Tuesday, December 14, 2010

The Scott Sumner debates

Ultimately the complaint about the Scott Sumner futures NGDP betting market is just that  not everyone has a Fed account.  So, the bankers will need to set up a production system, a Levine chain, to decompose the NGDP futures market into manageable accounts with different terms; set up the casino so to speak.  The Fed announces a target and investors bet up or down on the target, but the betting market must be broken down into small, medium, and long term betting pools.

Here is the instability problem.  When real growth matches the target then few bets are placed and we end up with Casino managers sitting around with nothing to do. Seriously, the rapid rise and fall of betting funds whenever the economy may veer from target  will cause instability in portfolios and right at the moment of change, the betting market will deliver a step function as money suddenly fills up the betting network.

No comments: