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<h1> Recent Articles </h1>
= Rate Disparity =
- a
=== The dilemma of setting interest rates in modern money systems ===
- b
- c
<h1>Rate Disparity Principles</h1>
<ul>
  <li> One </li>
  <li> One </li>
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  <li> One </li>
</ul>


<h3>Why Interest Rates Differ</h3>
What must be understood about raising interest rates, is that
<h3> Logarithmic vs Exponentials: The Perpetual Mathematical Tension Between Information, Growth, and Limits</h3>
central banks raise interest on themselves. The rate setting is
what a country's own treasury must pay on savings and the national
debt.


<p> This website is dedicated to my central thesis
The practice of using interest rates to manage the price level goes
about interest rates, that interest rates vary for
back to the gold standard.  
many rational reasons that are not effectively described
as "risk".
</p>


== Yield Curves ==


<p>
The benefits of a yield curve are significant yet subtle.
Much like difference in wage rates and profit rates,
By a yield curve, I am referring specifically to term
interest rates vary depending on a number of factors:
premiums, and not simply speculation on the path of interest
</p>
rates.


<h2> The Old Way: Risk Adjusted Present Value </h2>
A yield curve with no term premiums, simply becomes a flat
line once the path of interest rates is taken into account.


The old way of thinking about interest rates is centered around
== The Ideal Unit of Account Has a Zero Discount Rate ==
doing present value calculations of "cash flows". "Cash" is just
a shorthand for things priced in cash that are immediately liquid.


The issue with this is that it requires predicting the future across
In this sense, we are talking about the rate of discounting
arbitrary and uncertain time horizons, using historical observations
used for present value calculations(not the discount window rate).
where it is difficult to disentangle a robust trend from selection and/or
If there is a uniform discount rate possible for any size of principle,
survivorship bias.  
then it makes sense to simply use an asset with that yield as the
standard unit of account.


TODO <a>Rate Risk and Gambling</a>
== Yields cannot be assumed to be uniform for widely variable principle amounts ==


<h2> The New Way: Adaptive Value Growth </h2>
In reality, yields are highly sensitive to the amount of your principle,
and it is essentially financial malpractice to compare yields on multi-billion dollar
projects, with yields on $10k being invested at a time.  This is because both absolute and relative yields matter.  An absolute yield is simply subtracting the final value of a portfolio from the value of the principle.


Adaptive value growth is the idea that things can grow at different rates, and that is generally okay,
The need for more overhead
although things that grow much faster or slower than average, tend to be symptoms of poorly
on large projects and large portfolios, makes any direct comparison of yields
managed resources or reckless disruption.
unreasonable.  This is also true of living organisms, larger organisms tend
to grow more slowly and have a longer reproductive lifecycle period(doubling time).




Adaptive vs. Competitive Equilibrium
== Prices And Yields are Relative ==


Inherently, any yield is the relative devaluation of the
currency or unit of account.  If a bond yields 10%, that
means a currency is depreciating 10%, compared to a bond.i


<h2> Where I am in Economic Theory: MMT informed, in a Post Keynesian tradition </h2>
== Bond Yield Targeting ==


<p>
Instead of using interest rates to try to control the change in value
It takes a lot of work to thoroughly understand the history of economic developments,
of a currency, it makes more sense to try to control the CPI adjusted
I cannot say I am an expert on this history, although what I have learned from post
yields of treasury bonds.  This is best when allowed to float within
keynesian economics makes sense to me, and in my opinion provides a better foundation
a range.
for thinking about market and political process interact to develop prices, property,
and social hierarchies.
</p>


<p> In many respects Post-keynesianism is hard to pinpoint, it
While some experimentation may be needed to determine the best yield ranges,
is best described as a tradition of many (now heterodox) economists,
one could start with +3%/-2%.  If inflation adjusted yields of tsy bonds
who rejected what they considered to be flawed and biased modeling.
drop below 2%, then rates can be increased. If these yields rise above 3%,
</p>
then rates can be lowered.


<p> MMT has the benefit of being very straightforward in
== Why Inflation Adjusting Instruments are Undesireable ==d
its key theory ideas, most importantly presenting the Job
Guarantee as the most basic and universal example of
price anchoring.  Price anchoring is an alternative
approach to currency peg or "backed" currency, in that
it only guarantees one direction of exchange, and not
two, and proponents argue that this makes it more
robust and resilient. </p>


<p> There are many basic ideas essential to an MMT framing,
Inflation adjuste
such as accounting identities, endogenous money, a consolidated
view of government finance, and asserting an operational view
where spending comes first, and then taxing comes later. </p>


<p> MMTers mostly focus on this "framing", and yet, I think
While it is possible to issue bonds whose yields adjust to inflation
framing should not be confused with theory.  Where theory
involves testable propositions, framing is often simplified
heuristics to make the theory easier to understand.</p>


== Inflation Adjusted ==


<p> While MMT is an important part of my thinking, I consider
the economic issues of interest, inflation, money, and employment,
too important to limit to one framework.  Much like
mathematics has different branches of valid theory and inquiry,
I hope to see the "framing" part of different economic schools
develop into valid deductive systems that can be studied
independently, with clear assumptions and simplifications,
such that they are not inherently contradictory.
</p>


<h2> Optimizing Money vs Optimizing Life </h2>
== Duration: Mechanical Effects of Temporally Anchored Money ==


<p>
When you purchase a security, you are buying a temporal monetary anchor.
Money is a resource. Like all resources, there are costs to acquire it, and benefits
It pays out a specific amount of money at a specific date.  
from holding it.  In this respect, earning more money than you need to prepare for
contingencies can be considered wasteful.
</p>


<p>
 
Money always comes with costs, even if it is earned through interest and not labor.
 
</p>
 
== Entities that don't issue Equity ==
 
Equity is a flexible, but costly financing tool.  It is flexible in the sense
that its value adjusts dynamically, and cannot create insolvency.  It is
costly in the sense that equity holders retain all the residual value, there
is an unlimited upside for equity holders.  While pro-active measures can help
the different participants in a business to benefit comparably from business
success, the design of equity makes the shareholder profit the lowest priority
procedurally, but the highest priority in terms of decision making.
 
Equity benefits are paid out after all debts, which include wages and other
obligations, thus in a procedural sense, equity claims have the lowest priority.
But in term of governance and decision making, equity claims are treated as
the highest priorities.
 
There are many financial entities that don't issue equity shares.  For many
of these, the reason is simply size and complexity. 
 
 
== Debt Valuation ==
 
Money without debt has no fundamental value or cost, so the price level is arbitrary.
 
But once you attach debt to money, then the price level determines the valuation of said debt.

Revision as of 17:54, 18 May 2023

Rate Disparity

The dilemma of setting interest rates in modern money systems

What must be understood about raising interest rates, is that central banks raise interest on themselves. The rate setting is what a country's own treasury must pay on savings and the national debt.

The practice of using interest rates to manage the price level goes back to the gold standard.

Yield Curves

The benefits of a yield curve are significant yet subtle. By a yield curve, I am referring specifically to term premiums, and not simply speculation on the path of interest rates.

A yield curve with no term premiums, simply becomes a flat line once the path of interest rates is taken into account.

The Ideal Unit of Account Has a Zero Discount Rate

In this sense, we are talking about the rate of discounting used for present value calculations(not the discount window rate). If there is a uniform discount rate possible for any size of principle, then it makes sense to simply use an asset with that yield as the standard unit of account.

Yields cannot be assumed to be uniform for widely variable principle amounts

In reality, yields are highly sensitive to the amount of your principle, and it is essentially financial malpractice to compare yields on multi-billion dollar projects, with yields on $10k being invested at a time. This is because both absolute and relative yields matter. An absolute yield is simply subtracting the final value of a portfolio from the value of the principle.

The need for more overhead on large projects and large portfolios, makes any direct comparison of yields unreasonable. This is also true of living organisms, larger organisms tend to grow more slowly and have a longer reproductive lifecycle period(doubling time).


Prices And Yields are Relative

Inherently, any yield is the relative devaluation of the currency or unit of account. If a bond yields 10%, that means a currency is depreciating 10%, compared to a bond.i

Bond Yield Targeting

Instead of using interest rates to try to control the change in value of a currency, it makes more sense to try to control the CPI adjusted yields of treasury bonds. This is best when allowed to float within a range.

While some experimentation may be needed to determine the best yield ranges, one could start with +3%/-2%. If inflation adjusted yields of tsy bonds drop below 2%, then rates can be increased. If these yields rise above 3%, then rates can be lowered.

== Why Inflation Adjusting Instruments are Undesireable ==d

Inflation adjuste

While it is possible to issue bonds whose yields adjust to inflation

Inflation Adjusted

Duration: Mechanical Effects of Temporally Anchored Money

When you purchase a security, you are buying a temporal monetary anchor. It pays out a specific amount of money at a specific date.



Entities that don't issue Equity

Equity is a flexible, but costly financing tool. It is flexible in the sense that its value adjusts dynamically, and cannot create insolvency. It is costly in the sense that equity holders retain all the residual value, there is an unlimited upside for equity holders. While pro-active measures can help the different participants in a business to benefit comparably from business success, the design of equity makes the shareholder profit the lowest priority procedurally, but the highest priority in terms of decision making.

Equity benefits are paid out after all debts, which include wages and other obligations, thus in a procedural sense, equity claims have the lowest priority. But in term of governance and decision making, equity claims are treated as the highest priorities.

There are many financial entities that don't issue equity shares. For many of these, the reason is simply size and complexity.


Debt Valuation

Money without debt has no fundamental value or cost, so the price level is arbitrary.

But once you attach debt to money, then the price level determines the valuation of said debt.

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