Friday, July 18, 2014

Where In the World Is Izabella Kaminska?

It seems that following Camp Alphaville:

She has apparently retreated from the world, with only a few flyby's of her personal blog, Dizzynomics, to show she still cares about writing rather than, say, pursuing a full-time financial-event-planning career ("I want the dark inventory in the shadow of the crypto mining rigs" "Yes, nice effect". "Now, could the Central Bankers do a last run-through of their opening,'We're in the money...'")

From Dizzynomics:
Fixed vs flexible regimes
Debt may be a giant monetary short-sale, but it’s not a capital short-sale.

Hence why I contend that a system based on fixed monetary units representing capital — which actually has infinite expansion potential — has the capacity to be so disruptively squeezed. And that’s the case whether the fixed units are gold, bitcoin or fiat.

In a fixed regime, you’re lending units for the purpose of creating more capital — which can be expressed in many other things than just the units you’re lending — but expecting only the underlying fixed units back, not a pay off in the new capital. Unless the money supply grows in tandem with the new capital created, however, there is always going to be a squeeze. This is what the cross of gold argument is all about. It punishes the economy for creating new capital.
As Paul Krugman has explained in the past:
First, a gold standard would have all the disadvantages of any system of rigidly fixed exchange rates–and even economists who are enthusiastic about a common European currency generally think that fixing the European currency to the dollar or yen would be going too far. Second, and crucially, gold is not a stable standard when measured in terms of other goods and services. On the contrary, it is a commodity whose price is constantly buffeted by shifts in supply and demand that have nothing to do with the needs of the world economy–by changes, for example, in dentistry.
The United States abandoned its policy of stabilizing gold prices back in 1971. Since then the price of gold has increased roughly tenfold, while consumer prices have increased about 250 percent. If we had tried to keep the price of gold from rising, this would have required a massive decline in the prices of practically everything else–deflation on a scale not seen since the Depression. This doesn’t sound like a particularly good idea.
In that piece Krugman also cites the moral of the story of King Midas, which in his opinion is about teaching Midas that gold is only a metal, and that its value comes only from the truly useful goods for which it can be exchanged.

That’s not to say that a gold standard isn’t a good thing in economies that are prone to depleting resources and capital rather than adding to them. But discouraging waste is a very different to discouraging growth.
As an aside, purpose-based currency could change this because it could see people paid back in underlying goods produced rather than money, preventing the money supply short squeeze from happening at all. That, I have to say, would be a truly great monetary innovation in a world which clearly can’t tolerate the central bank adjusting supply by judgment alone.

That way, if you have a need for bread rolls in your local area, you provide the start up capital to a company committed to making more bread rolls. When you’re paid back in bread rolls or in kind rather than dollars, it doesn’t really matter if the expansion of bread roll supply in your area prevents the company from being able to fetch enough money to pay off its debt to you. You just care about receiving the rolls which you would not have got had you not invested.

Had the debt been in dollars not bread terms, the only way business — which might still be viable, necessary and desired — could sustain itself is through cheap credit and the ability to continuously roll the debt on and make the payments on it. And then it might be classified a zombie business, even though it’s not.

The China case
Which leads me to the only place in the world where they seem to understand this fundamental problem with money-supply short squeezes: China.

China has managed to get itself out of the poverty trap (a.k.a the Cocktail trap) — a trap in which hard work is never enough to allow you to catch up with incumbent wealth since success is actually dependent on serendipity or luck, not meritocracy – by understanding that the West’s fixed monetary supply obsession can be used to their advantage if one is prepared to expand the money supply in their place....MUCH MORE
Here's more Camp Alphaville as we await Izabella's return:

 Camp on camera – II
Many links, including...