Saturday, 3 November 2018

Money for old rope.

Warning: this article contains sarcasm, p*ss taking, criticism etc which has been known to cause distress, nervous breakdowns, and occasionally an attack of the vapors. Anyway….

Do you want to know how to get hold of hundreds of thousands of pounds with a view to funding a nice well paid and respectable job for yourself in some nice location like central London? Here’s how.

Set up a worthy sounding organisation and apply to government and charities like the Joseph Rowntree Foundation for loads of dosh. The so called “Finance Innovation Lab” is a good example of this sort of wheeze.

It’s important to plaster your web-site with meaningful sounding and technical sounding phrases. For example on the Finance Innovation Lab home page we find the phrase (in large bold type), “Stand out as a purpose driven leader in financial innovation”.

Crickey: I’ve spent my entire life engaged in utterly purposeless activities, and now I’ve learned that activities should have a purpose. You learn something every day.

The home page also says “We incubate the people and ideas that can change finance for the better.” I always thought “people” were “incubated” in womens’ wombs – silly me.

As for the idea that people with ideas on finance need to be “incubated” by the Finance Innovation Lab or any similar organisation, that’s news to me. I’ve got loads of ideas on finance – set out on this “Ralphonomics” blog over the last ten years – but I feel no need to be “incubated” by anyone, thank you. Nor, far as I know do the other original thinkers on matters financial (e.g. Warren Mosler who founded Modern Monetary Theory, or Ben Dyson who founded Positive Money).

The Finance Innovation Lab do organise conferences and seminars. But personally I’m not inclined to burn up carbon based fuels just to get to such meetings: nowadays you can discuss ideas with anyone anywhere in the World via the internet.

The Finance Innovation Lab also publishes articles, but anyone can do that. I’ve published about a thousand on this “Ralphonomics blog” over the last ten years, and that’s cost taxpayers nothing, plus the Joseph Rowntree and similar organisations contributed not a penny to my very modest expenses.

Reverting to the subject of dosh, the Finance Innovation Lab are not half capable of pulling the stuff in. On their “support us” page, you’ll see they’ve managed to attract OVER A MILLION POUNDS in the last couple of years or so from the above mentioned Joseph Rowntree Foundation and others. But they still want more: as you’ll see on that page, you are invited to deplete your bank account by donating even more to them. I think I’ll decline that invitation.

Here endeth the p*ss taking.


  1. Hi Ralph. I saw your comment on Dean Baker's article about the Washington Post. I agree with you but am having a difficult time figuring out why. Could you elaborate on why owing a foreign country money to be paid in the future means that future generations will have less for themselves? (If that is what you meant, of course)

    I see several obvious ways that this might not be the case (assuming a fiat currency and debt denominated in that currency) 1- they just repudiate the debt. 2-they inflate away the value of the currency to where the debt is hardly a burden. 3- the economy grows to the point where the debt has a minimal impact on their standard of living.

    Mostly, it seems to me, the real costs involved with any 'debt financed purchase' are borne at the time of the purchase, at least by someone somewhere- not at the time of repayment in the fiat currency. Is that true? What do you think?

    1. Hi Jerry,

      Re your 1 and 2, yes – there’d be no debt to repay. I was just assuming more or less normal conditions, i.e. inflation somewhere near the 2% target and everyone obeying the law. Re your 3, much the same applies, i.e. for your 3 to be true, economic growth would have to be astronomic, something that planet Earth cannot accommodate, not that can even accommodate EXISTING methods of economic growth which involve far too much CO2 emission etc. Or assuming more normal rates of growth, then the debt would have to stay in place for centuries, which is also a bit unrealistic.

      Re your idea that the cost of debt (and associated infrastrucutre, or whatever the debt pays for) is born at the time the debt is incurred, I fully agree. E.g., assuming a country does not get foreigners to fund the debt, then the cost of creating for example a bridge in 2018 absolutely has to be born in 2018 or earlier. That is, it is not physically possible to build a bridge in 2018 using steel and concrete produced in 2030.

    2. Jerry,

      Re your first para, the answer is simply that there is a temporary boost to living standards for any entity that borrows so as to consume something. E.g. if I borrow $X to buy a car, my standard of living rises temporarily: I have a car which I have not had to pay for. If I then drastically reduce my consumption say in the 5th and 6th year after buying the car as as to save up money to pay back the debt, then my standard of living in those two years declines.

    3. Thanks Ralph. What led to my question is that like you say "it is not physically possible to build a bridge in 2018 using steel and concrete produced in 2030". Which is making me believe that the real costs to the economy of building that bridge occur at the time it is built no matter how it is financed. I mean for something like the Federal Government, the idea that we can 'build it now but pay for it later' doesn't make sense to me. Anyways, thanks for the help :)

  2. My great finance idea: Bernanke in defines an External Finance Premium, which is countercyclical: the EFP spikes in a panic. So the Fed should sell shares in an EFP derivative index. I could hedge an S&P 500 index share with an EFP index share. If traders panic and sell off stocks, the EFP goes up and the Fed promises to buy them back. Thus external finance will be backstopped by the Fed, just as in 2008, but explicitly via an insurance product. Banks can insure against panics by buying EFP shares.

    1. Hi Robert,

      I had a quick skim thru Bernanke’s paper. As I understand it (and it’s unlikely I do understand it) the EFP is a sort of fund which does nothing most of the time, but lends at a very high rate of interest to panic stricken banks and similar during a crisis. Strikes me the problem there is that given how rarely big crises occur (once every 30 years or so maybe), the rate of interest that the fund would have to demand from those it was rescuing would have to be ASTRONOMIC. Those facing borrowing on those terms would decline the offer and just choose bankruptcy I think.

    2. My idea is that the Fed sells the EFP index, which pays very low interest (maybe even goes down) in normal times. In a panic, when banks can't get funding, the EFP spikes. Banks that can't get funding can then sell their EFP shares to get the funding they otherwise can't get, because of the EFP.

      The Fed would guarantee that they, at least, would buy the EFP shares back in panic times.

      In other words the Fed still prints money but it is all done in a controlled orderly fashion instead of requiring ad hoc decisions by the FOMC. The Fed provides external financing in a crisis by buying back the crisis insurance it sold.

      If banks fail to buy enough crisis insurance, i.e. don't buy enough EFP index shares, they should be allowed to fail or rely on their own devices to obtain financing in a panic.

      A basic income would let banks fail without affecting standards of living ...


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