may enable, so as to actually avoid one? How does transparancey help when the risk is perceived as an externality by all parties involved? Would it help to slap a 'could destroy the economy' warning on a CDS? Where's the incentive for financially innovating in a socially beneficial way, as opposed to only a personally beneficial one?

    And what about instruments from which the intermediary itself is the one that profits most? Where's the social benefit in that other than creating a lot of highly paid bullshit jobs?

    My guess is, again, no expert here, that much of what is labelled 'financial innovation' is not very useful, at best — maybe a fun game for rich adrenaline junkies — and downright destructive, at worst. And the world as a whole (maybe not places like London, NY, HK, Singapore, Zurich, Paris etc.) would not be worse of without them. 

    Anyway, just my 2cts..
     
    When one hedges, the trade is zero sum for that party. They have an underlying exposure, so any gain/loss on the hedge trade is offset by a loss/gain on the underlying. You essentially are looking to fix your price. 

    The counterparty to a hedge trade could be another party hedging their exposure ; party A is a baker, party B is a wheat farmer...they both trade to offset their risk exposures  (A wants to set a price to buy wheat, B to set a price to sell wheat).

    The larger concern is around speculating...those trading in options, futures, forwards, swaps and other derivative instruments without an underlying exposure.
    Some of this does provide good value to the markets/society...it's cheaper to buy a stock call option then the stock outright, allowing the speculator to limit his downside risk. 
    Speculators also provide utility to the markets by increasing liquidity...and with more parties willing to trade, pricing is more competitive for the hedgers, which helps keep inflation in check. 

    Speculation is fine if you are an investor and able/willing to cover your losses. The larger issue is when institutions - commercial banks and insurers - get into speculation and create more systemic risk.  "Too big to fail."

    There are other advantages, but those are the basics.

    As for the "bullshit jobs," yes it is unfortunate that too many of our brightest minds gravitated to Wall St the last 30 years, creating algorithms to chase micro profits, rather than solving more of the world's bigger problems. But I guess thats where we as a society place our values. 

     
    When one hedges, the trade is zero sum for that party. They have an underlying exposure, so any gain/loss on the hedge trade is offset by a loss/gain on the underlying. You essentially are looking to fix your price.


    That doesn't make sense. You're also foregoing potential profits / losses which than accrue to someone else. A trade cannot be zero sum for one party., it's always zero sum for all parties involved. One person's loss or foregone profit is another's profit minus fees for the intermediaries.

    T
    he larger concern is around speculating...those trading in options, futures, forwards, swaps and other derivative instruments without an underlying exposure.

    What do you mean by underlying exposure? I think the same logic applies as above. One party is looking for price stability, another is betting that that's too conservative and there's a profit to be made and then there are those who are skimming off the top, no matter which way things go. 

    If you're interested, you can check out the paper referenced in the blog (see profile). In it, we describe the phenomenon of money in reference to an underlying goods trade. All of finance, which we haven't got around to describing in this language yet, should then also be referenced to the same underlying goods trades. That's why my alarm bells start ringing when you say 'without an underlying exposure'. There's always a fundamental risk. :-) But maybe I don't understand the term as it is conventionally used.
     
    an architect aye?  for an architect you are extremely well versed in political philosophy!  
    Full disclosure: I had to leave NZ cause I was surrounded by architects. I'll tell you about it one day. 

    anyway as far as hedge accounting goes, it should be a zero sum game. If it is not then it is not an effective hedge. In accounting you have to document and measure designated hedges, make sure you do not add any sauce, but leave them to simmer until maturity, that kind of thing. 

    Basic idea is I have a contract to deliver goods to a customer in some country with a different currency, like China. Billing will be done in that currency and the Chinese customer is only going to pay once I deliver when I finish making the good three months down the road, meaning I get 1 million in Chinese renminbi in six months time.
    In the meantime the exchange rate can go all over the place. So I have a risk I want to nullify so I enter into a currency swap for precisely the opposite of my underlying contract to sell goods. That way if the exchange falls to my loss on the underlying, I gain exactly the same amount on the derivative (called a critical terms match), so it is a zero sum game for the manufacturer. The Bank (the counterparty) will do the same thing with its side of the contract or bundle that exposure with other similar ones and hedge them. So it should be theoretically a zero sum game for them too.

    Black321 was talking about speculative traders when he said "without an underlying". These are guys who will act as a counterparty to the derivative or a bundle of them on the assumption that they have better knowledge and see a net gain on the instrument (in our case they are confident the renminbi is going to fall (because South China Sea for example) and they then consciously accept the risk in the hope of a return (which can be quite large).

    Sure, if they are right they profit from the hedging instrument (the derivative) and the manufacturer loses, but then again, in this case, the manufacturer must have made an equal gain on the underlying trade, so no loss. 

    Clear?
    rexi

    rexi Avatar

    Location: Zurich, Switzerland


    Posted: Mar 22, 2021 - 3:47am



     black321 wrote:


     rexi wrote:

     
     
    No industry expert here, but I fear so-called transparency is not going to help much. For derivatives of the nth degree I would imagine such transparency would have to be a 200 page disclaimer that nobody reads and nobody, other than those who wrote it, understand. Whom does that serve?

    Seeing as all type of hedging is zero sum, I think one would want to ask whether the parties are actually entering a symmetrical contract and whether they are, under reasonable assumptions, able to take the downside blow? I.e., is and can all risk that was purportedly assumed, actually be assumed in the event? Or is, say, just fended off by an army of savvy lawyers who were also involved in designing the original contract? And is that true for both sides (in which case, OK I guess) or do you end up with a bunch of pensioners vs. an inpenetrable front of corporate lawyers?

    And who pays for systemic risk (up front)? How do you force financial institutions to price in the possibility of a systemic meltdown which their product may enable, so as to actually avoid one? How does transparancey help when the risk is perceived as an externality by all parties involved? Would it help to slap a 'could destroy the economy' warning on a CDS? Where's the incentive for financially innovating in a socially beneficial way, as opposed to only a personally beneficial one?

    And what about instruments from which the intermediary itself is the one that profits most? Where's the social benefit in that other than creating a lot of highly paid bullshit jobs?

    My guess is, again, no expert here, that much of what is labelled 'financial innovation' is not very useful, at best — maybe a fun game for rich adrenaline junkies — and downright destructive, at worst. And the world as a whole (maybe not places like London, NY, HK, Singapore, Zurich, Paris etc.) would not be worse of without them. 

    Anyway, just my 2cts..
     
    When one hedges, the trade is zero sum for that party. They have an underlying exposure, so any gain/loss on the hedge trade is offset by a loss/gain on the underlying. You essentially are looking to fix your price. 

    The counterparty to a hedge trade could be another party hedging their exposure ; party A is a baker, party B is a wheat farmer...they both trade to offset their risk exposures  (A wants to set a price to buy wheat, B to set a price to sell wheat).

    The larger concern is around speculating...those trading in options, futures, forwards, swaps and other derivative instruments without an underlying exposure.
    Some of this does provide good value to the markets/society...it's cheaper to buy a stock call option then the stock outright, allowing the speculator to limit his downside risk. 
    Speculators also provide utility to the markets by increasing liquidity...and with more parties willing to trade, pricing is more competitive for the hedgers, which helps keep inflation in check. 

    Speculation is fine if you are an investor and able/willing to cover your losses. The larger issue is when institutions - commercial banks and insurers - get into speculation and create more systemic risk.  "Too big to fail."

    There are other advantages, but those are the basics.

    As for the "bullshit jobs," yes it is unfortunate that too many of our brightest minds gravitated to Wall St the last 30 years, creating algorithms to chase micro profits, rather than solving more of the world's bigger problems. But I guess thats where we as a society place our values. 

     


    When one hedges, the trade is zero sum for that party. They have an underlying exposure, so any gain/loss on the hedge trade is offset by a loss/gain on the underlying. You essentially are looking to fix your price.


    That doesn't make sense. You're also foregoing potential profits / losses which than accrue to someone else. A trade cannot be zero sum for one party., it's always zero sum for all parties involved. One person's loss or foregone profit is another's profit minus fees for the intermediaries.

    T
    he larger concern is around speculating...those trading in options, futures, forwards, swaps and other derivative instruments without an underlying exposure.

    What do you mean by underlying exposure? I think the same logic applies as above. One party is looking for price stability, another is betting that that's too conservative and there's a profit to be made and then there are those who are skimming off the top, no matter which way things go. 

    If you're interested, you can check out the paper referenced in the blog (see profile). In it, we describe the phenomenon of money in reference to an underlying goods trade. All of finance, which we haven't got around to describing in this language yet, should then also be referenced to the same underlying goods trades. That's why my alarm bells start ringing when you say 'without an underlying exposure'. There's always a fundamental risk. :-) But maybe I don't understand the term as it is conventionally used.


    black321

    black321 Avatar

    Location: An earth without maps
    Gender: Male


    Posted: Mar 19, 2021 - 1:51pm



     rexi wrote:

     
     
    No industry expert here, but I fear so-called transparency is not going to help much. For derivatives of the nth degree I would imagine such transparency would have to be a 200 page disclaimer that nobody reads and nobody, other than those who wrote it, understand. Whom does that serve?

    Seeing as all type of hedging is zero sum, I think one would want to ask whether the parties are actually entering a symmetrical contract and whether they are, under reasonable assumptions, able to take the downside blow? I.e., is and can all risk that was purportedly assumed, actually be assumed in the event? Or is, say, just fended off by an army of savvy lawyers who were also involved in designing the original contract? And is that true for both sides (in which case, OK I guess) or do you end up with a bunch of pensioners vs. an inpenetrable front of corporate lawyers?

    And who pays for systemic risk (up front)? How do you force financial institutions to price in the possibility of a systemic meltdown which their product may enable, so as to actually avoid one? How does transparancey help when the risk is perceived as an externality by all parties involved? Would it help to slap a 'could destroy the economy' warning on a CDS? Where's the incentive for financially innovating in a socially beneficial way, as opposed to only a personally beneficial one?

    And what about instruments from which the intermediary itself is the one that profits most? Where's the social benefit in that other than creating a lot of highly paid bullshit jobs?

    My guess is, again, no expert here, that much of what is labelled 'financial innovation' is not very useful, at best — maybe a fun game for rich adrenaline junkies — and downright destructive, at worst. And the world as a whole (maybe not places like London, NY, HK, Singapore, Zurich, Paris etc.) would not be worse of without them. 

    Anyway, just my 2cts..
     
    When one hedges, the trade is zero sum for that party. They have an underlying exposure, so any gain/loss on the hedge trade is offset by a loss/gain on the underlying. You essentially are looking to fix your price. 

    The counterparty to a hedge trade could be another party hedging their exposure ; party A is a baker, party B is a wheat farmer...they both trade to offset their risk exposures  (A wants to set a price to buy wheat, B to set a price to sell wheat).

    The larger concern is around speculating...those trading in options, futures, forwards, swaps and other derivative instruments without an underlying exposure.
    Some of this does provide good value to the markets/society...it's cheaper to buy a stock call option then the stock outright, allowing the speculator to limit his downside risk. 
    Speculators also provide utility to the markets by increasing liquidity...and with more parties willing to trade, pricing is more competitive for the hedgers, which helps keep inflation in check. 

    Speculation is fine if you are an investor and able/willing to cover your losses. The larger issue is when institutions - commercial banks and insurers - get into speculation and create more systemic risk.  "Too big to fail."

    There are other advantages, but those are the basics.

    As for the "bullshit jobs," yes it is unfortunate that too many of our brightest minds gravitated to Wall St the last 30 years, creating algorithms to chase micro profits, rather than solving more of the world's bigger problems. But I guess thats where we as a society place our values. 

    black321

    black321 Avatar

    Location: An earth without maps
    Gender: Male


    Posted: Mar 19, 2021 - 12:56pm

    Investors poured a record $57 billion into stocks as stimulus checks arrived

    03/19/2021 at 2:17 p.m. ET

    Seems odd that those affected by the pandemic were hurt so bad they had to prop up their investment portfolios.


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