Sunday, May 25, 2008

Fed says rate cuts to stop

Today I noticed a billboard which summed up the state of the economy. It gave a rate on a $100,000 7 year CD, and it was a whopping 3.45%. That means you are having a net loss of purchasing power keeping money in the CD. The only good things to come from such a low interest rate is that you can borrow against it for a low rate to pay off higher interest bills or invest in something. At least the Fed says they are done cutting . Now raising the interest rate slightly is what we need to stop the free fall of the USD.

Sunday, May 11, 2008

Thoughts of the week

This week Israel turned 60, which means that for sixty years the Jews have turned desert into a prosperous land with many ethnic groups living in harmony. It's sad to think that the little country which has brought such inventions as the virtual keyboard, advances in nanotechnology, and devices for the deaf to be able to use phones will probably become another failed nation in 60 years when the islamists(I refuse to capitalize the name of a throwback ideology) have overtaken the multicultural state of Israel and replaced it with an Arab caliphate like the Gaza Strip is now. When that happens we can only look back on the scenes of joy and normal behavior(as opposed to burning tires and shooting guns to celebrate the death of some non Muslim) with sadness and ask why the West permitted such a tragedy to occur.

Here is the beautiful Israeli anthem, which is an interesting comparison between the lyrics of the Israeli anthem and the anthem of the throwbacks who call themselves "Palestinians."

Now compare the lyrics from the Israeli anthem to the Arab's song.


As long as in the heart, within,
A soul of a Jew is yearning,
And to the edges of the East, forward,
An eye gazes towards Zion,

Our hope is not yet lost,
The hope of two thousand years,
To be a free nation in our land,
The land of Zion and Jerusalem

My country, my land, land of my ancestors
My country, my country, my country
My people, people of perpetuity
With my determination, my fire and the volcano of my revenge
With the longing in my blood for my land and my home
I have climbed the mountains and fought the wars
I have conquered the impossible, and crossed the frontiers
My country, my country, my country
My people, people of perpetuity
With the resolve of the winds and the fire of the guns
And the determination of my nation in the land of struggle
Palestine is my home, Palestine is my fire, Palestine is my revenge and the land of endurance
My country, my country, my country
My people, people of perpetuity
By the oath under the shade of the flag
By my land and nation, and the fire of painI will live as a fida'i*, I will remain a fida'i, I will end as a fida'i - until my country returns
My country, people of perpetuity.

fida'i = one who risks his life voluntarily; one who sacrifices himself; hence the word fedayeen.

Sunday, May 4, 2008

First post in ages

While I have been bogged down in economics finals, I decided to post something to break the silence. Today's lesson is the relationship between money supply and output, a concept which was not understood before the 60's and Milton Friedman.

In short, the relationship is governed by a balanced equation where the change in money supply time the velocity(how fast money circulates in an economy) is equal to the change in output time the change in prices. In other words MS*V=Q*P. Thus if the money supply rises, either price or output, or both must rise to match the increase. The effect of this relationship is that inflation and deflation are better understood as products of MS, rather than being arbitrary. Also, if money loses enough value that it ceases to be circulated much, then serious deflation occurs, as happened during the early days of American Banking. The goal of an economy should be to balance these forces out to keep output rising without increasing inflation outside of comfortable levers(circa 3%). For much of the 90's we were in such a pattern, but the collapse of the housing market and the lowering of interest rates to 2% increased prices and a slight amount of output, but since P was greater than Q, real inflation occurred.