Sunday, June 28, 2015

Is reverse repurchase working?

Reverse repurchase was the gimmick the Fed invented to get the non-member banks access to the Fed deposit rate. The total deposit balance is blue and exceeds the loans to DC, the loan to deposit rate now .85. The blue line is a cycle mainly because the Fed is closing has created a loop, hopefully that goes away. The new deposits only earn .12 compared to the existing member deposits earning .25. If you consider the remits back to Treasury as a tax on the bond market then we have an effective tax cut. I looked at the Treasury yields from Bloomberg and the one year bond is now .29, higher than the deposit rate. The ten year is about 2.48. The curve has flattened. Interesting times ahead.

Saturday, June 27, 2015

The middle class loves the new supplemental currencies

Wallet specific rewards, call them points, or simply bit money. Business Insider has the scoop.

We can figure out how long the Fed reserves will last

We can use out Poisson assumption and get a good idea. First we construct out two period model.

Deposits^2-Loans^2 = Liquidity

Now liquidity is going to be low, by law the Fed is not allowed to be a central banker.  But let's set liquidity to 1.0, as if the Fed is perfectly adapted to the Shannon condition.  That chat on the left is loans/deposits, tanh.  We will find the probability distribution of liquidity on the right side of the equation. It will be a distribution named Skellam, and wiki has it here. Skellam is constructed from the two parameters, Cosh^2 and sinh^2, so lets find out what Cosh and Sinh might be when tanh is near one. But one catch, we have not included the reverse repurchase deposits.  But I have looked and I can say that adding them in makes tanh near .98. That makes Cosh^2 about 25, and sinh ^2 about 25.

The Skellam distribution says the mean to variance is going to be 1/(25+24) os about 1/49. What that means is that the Fed has to go through 49 variations of deposit combinations otherwise called Fed press conferences. That would be 2^49, or some 10000 trillion months assuming the member banks alter their portfolio once per month. Mathematicians will give a better answer from the moment generating function which tells us the time, or number of transactions to expect.

Why don't I use log(50,2) and get the number of bits? Because the bankers have to build the encode and decode tree, they have to count all the combinations first.  Mathematicians will correct me, but I think I am close. In this case we have 30 member banks.

But wait, you say, wasn't the tanh  above 1, up to 1.15 during 2012? You bet, and when the Fed does that is it fermion statistics, we use coth, 1/tanh.  During those periods money is sucked from tax payers and handed over to wealthy people.

Can the economy wait 900 trillion years? No, the boneheads in DC will fly the helicopter, as in Nixon Shock.  The super wealthy have their baskets ready, they will know where the money lands.  Hence the urgency of getting banker bot into the pocket of every middle class person in North America.

Friday, June 26, 2015

Finged print authentication on smart cards is available

Swipe your finger across the smart card and you will be authenticated by finger print.  So this part is done. But I would also require your face be printed on the card also.

So, the security protocol to protect our smart cards is coming together just fine.

Obamacare costs were 43% of personal spending this month

Here are the consumer healthcare payments, mostly Obamacare, in precentage from the previous period. They are taken from the BEA consumption and outlays, here. The total amount of consumer spending growth was 1.43, and so we can see that 43% of that was Obamacare, less than last month but still high as we can see.

0.40 0.30 0.48 –0.16 0.45 0.52 0.88 0.62

A new suplemental currency in action

Business Insider: The prevalence of video-on-demand is causing box office profits to decrease, especially in North America. One company is giving consumers an incentive to keep going to the multiplex.

MoviePass is a subscription service that, for a $30 to $35 monthly fee, offers unlimited trips to the movie theater. We took it for a test drive and found that the service makes a lot of economic sense for people who venture to the theater frequently enough to cover the subscription cost.

Pay attention WalMart. Movie Pass closes a loop that regular dollars cannot close. Now movies theaters, movie producers and theater goers have captured their shared information and saved a consumer product.

Jerry Brown and the cover up

Jerry has decided to hide the rate increases on Obamacare, which means they are likely greater than 50%.  This is Jerry planning to do the California spiral.
CalWatch: But California Insurance Commissioner Dave Jones dismissed that claim. In an interview with State of Reform, Jones characterized California’s health insurance providers as a virtual monopoly, “attributable in part to decisions made by Covered California and unchecked rate increases as top issues.”
Inside and outside the exchange, he said, “you have an extraordinary concentration of the market going to a handful of carriers. As a result, they function in a classical economic sense as monopolists or oligopolists who are able to dictate prices for what is an essential good that people desperately need and are willing to pay just about anything to get.”
Jones has raised hackles among Democrats for challenging Covered California’s effectiveness and propriety. But activists further to his left have created bigger headaches. Not all consumer groups have been kind to Covered California executives. In a letter to Lee, Santa Monica-based Consumer Watchdog demanded that Covered California release its planned rate increases for next year. California “has successfully lobbied the federal government to delay public disclosure of qualified health plan rate change proposals for 2016,” the organization noted, becoming the only state in the nation to do so.
“Citizens of every other state now have access to proposed rate hikes, except the people of California, who are already disadvantaged by the absence of rate regulation in this state,” the letter warned.

Abenomics worked? Horse manure

Here it is, Japan's growth rate over the years, hovering around zero and the latest reading is 1%.  You cannot even see Abenomics in this picture!

How about the inflation rate?
Abe managed to fuck up the pricing mechanism, naturally, one of the stupidest ideas economists have ever tried. All that jerking around on prices makes the economy inefficient.

How about unemployment?

Down, below their typical 4%. A half point below, barely any effect. So all this horseshit means Japanese have to work harder to pay for the ignorance of economists. Notice they have to work when pricing is all fouled up.

Who is to blame? Badly educated economists of the Kanosian, Lafferonian  and Monotonarian variety.

Thursday, June 25, 2015

Economist using the theory of everything

On Reaching for Yield and the Coexistence of Bubbles and Negative Bubbles

We develop a model of financial intermediation characterized by an inside agency problem such that managers "reach for yield" by overinvesting in risky assets and concurrently underinvesting in safer assets when they have access to high enough liquidity. The investment preferences of managers follow a certain pecking order whereby their first preference is to invest in risky assets; their second preference is to hoard on to liquid assets (i.e. cash and cash equivalents) so as to provide a buffer against runs; and their last preference is to invest in medium-risk assets. The reaching-for-yield behavior of managers is conducive to the formation of bubbles in the market for risky assets and concurrently "negative bubbles" in the market for safer (i.e. medium-risk) assets. We show that loose monetary policy reduces the cost of covering any liquidity shortfalls suffered by the intermediary which induces further "reaching for yield" culminating in the coexistence of bubbles and negative bubbles in risky and safer assets respectively.

This is the classic Peter Keevash problem.  Investors try to match cash on hand against assets that might drop in price. The investors have borrowed against the assets and when asset prices drop the asset is underwater.  Where does Peter Keevash come in?  The investor notices that some small set of assets go underwater together more than once. They then drop the group size by combining elements of their portfolio, and that is a contraction. So what is the solution? For a big bank, hire Peter Keevash.

Why is Peter Keevash my new hero? He does not use the contrivance of information theory, he can work directly with queuing theory and finite systems.

Walmart! Charges yes, dollars no

Wal-Mart to impose charges on suppliers as its costs mount

Wal-Mart Stores will begin charging fees to almost all vendors for stocking their items in new stores and for warehousing inventory, raising pressure on suppliers as the world’s largest retailer battles higher costs from wage hikes. 

Make them pay in Walmart dollars. The cost of circulating WalMart value points around the loop is nearly zero. The dollar cost to travel that loop is about 2%.  Get it! Banker Bot is free, it comsumes a nicklel of electricity a year. It is passed easily from bot to bot, all automatic. Walmart runs the value point savings and loan business.

I know you folks are excited about  banker bot, and you plan miracles with WalMart Value points.  Well here is your first miracle, use WalMart value points to lower the accounting cost from supplier to shopper. Your inventory volatility drops way down, you come out a big winner, you are super secure.  Go  talk to George Selgin, I think he is the CEO of Banker Bot company.  He has this whole thing nailed, he is the go to guy.