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As we are getting closer to the US election the question as to why characters like Trump and Biden the candidates of choice are pops up again. A big part of the underlying cause of why politics in the US are moving more to extremes is the unrelenting, ever increasing wealth inequality – or, more accurately – the awareness of huge inequality in society. To take this one step further, it is not so much that We, The People, are equal (because we are not) but that we should have access to an equal opportunity set. And we don’t. After the ’08 financial crises and subsequent bailouts of the financial system, the Occupy Wall Street movement fomented. It was a general protest against the corrosive power of moneyed interests over democracy itself. Eventually it somewhat fizzled out but the notion that when there is a crises Wall Street gets bailed out while Main Street does not was a bit more obvious and has lingered since. Occupy Wall Street also made the 1%/99% part of our everyday langua

  Exxon et al. are on track for a bailout that will make the financial rescue of ‘08 look like handing a lollypop to a child. Oil companies – no matter what you think of them – create an essential product for modern society. Covid has caused a temporary surplus of crude which in turn has brought down prices significantly. US producers have been leaning heavily on horizontal / fracking to extract oil. This method of extracting oil is considerably more expensive than traditional drilling.   The reason why oil companies are going that more expensive route is because there are fewer and fewer vertical drilling locations available that economically make sense -we are running out of the affordable oil that society is built on. The result of companies switching to more expensive production is that – for example – the free cashflow from Exxon has dropped from 30-40bn/year in the mid 2000’s to 5-10bn with more and more quarters showing negative cashflow. XOM is borrowing money to pay dividends.

Finally the day has come that your Ivy League (please note that the spell checker capitalized that, not me) education and hard work are paying off: Congratulations, you were just appointed Global CIO.   You are now responsible for investing all of the world’s financial assets and, given your history as a highly educated CIO, steeped in finance and highly experienced managing other pools of capital your goal is to create a diversified portfolio with uncorrelated assets. On the first day of work you decided to use a three step process in setting up the portfolio 1) see what you have, 2) determine what you want to have and 3) make changes to create the desired portfolio. The first thing you do is send your star analyst to give you a rundown of what is in the portfolio you inherited. S/he starts out with collating and aggregating the portfolio which consists of stocks, bonds, and a number of derivatives such as futures, options and credit default swaps as well as a number of hedg

As mortgage rates are decreasing and households take on mortgages with lower rates there are several consequences, not all of them obvious. The amount of interest paid, C.P goes down which at first glance is a good thing. The consumer now has the option to allocate the difference between the old and the new payment to other purposes. The downside of lower payments is that somebody else is now receiving less, and likely that somebody else is a pension fund, life Insurance Company or another entity which needs long dated cash flows. Chances are that as the homeowner refinances the NPV of his/her pension or insurance decreases at the same time. The economic effect of the increased cash flows to the household sector and the decreased cash flows to pension funds, life insurance companies et al . is not symmetrical because the household sector has a high marginal propensity to consume – they spend most of the savings – whereas the financial savings institutions buy financial assets (in

Awareness of boundary issues and scope of analysis is essential in critical thinking. Let’s take a look at energy. We tend to bucket energy sources in buckets like renewable, fossil fuels and nuclear, but what does that really mean? On the face of it fossil fuels and energy sources like solar, wind and hydro have nothing in common and are seem contradictory.   Solar energy obviously is energy captured from the sun and as wind is also a phenomena caused by solar heat it too is a solar derivative.   With respect to hydro, the sun heats water which, with the help of wind evaporates, forms clouds and then rains down in mountains where we can use the water to run turbines and capture kinetic energy. Therefore hydro is also a solar derivative. Fossil fuels are the product of organic remnants of primarily plants which lived a long time ago, died and were transformed under heat and pressure into various forms of fuels like coal, oil and natural gas. Those source plants however wer

The only way to have a chance at implementing the inflation mandate is to have complete control over either one side or both the demand and supply side of currency. Although the Fed as agent of the department of treasury and in theory is the issuer of currency in the US and therefore should have a supply side monopoly on currency creation, there is a fly in the currency creation ointment. As per MMTs horizontal and vertical currency concept the Fed does not appear have material control, or chooses not to materially control the fractional reserve lending system, let alone the shadow banking system. Government can try to regulate the minimum reserve requirements (although they can be, and are circumvented through a number of pathways) but the government (yet) cannot impose maximum reserve ratios (force banks to lend a certain minimum amount visa viz their reserves). Whether commercial banks use a fractional reserve of 10% of 12% has a very significant impact on the actual number of cur

I’m going to post a short series on The Federal Reserve, its mandates and some of the consequences. The stated mandates of the Federal Reserve, an institution which is neither federal nor has reserves, are laid out in section 2A of the Federal Reserve Act (as amended) the triple (not dual as so often is stated) goals are : " to promote effectively the goals of maximum employment, stable prices and moderate long-term interest rates ”. With regard to stable prices note that on February 25 th , 2012 Dr. Bernanke announced that the Fed’s inflation target was 2% because it was best aligned with the mandated goals of full employment and price stability. The first observation is that Dr. Bernanke appears to be doing congress’s job by changing the mandate of stable prices without any apparent instruction to do so from congress.   An inflation target other than zero by definition means that prices are not stable. If balance in your Certificate of Deposit went down by 2% per