the magic washing machine

This explains in an interesting manner what economic development is about:



[ht: him]

no-fly zone buzz kill

I find it hard to see how the no-fly zone over Libya is going to drive Colonel Muammar al-Gaddafi from power. Maybe a couple of weeks ago it would have made sense, but since then pro-Gaddafi forces have recaptured most of the rebel-held cities. The no-fly zones won't help those folks. Even if Benghazi is not retaken, Gaffafi has control over most of the country and will stay in power.

This military strike does not seem to have been thought through. No wonder DOD Secretary Gates opposed the no-fly zone. Most military people do not relish the thought of putting their people in harm's way, to spend hundreds of millions on armaments that kill, to merely send a message.

Think I'm wrong about the no-fly zone? Well you can put your money where your mouth is. At Intrade.com, a prediction market (i.e., an Irish betting site), you can buy "stock" in Muammar al-Gaddafi to no longer be leader of Libya before midnight ET 31 Dec 2011. The current price is $6.67 to get $10 if Gaddafi is gone. If you are correct then you would make a 50% profit!

As you can see from the chart below (red marks price), a week ago the price was $4, but after yesterday's hoopla over tomahawks being fired, the price soared up to $8. Of course, the smart money is moving in and the price is falling. I suspect it will be back to $4 or less in a week or so.


Will I put my money where my blog is? Nah. It is illegal and therefore too much trouble to get money to and from Intrade.com.

Be blessed.
RB

spring break

RB spent seven weeks getting caught up at work. Then Spring Break! Problem: RB gave tests in all his classes just before break. Why not? It is the halfway point in the semester. A logical time for evaluating learning. More on that later.

Nine days of break. The first three days began with the #1 grandson visiting us. Oh yeah, his parents were here as well. The next three days was spent traveling to and from Boston with a day and half in between looking at apartments for my #3 offspring (#1 daughter).

After visiting potential apartments, mostly overpriced, very old, flats with were once chopped up from 100+ year old housing, we made an offer on the first apartment we saw.

It was the biggest, nicest apartment we visited and at a rent below what we expected. That is, just exorbitantly expensive rather than outlandishly exorbitantly expensive.

No undergrads, a quiet, well-maintained, well-built building, an outstanding management company on the premises, on a safe street, with a T-station (Boston trolley) at the corner. Near stores and other businesses. No need for a car but parking if you have one. In short, a real, big-time blessing.

Friday, the seventh day of break, I slept in and then watched an NCIS marathon. Georgetown later lost big time in the NCAAs.

The highlight of this weekend, the last two days of break, is a visit by our #1 granddaughter.

However, I must spend all tomorrow afternoon, and well into the evening, grading tests. Last day of break will not be the best of the nine days.

Be blessed!
RB

killing bunnies

[ht: him]

international security threat levels

Below is a compendium of security threat levels from various countries. Although RB received a forwarded email attributing this to John Cleese, a careful scholarly inquiry (i.e., searched "clesse terrortist therat" before Google automatically corrected for misspellings, but RB did not use Wikipedia), indicates that John Humberstone seems to be the primary original author, with useful additions provided by various reader comments.

Here are the threat levels with minor editing:

The English are feeling the pinch in relation to recent terrorist threats and have therefore raised their security level from "Miffed" to "Peeved." Soon, though, security levels may be raised yet again to "Irritated" or even "A Bit Cross." The English have not been "A Bit Cross" since the blitz in 1940 when tea supplies nearly ran out. Terrorists have been re-categorized from "Tiresome" to "A Bloody Nuisance."

The last time the British issued a "Bloody Nuisance" warning level was in 1588, when threatened by the Spanish Armada.

The Scots have raised their threat level from "Pissed Off" to "Let's get the Bastards." They don't have any other levels. This is the reason they have been used on the front line of the British army for the last 300 years.

The French government announced yesterday that it has raised its terror alert level from "Run" to "Hide." The only two higher levels in France are "Collaborate" and "Surrender." The rise was precipitated by a recent fire that destroyed France's white flag factory, effectively paralyzing the country's military capability.

Italy has increased the alert level from "Shout Loudly and Excitedly" to "Elaborate Military Posturing." Two more levels remain: "Ineffective Combat Operations" and "Change Sides."

The Germans have increased their alert state from "Disdainful Arrogance" to "Dress in Uniform and Sing Marching Songs." They also have two higher levels: "Invade a Neighbor" and "Lose."

Belgians, on the other hand, are all on holiday as usual; the only threat they are worried about is NATO pulling out of Brussels.

Canada has also raised its threat level from "No problem, eh?" to "That's not nice and please stop." They may still raise the level further to "Apologize to terrorists we offended by asking them to stop." Of course the top level is painting signs on rooftops with arrows pointing south saying "U.S. THAT WAY."

The Spanish are all excited to see their new submarines ready to deploy. These beautifully designed subs have glass bottoms so the new Spanish navy can get a really good look at the old Spanish navy.

Australia, meanwhile, has raised its security level from "No worries" to "She'll be alright, Mate." Two more escalation levels remain: "Crikey! I think we'll need to cancel the barbie this weekend!" and "The barbie is canceled." So far no situation has ever warranted use of the final escalation level.

testing communist cars

In this morning's introductory economics class we discussed the practical, inherent problems with centrally planned socialist economies -- like the former Soviet Union and Eastern Europe in the bad old days before the Berlin Wall fell.

A colleague told me about the following video and now I'm having my students watch it. It is from the British TV show Top Gear. I do find it a bit ironic that these two smart-alecks make fun of Communist cars, given that the Brits during the 1960's made some of the free world's worst cars. You probably have never heard of most of the British car models mentioned. They were all bad, very bad, and these guys know it; their viewers know it. However, that is part of the humor. So this clip could be titled "Best of Communism v. the Free World's Worst."

(Vocab lesson: biro is a British term for a ball-point pen.) BTW, my favorite part is the drag race.

william on the lunar rover

We spent the weekend in NH. A good time to visit since Friday was William's six-month birthday. The kid has more stuff than I ever had. It is also way cooler. Among his impressive equipment, as pictured here, is what I call his lunar rover.

William's mom is a lecturer at Dartmouth this semester. Her office is in a wing off the Baker Library and is in the nicest office suite I have ever seen. Picture 80-year old real-wood paneled offices with 14-foot high, or more, ceilings, off a room filled with books, leather uphostered chairs, and a gorgeous conference table.

Come to think of it, don't try to picture it. It is nicer than you can imagine. I told William's dad that no matter how high he climbs the corporate ladder, he will never have as nice an office as his wife now has.

Be blessed!
RB

merry christmas

Click image to to enlarge
[source]

what if the us$ was not the world's reserve currency?

A friend asked me,

What is your take on if the U.S. dollar loses its reserve status as the world's reserve currency? In today's economic environment and the government's incessant use of QE, what are the chances of the U.S. losing this status, and if we do, what does that look like for the American people the next day when they wake up after it happens?

There are a few questions there. I may oversimplify too much, or too little, for some but let's take them one at a time.

Q. What will happen if the dollar is no longer the world's reserve currency?

A. Not much. Maybe interest rates on U.S. government bonds would be a little higher.

Why? Countries like China or oil-rich Arab states do not hold excess cash but buy Treasury bonds with their excess cash. (U.S. bonds do not pay much in interest but it is more than the zero return on holding cash.) If the foreign demand for U.S. Treasury bonds goes down then the federal government would have to pay a bit more in interest to sell its bonds.

The British pound was once the major reserve currency in the world and started losing ground to the U.S. dollar after WWII. Britain is doing just fine. Being a reserve currency is not a big deal. It just means there is a larger demand for government bonds which are denominated in the currency.

Q. If the dollar stops being the reserve currency, what would it look like the day after it happens?

A. It won't happen in a day. It would happen over years. It will not happen soon.

Individual countries decide how they hold their reserves. We see some diversifying their reserves now rather than holding everything in dollars. Putting all the eggs in one basket is not a good idea.

What would be the substitute for the U.S. dollar? The euro? The Chinese yuan? Well, the euro is the most likely alternative. However, given the financial crises in various European countries, no country would choose to load up on euros for their reserves right now. The yuan is not a convertible currency so it can not be used as a reserve currency yet.

Q. Will QE (quantitative easing) hasten the loss of reserve status.

A. In all likelihood, no.

There are several ideas and issues implicitly embedded in this question:

• First, if U.S. inflation is much worse than another countries, then the dollar is losing value faster than other currencies. This would tend to cause a flight out of dollars as countries would rather hold reserves in other currencies. (Even this might not happen if the interest rates on U.S. bonds were high enough to offset the expected higher inflation in the U.S.)

• Second, QE (quantitative easing) is the Federal Reserve System (a.k.a. the Fed) buying up government bonds in the open market. They create money by doing this, and more importantly, create the potential for even larger increases in the money supply as banks could create additional new money. (A very long, complicated story as to how and why. I'll spare you.)

• Third, a large increase in the money supply can set off inflation, thus QE may cause the U.S. dollar to look relatively unattractive as a reserve currency.
  

However, the above chain of reasoning is not happening and is unlikely to happen. The money supply is not growing, as it would with QE in normal times, and therefore is not causing rising inflation rates.

The money supply is not growing because so many banks are in trouble or afraid of getting into trouble. Banks are holding huge amounts of excess reserves -- funds in excess of what they have to hold to back up deposits -- funds they could loan out and create new money. Banks are not making loans, money is not being created. To give you some idea of the magnitude, a couple of years ago, in more normal times, commercial banks had $8 billion in excess reserves. Now they have well over $800 billion in excess reserves.

That is a lot of potential money creation that ain't happening. Something like this has not happened in the U.S. since the 1930's. If the fears of bankers subside and they start creating new money, the Fed can reverse QE by selling their holdings of Treasury bonds and reducing the excess reserves.

A similar QE happened during a banking crisis in Sweden during the 1990's. When normalcy started to return the Sveriges Riksbank, the Swedish version of the Fed, put QE in reverse and wound the whole thing down without inflation.

Finally, inflation is low. Inflation is below the Fed's target rate of 2%. Yes, some commodity prices are rising but that is due to the increased demand from China and other emerging economies that have expanding economies right now.

Is anyone still with me?

There are a lot more scarier things out there than the dollar not being the world's reserve currency. And even if there are:

"Peace I [Jesus] leave with you; my peace I give you. I do not give to you as the world gives. Do not let your hearts be troubled and do not be afraid" (John 14:27, NIV).

an economist's chanukah

Eight days of the Festival of Lights (Chanukah, Hanukkah, or whatever) is ending so I offer these four items:

#1 The principles of economics explanation of the miracle of Chanukah
[HT: him | Source ]



#2 The Econ Chanukah Song
(With Apologies to Adam Sandler)
[Source: the original post on December 4, 2007]

Put on your yarmulke
Here comes Chanukah
Lots of Economica
Celebrates Chanukah
Chanukah is the festival of lights
Avoid diminishing returns with eight crazy nights

When you feel like the only kid in town without Christmas utility
Here’s a list of economists who are jewish just like you and me
Paul Samuelson lights the menorah in the evenin’
So do Solow, Stiglitz and the late Milton Friedman

Guess who eats together at the Fed reserve deli
Alan Greenspan and Chairman Ben Bernanke
Akerlof’s part jewish, Herb Simon’s part too
Bundle them together, what a fine econ jew

You don’t need jingle bell or a yule log
cause you can spin a dreidel at the Becker/ Posner blog- both jewish

Put on your yarmulke
It's time for Chanukah
the author of Freakonomikah
Celebrates Chanukah

Robert Mugabe, not a jew! Or an economist!
But guess who is? Nobel prize winners Ken Arrow and Simon Kuznets too
We got Herb Stein and his son’s Ben’s money
David Ricardo was born jewish- but went Quaker for his honey

Some people know that Paul Krugman is
He hasn’t won a Nobel prize
but three others did --- This YEAR!
So many jews are econ wiz kids
Greg Mankiw isn’t, but I heard his book agent is

So study your Economica
It's time to celebrate chanukah
I hope I get published in Econometrikah
Oh this lovely, lovely chanukah

So find your equilibriah
And check your heteroskedisticas
If you really, really wannakah
Have a happy, happy, happy, happy chanukah
Happy chanukah!

#3 Jewish Economists: the list

#4 Jewish Nobel Prize Winners in Economics: the list
(42% of world total, 55% of US total)

Be blessed!
RB