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Tuesday, July 19, 2016
Tuesday, July 05, 2016
The link that I gave last time was broken.
Monday, July 04, 2016
Wednesday, June 22, 2016
Friday, June 17, 2016
Tuesday, June 07, 2016
The Land Below Zero: Where Negative Interest Rates Are Normal
Denmark has been an upside-down world for longer than any other country. The sky hasn't fallen yet.
In Copenhagen, bicycles take undisputed priority over cars and even pedestrians. A sizzling restaurant scene has made foodie fetishes of moss, live ants, and sea cucumbers. Despite a minimum wage not far below $20 an hour and some of the world's steepest taxes, unemployment is almost the lowest in Europe. Parents happily leave infants unattended in strollers on the sidewalk while they stop in to cafes.
Clearly the usual rules tend not to apply in Denmark. So it's no surprise that the country in recent years has added a major new entry to its sprawling repertoire of eccentricities: Since 2012 it's been a place where you can get paid to borrow money and charged to save it.
Scandinavia's third-largest economy (the population is 5 million, and there are about as many bikes) is deep into an unprecedented experiment with negative interest rates, a monetary policy tool once viewed by mainstream economists as approaching apostasy, if not a virtual impossibility. Companies—though not yet individuals—are paying lenders for the privilege of keeping funds on deposit; homeowners, in some cases, are actually making money on mortgages.
Most private-sector forecasters don't expect Denmark's central bank to go positive again until 2018 at the earliest, making the country a long-term petri dish for what happens when the laws of financial gravity are inverted. Although some dovish economists have advocated negative rates as a salve for deflation and anemic growth, if Econ 101 is to be believed they should have stomach-churning consequences: asset bubbles, capital flight, and the frenetic manufacture of very heavy vaults to hold money pulled from banks.
Central bankers looking to Denmark for evidence of such trauma aren't likely to see much. If anything, they might find the Danes' approach tempting. A certain amount of financial weirdness aside, their country is mostly free of the distortions economic theory tells us to expect, suggesting negative rates may deserve to move from taboo to the standard monetary policy toolbox.
That might be the wrong lesson to draw. Instead, the takeaway may be that negative rates can work—but only for some purposes and perhaps only if you're Denmark. "It's not the catastrophe that some people would have thought," says Erik Nielsen, a Dane and the global chief economist at UniCredit. "But you're playing with fire."
To understand how Denmark came to be the land below zero, some context is necessary. The country's sole border is with Germany, its biggest trading partner. Yet Danes have historically been ambivalent toward the European Union and in a 2000 referendum rejected joining the euro.
Denmark's currency, the krone, was pegged to the deutsche mark from 1982 to 1999, and to the euro thereafter. Maintaining the peg is the sole mandate of the Danish central bank, so crucial is it to the economy. As the European debt crisis reached one of its periodic crescendos in 2012, investors seeking a safe haven piled cash into Denmark, threatening to push the krone out of its trading band. The benchmark deposit rate was already at 0.05 percent, leaving nowhere to go but down to reduce the country's appeal to hot money. Denmark thus resorted to negative rates not to spur inflation—as Japan is trying to do, unsuccessfully—but to drive away speculators.
The battle to safeguard the peg is led from an orthogonal hulk of stone and glass in downtown Copenhagen designed by Arne Jacobsen, father of the modernist egg chair. Danmarks Nationalbank Governor Lars Rohde, who took office in 2013, has known negative rates for almost his entire tenure. On his first day, the deposit rate was -0.1 percent; it now stands at -0.65 percent. In his telling, Denmark's choice is simple: The peg must be protected, and negative rates are doing that without great disruption. The central bank "will do whatever it takes to defend the peg," he says in an office decorated in Nordic tones of blond wood. "There's no sharp, disruptive movement when you pass below zero. It's just working like very low interest rates."
In the broad sense, that's proved true. Bank earnings are in line with those of European peers, with new fees making up part of the cost of low rates; the amount of cash in circulation has climbed only modestly. Still, some Danes find themselves contemplating bizarro-world challenges to the normal way of doing business. In the neo-baroque parliament building, Benny Engelbrecht relates some of them. The 45-year-old Social Democrat lawmaker was responsible for business and taxation until 2015, a role in which he was forced to contemplate dilemmas like whether it would be legal to tax negative interest payments to mortgage borrowers as income. (It is.)
Last year the central bank flagged another alarming possibility. Fearful of angering retail depositors, banks aren't yet taking haircuts from individuals' accounts. Large and medium-size companies, however, are subject to just that. But businesses that prepay their taxes in Denmark receive modest interest on the deposits, which is credited against what they owe or are refunded. With no limits on prepayments, might they start using the taxman as an unofficial bank? Rules had to be hastily struck to limit how much a business could deposit, removing the dodge before anyone took significant advantage of it, Engelbrecht says.
For companies, there aren't a lot of options. "You get penalized these days for having cash in the bank," laments Jens Lund, chief financial officer of logistics group DSV. The firm found itself in a tricky situation in November, when it sold 5 billion kroner ($750 million) of shares to fund a takeover of rival UTi Worldwide. Short of renting a huge vault, that meant sitting on most of the proceeds at negative rates until the deal was finalized in January, at a cost of about 4 million kroner. Apart from shopping around for the bank that would take the smallest cut, Lund says, "there's not much you can do about it."
Conversations in Copenhagen these days turn quickly to real estate. The city's in the midst of a construction boom, its center of urban gravity shifting inexorably toward a harbor crammed with new apartment buildings. At one end a whimsical, bikes-only bridge, the Bicycle Snake, squiggles between gleaming new construction. The water here is perfectly swimmable, and when office workers hop in for lunchtime dips in fine weather, it's as if a gang of energetic summer camp counselors had been given control of a midsize metropolis.
There's no question negative rates have driven up the price of owning a piece of this urban vitality. Apartment prices per square meter soared 43 percent between the start of 2010 and the end of 2015, according to real estate broker Home; in early May the International Monetary Fund urged the government to rein in Danish house prices.
Keeping the boom from getting out of control is partly the job of Jesper Berg, who runs what's almost certainly the world's hippest banking regulator. The Danish Financial Supervisory Authority occupies a converted warehouse in the gentrified neighborhood of Osterbro; it feels like a late-stage startup, complete with hardwood floors and an open plan. From a balcony with a sweeping view of downtown's construction cranes, Berg concedes "we have some froth" in the urban housing market, "but not a bubble." Compared with New York, London, and even Stockholm, Copenhagen real estate is still a bargain: $500,000 buys a decent two-bedroom.
If Berg is correct, that's largely because the country regulates the housing market to a degree unimaginable in the U.S. It's nearly impossible for a foreigner with no connection to Denmark to buy property, preventing inflows of overseas money. Banks apply stringent financial criteria to mortgages for buy-to-let properties; it's hard for Danes to purchase homes they don't intend to live in. Regulatory guidelines require minimum down payments of 5 percent and stress tests of borrowers' finances against runups in rates. With the encouragement of regulators, banks have hiked fees on flexible-rate loans, nudging buyers into fixed-rate mortgages. The rules are even tighter for properties in Copenhagen.
Real estate players also argue that Danes, temperamentally, are a risk-averse bunch—especially with memories of a 2008 property crash still fresh. "I think people have learned from the last bubble," says Karsten Beltoft, chief executive officer of the Danish Mortgage Banks' Federation.
One of those people is David Garby, a 36-year-old website editor whose mother saw her apartment plunge in value after that bust. He and his girlfriend recently bought a new home, an 800-square-foot apartment just outside central Copenhagen. They opted for a fixed-rate mortgage at 2.5 percent, even though far lower interest was available at an adjustable rate—the result "of my Calvinist upbringing," Garby jokes on a sunny cafe terrace. "I wanted to be conservative."
Beltoft's concern: What happens if negative rates move from medium-term peculiarity to long-term reality, reversing the fundamental principles of debt and savings in a way that makes the change seem permanent? Since the Code of Hammurabi legislated interest rates in the 18th century B.C., and perhaps much earlier, capital has had a cost; in modern Denmark, it often doesn't. "I believe it will change the psychology," Beltoft says. "That could be dangerous."
Berg puts his apprehension about staying below zero indefinitely in terms that Danes, who cram the country's white-sand beaches in the brief Nordic summer, can easily understand. "There's a difference between standing on the beach in dry sand and moving into the water," he says. "The further you go out, and the longer you stay there, the more problems you can run into."
Campbell is a senior reporter in London. Levring covers Nordic economy and government in Copenhagen. With assistance from Tasneem Brogger, Frances Schwartzkopff, and Christian Wienberg.
Friday, June 03, 2016
Last week, when corresponding with a 22-year-old Donald Trump voter who saw the billionaire's rise as an opportunity to strike a blow against political correctness, I was asked why I believe Hillary Clinton to be a preferable candidate, despite my regarding her as a corrupt, untrustworthy person with poor foreign-policy judgment, and my repeated warnings to Democrats that they'd be foolish to nominate her.
I replied that for all Hillary Clinton's flaws, she is a known quantity who is very likely to govern much as her husband did in the 1990s—the United States under her stewardship is extremely likely to remain among the most prosperous, free places to live not just in the world today, but in all human history—so it would be imprudent to reject her for a bigoted, attention-seeking demagogue with an impulsive personality and no domestic- or foreign-policy experience. It would betray a failure to appreciate what we've got, I wrote, and a failure to imagine just how bad things could get.
A guy with a temper who pathologically seeks attention and feels the need to assure a TV audience that he has a big dick is not someone to trust with nuclear bombs.
READ FOLLOW-UP NOTES
For the last few days, I've been reading emails from Bernie Sanders supporters who are thinking about voting for Donald Trump in the general election—and rereading Josh Barro's excellent assessment of the terrifying long-tail risks Trump poses. The juxtaposition has inspired some thoughts for Democrats who are flirting with Trump. Before offering them, here's an email from the sort of voter I'm talking about––a progressive who would love to see the fruition of the Sanders revolution, but disdains Hillary Clinton so much that he can't imagine voting for her:
I'm writing to you to articulate some of what has caused me over the last month to gravitate towards Donald Trump, despite despising a lot of what he stands for. I'm white and college educated, but as a consequence of pursuing a career in the arts, as my parents did, I'm currently making only about 600 to 700 dollars a month working various odd jobs to pay rent, feed myself, and keep up as best I can with student loan payments.
I've considered myself a leftist for about as long as I've had any sort of political consciousness. I think this is because class has always been the most [pressing] concern for me. My family has struggled with money for as long as I can remember. Without getting into too much detail, in the last six years alone, my parents have had to deal with foreclosure, bankruptcy, and losing both of their jobs. I am extremely sympathetic to the many people my age struggling for a fairer world through the lens of identity politics. I once marched in DC as part of a Black Lives Matter protest. I think those battles are critically important and worth fighting until they are won, although I think the focus needs to be on real quantifiable policy shifts rather than symbolic victories like getting more black people nominated for Oscars if meaningful change is going to be made.
But it's not my fight and my opinion shouldn't count for much. I consider immigrants, who I have worked alongside frequently, to be an invaluable asset to this country both culturally and economically. I bear no ill will towards Muslims at all, and in fact consider the animosity of many in the Muslim world towards the policies of our government to be pretty well justified. I have been registered as a Democrat ever since I became eligible to vote. I believed at the time, perhaps naively, that they were the party that most aligned with the direction I wanted the country to go in.
Given all of that, you would be correct to peg me as a Bernie supporter. I've never seen him as anything more than a well intentioned but flawed politician, certainly no savior, but his policies align with my worldview to a far greater degree than any other major presidential candidate in my lifetime. So what has me gravitating towards Trump has been the reaction of the Democratic establishment to the concerns raised by Sanders and his supporters: mockery and scorn. This is a man who has against all odds continued to score electoral victories despite his path to the nomination being almost impossible for months. Despite his message resonating with a large swath of the American public, many in the Clinton campaign and the Democratic establishment have painted he and his supporters as angry, entitled (and now violent) bigots. Basically the Trump supporters of the left. "Bernie Bros."
I don't believe in tribal politics. I think the idea of a monolithic "black vote" or "woman vote" is self evidently absurd. It creates a self fulfilling prophecy. People vote based on their personal experiences and the information they've been given. If low information voters are told repeatedly and ham-fistedly by the media that "people like them" are voting a certain way, they'll naturally toe the line. This kind of focus gives people an excuse not to pay more attention. Race and gender ultimately have less to do with it than whatever identity is most salient for each voter.
I don't consider my identity as a white man to be particularly important to my sense of who I am or how I vote, despite acknowledging the privileges it grants me in our society. If any identity unites Bernie supporters, it's a frustration with being poor, with feeling like the economic ladder is missing several rungs near the bottom. Perhaps Bernie's message has failed to reach a majority of Democrats because so many Americans are still afraid and unwilling to think of themselves as "poor," to incorporate class into their sense of identity. But his coalition is still far far larger and more diverse than he has been given credit for.
Yet the Democratic establishment has weaponized these convenient statistical trends in order to marginalize Bernie, his supporters, and his message: that our government will go the distance in the interest of the wealthy and powerful but table the desires and concerns of ordinary working people every time. The Democratic establishment has done all they can to ensure that they can return to business as usual once Hillary has secured the nomination, that they don't have to answer to the leftist coalition growing within their ranks. In the last week alone, several party insiders have flippantly stated that Bernie's efforts to shift the party platform at the convention don't mean a damn to them since the platform is entirely symbolic.
They will throw us a couple of symbolic bones and then get right back to serving the wealthy and powerful, leaving working people in the dust, despite a coalition of voters and a growing number of politicians who want to hold the Democrats to the letter of their word, to force them to become the party of peace, fairness, and equality that they campaign as. I refuse to believe that a gridlocked congress has kneecapped Democratic policy ambition. They had the opportunity to close Guantanamo, to institute single payer healthcare, to pull back on foreign wars, to raise the minimum wage, and to come to the aid of struggling families in the wake of the 2008 crisis when they held a congressional majority in the first two years of Obama's presidency. Instead they instituted overwhelmingly pro corporate policies like the Wall Street bailout and Obamacare, a love letter to the very insurance companies that were causing our health care system to collapse in the first place.
They've blamed it all on the Republicans ever since.
In trying to understand the history of the Democratic party, it seems like the only thing that causes the organization to realign itself is losing the presidency. When McGovern lost to Nixon, they moved to the center and pulled back on the democratization of the party. When Carter lost to Reagan, they moved to the right with the Clintons and we've been there ever since.
What happens when the electorate repudiates the politics of the Clintons? What happens when holding steadfast to corporatist neoliberalism causes them to lose the presidency to an oafish racist buffoon with no experience in government, who doesn't even try to hide his lies?
Will they finally come to Jesus?
Will they finally see that they're due for an implosion just as dramatic as the GOP's unless they learn to answer to their base of voters and not just the donors?
I guess I'm hoping they will.
That's admittedly optimistic. It's even more optimistic to hope that the country can even survive four years of a Trump presidency. But whether or not I can ultimately stomach the idea of betraying so many of my ideals in order to send a message by voting for Trump, I know that I will not be rewarding the Democratic party for their behavior not just in this primary, but over the course of my life time. It's up to them whether they can redirect their priorities now, or after a disastrous four years with a con man as the leader of the free world. And I do think Trump is disgusting. But he's shown a tendency to call out both sides of the aisle on their bullshit, even if he's hard at work manufacturing his own, at least it's new bullshit.
At least it could shake things up and make both parties have to change the way they do business. There are supposedly checks and balances built into our government to prevent the executive from torpedoing the country. They've been undermined steadily ever since 9/11, but maybe Trump as president is the best argument that they need to be re-strengthened. Can you imagine the tectonic shift that a Congress united against this asshole would bring? Maybe we need a constitutional crisis. Maybe things have already gone too far. We're all sick of being conned by the people we elect to represent us. At least Trump doesn't try to hide it.
I sympathize with a lot of this voter's frustrations.
But this is a glaring example of motivated reasoning. He really doesn't want to vote for Hillary Clinton, regarding it as a reward for a Democratic establishment that he loathes. So he has almost convinced himself of a possible future where a Trump win increases truth-telling against bullshit; causes the Democratic Party to shift dramatically in his preferred direction; inspires a tectonic shift in Congress; and triggers a constitutional crisis that improbably leaves the United States better off.
What I want to warn this voter and anyone indulging in the same thought process is that they're indulging in a dangerous fantasy, one that combines extreme pessimism and extreme optimism in an extremely confounding way. On one hand, the voter would have us believe that electing Hillary and working hard to pressure her from the left to make gains in progressive priorities is pointless or doomed to failure. The system is so corrupt that it's time to burn it down and start over.
On the other hand, he would have us believe—while we imagine the ashes—that four years or more of Donald Trump will turn out to be better than a Clinton presidency in the gains it ultimately brings progressives, despite the powerful forces arrayed against them—that unlike every other time in history when a bigoted authoritarian assumed power at a time of economic, political, and geopolitical volatility, the poor and marginalized will emerge as unexpected beneficiaries.
My correspondent is too smart to indulge that fantasy until November. It would be like standing on a golf course with a raised 9-iron during a thunder storm and telling yourself that while it's not clear if you'd survive a lightning strike, imagine if it cured your migraines, lowered your cholesterol, and increased your lifespan. There is no more reason to think a Trump-shock to the system would be salutary. Hasn't "heighten the contradictions" failed the left enough times to teach the relevant lesson?
Here's Josh Barro on the risks of a Trump administration:
Maybe President Trump would default on the national debt. Maybe Chinese officials wouldn't love Trump's insult-comic shtick as much as New York Republican primary voters do, and he'd manage to blow up a minor diplomatic incident into a nuclear war. Maybe he'ddissolve the military alliances that have helped keep Europe out of war for 70 years. Or maybe he'd just go ahead and nuke Europe. I don't think that these outcomes are terribly likely. I think Trump is probably sensible enough not to fire a nuclear weapon at Europe. But if he won't rule it out himself, then why should I?
The most likely outcome is that Trump would be neither good nor disastrous as president, but simply bad. For example, he might mismanage the country's finances, needlessly inflame racial tensions, undermine the rule of law, confuse and antagonize our allies, and hurt the economy through erratic policies that punish and reward investors based on his political whims.
This is the most likely outcome, and an undesirable one, but not the most important one to consider. America has survived bad presidents before, and we could survive a bad Trump presidency along these lines. What is more important — and less discussed, even by the Democrats — is the possibility of an outcome in the negative risk tail, like a nuclear war.
I understand the economic discontent in the US. People would like their wages to be higher and their economic fortunes to be more certain. They would like opportunities to be easier to grasp. The current malaise makes people eager for radical change. But while things in this country could be better, they could also be so, so, so much worse.
We have so much to lose.
People are failing to price in the small risk that a Trump presidency could cause us to lose everything we value, and that scares the hell out of me.
Last week, I told my political-correctness-hating correspondent, who believes he has much to gain from a Trump presidency, that he's imprudently dismissing the downside risks. I find it much more alarming that a progressive who expects to gain absolutely nothing from Trump is also unswayed by the downside risks.
As Barro writes, "a Hillary Clinton presidency is the safe bet. She offers, more or less, an extension of the Obama presidency. You might think that that's a bad return, but at least you know almost exactly what it is." Even setting nuclear war aside, she is less likely to respond to a terrorist attack by rounding up Muslim Americans, less likely to violate the civil liberties of Hispanics as part of a major deportation push, less likely to kill the family members of terrorists, less likely to impulsively start a war in a fit of pique, and less likely to abuse libel laws to attack the press.
My correspondent wrote, "what has me gravitating towards Trump has been the reaction of the Democratic establishment to the concerns raised by Sanders and his supporters: mockery and scorn." He wrote, "I will not be rewarding the Democratic party for their behavior not just in this primary, but over the course of my life time."
In other circumstances I'd tell him to protest vote to his heart's content.
This year, it is irresponsible to cast a ballot to punish mockery and scorn—the motivation of bygone Sarah Palin supporters—or to withhold a symbolic reward from political operatives. This year, what hangs in the balance is a huge increase in the likelihood of civil-liberties abuses, economic catastrophes, and geopolitical chaos, presided over by a man who deliberately stokes ethnic tensions to increase his power.
Tuesday, May 24, 2016
Thursday, April 28, 2016
Monday, April 25, 2016
Sunday, April 24, 2016
What are some companies making tons of money but are unknown to most people?
Friday, April 08, 2016
Friday, April 01, 2016
Sent: Friday, April 01, 2016 10:56
Subject: [Puzzles] Guess the Correlation
"The 8-Bit Game That Makes Statistics Addictive" -- The Atlantic
"This 8-Bit Guess-the-Correlation Game Is Way More Fun Than It Should Bed" -- Gizmodo
"Please make it stop." -- The Atlantic, later