This time Facebook shares it shares

Facebook is expected to trade its shares on May 18 of 2012. Despite of huge global turbulence in global stock markets, chaos in euro zone economies, Facebook's offering is heavily oversubscribed. But there are still some doubts about the company's ability to expand its online advertisement. Some experts suggests that Facebook should develop other formats for online ads system. 

Let's see some amazing facts about this online giant. 

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FAMOUS WRONG GUESSES IN HISTORY - WHEN ALL EUROPE GUESSED WRONG

Please go through below placed ad and its content. “This time is different” syndrome is so evident that I decided not to put additional explanation. But, I do welcome your comments!

FAMOUS WRONG GUESSES IN HISTORY

WHEN ALL EUROPE GUESSED WRONG

The date — October 3rd, 1719. The scene — Hotel de Nevers, Paris. A wild mob — fighting  to be heard. “Fifty shares!” “I’ll take two hundred!” “Five hundred!” “A thousand here!” “Ten  thousand!”

Shrill cries of women. Hoarse shoats of men. Speculators all — exchanging their gold and  jewels or a lifetime’s meager savings for magic shares in John Law’s Mississippi  Company. Shares that were to make them rich overnight.

Then the bubble burst. Down — down went the shares. Facing utter ruin, the frenzied  populace tried to “sell”. Panic-stricken mobs stormed the Banque Royale. No use! The  bank’s coffers were empty. John Law had fled. The great Mississippi Company and its  promise of wealth had become but a wretched memory.

TODAY, YOU NEED NOT GUESS.

History sometimes repeats itself — but not invariably. In 1719 there was practically no way of finding out the facts about the Mississippi venture. How different the position of the investor in 1929!

 Today, it is inexcusable to buy a “bubble” — inexcusable because unnecessary. For now every investor — whether his capital consists of a few thousands or mounts into the millions — has at his disposal facilities for obtaining the facts. Facts which — as far as is humanly possible — eliminate the hazards of speculation and substitute in their place sound principles of investment.

The ad — for a company called Standard Statistics, whose address has since been turned into a Chipotle Mexican Grill — ran on Sept. 19, 1929, about a month before the market crashed.

read about source 

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Financial Repression in the Form of Negative Rates

On 13^th of March FED announced that it will hold its interest rate policy id est keeping fund rates between 0 and 0.25 percent. Before it, many economists stated that FED’s current monetary policy resembles financial repression. The main concerns are about negative real interest rates.

Being a lender to governments or to central banks is deemed as the most riskless lending in conventional literature.  But not in crises times. During boom periods even governments or central banks of advanced economies are running beyond threshold of secure debt burdening and when a crises, in its all forms, knock the door it turns out that there is a substantial debt overhung.  In that case supreme authorities tend to manipulate their debts with the form of hidden taxation which enables them to liquidate debt overhang and to ease the burden of servicing the debt.

Such manipulations or policies known as financial repression can be observed when there are consistent negative real interest rates (yielding less than the rate of inflation) and this is equivalent to a tax on bondholders or generally savers.  Negative interest rates help governments to reduce deficit and liquidate the debt they have in their own favor.  Negative interest rates are usually accompanied by expansive monetary policy and high central bank intervention into economy.

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One more efficiency test for market economy-Return to Schooling: Does market economy reward education more than communism?

This paper aims to analyze the change in return to schooling in Hungary, via comparing communism and market economy periods. As the philosophy of each system is very different, it causes differences in treatment of factors of production as well. While getting familiar with main literature of this topic, it turns out that there is not consensus about the main driving philosophy of communism in terms of organizing production. There are some contradictory assumptions on rewarding factors of production, especially personal characteristics under planned economy. According to one them, because of egalitarian approach towards workers, wage profiles were compressed and planners set wages on the base of industry and work profile under communism (Campos and Joliffe, (2003)). So personal characteristics like education were not evaluated and that is why after  transition to market economy in ex-communist countries return to education should increase.

download the paper

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Unorthodox Monetary Policy

Amid harsh discussions about FED’s new-type of bond buying, new concerns aroused on the Bank of England’s unusual monetary policy. As Jo Owen writes:

“After buying £325 billion of debt from the market, the public sector (the Treasury) is paying interest to itself (the BofE) on debt that it owes to itself. It makes no sense for the public sector to owe itself money.”

 The two famous Economist.com blogs host interesting discussions on the topic. Buttonwoods argues that this uncovers monetary repression of the central bank. Commercial banks need bonds issued by the central bank for beefing up their capital and liquidity ratios and furthermore, it serves as a life vest in odd times when commercial banks need the lender of last resort. Share of state bodies in bond markets are increasing contrary to decreasing share of private sector which is the probably lowest since 1970. In her comment on Bloomberg Carmen Reinhart closely focused on this:

“That, too, was a period of rising oil, gold and commodity prices, negative real interest rates, currency turmoil and, eventually, higher inflation.”

Another blog from Economist –Free exchange, recommends different point of view. It suggests to see “a temporary bout of money-financed fiscal policy” as Milton Friedman’s “helicopter drop” of money. When the policy rate is near zero and can’t be reduced, for the sake of boosting the economy this kind of measures can be taken, of course temporarily-argues the blog.

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An Estimated DSGE Model For Turkey With A Monetary Regime Change

Abstract

Using of developments of the last decade in Bayesian estimation, I estimate a small open economy Dynamic Stochastic General Equilibrium (DSGE) model for Turkey. The thesis explicitly accounts for a monetary regime change from an exchange rate targeting to an explicit inflation targeting with a flexible exchange rate. In both regimes, I investigate the behavior of the monetary authority and the main driving forces of business cycles of key macro economy variables of the Turkish economy. My results can be summarized as follows. Monetary policy focused on the stabilizing of the nominal exchange rate in the exchange rate targeting regime. But, it is mainly concerned with the price stability in the inflation targeting regime. Monetary policy shocks were the main sources of the fluctuations under both regimes. However, the foreign output shock in the first regime and the real exchange rate shock in the second regime appeared as the additional sources of the fluctuations in the business cycles. The Central Bank of Turkey managed to neutralize inflationary shocks and achieved stability in output and consumption after the regime change.

Keywords: Turkey, Bayesian estimation, DSGE models, regime change


You can obtain the research from Grin Publishing 

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“Capitalism! Capitalism is an alternative to what we have now. I highly recommend it.”

Federal Reserve considers buying new type of bond-buying in order to subdue worries about future inflation.  The aim of the program is to neutralize fears stemmed from the possibility that FED money printing to aid recovery may fuel inflation. The Wall Street journal reports that the plan will progress according to the following scenario: FED will print money to buy long-term mortgage or Treasury bonds, but immediately will borrow back the money for short-periods at low rates. But there are many critics against this “sterilized” quantitative easing.  For instance Jim Grant describes the new policy as “manipulation the value of the currency”.  He mentions that repressing interest rates puts the economy on more risky position.  Grant’s take can be categorized under three items:

·        Unintended Consequences could be harmful & Unbalanced

·        FED should learn from 1920-1921 Depression

·        U.S. Policymakers are Prolonging Symptoms of Recession

Maria Bartiromo: “What are the alternatives?”

Jim Grant: “Capitalism! Capitalism is an alternative to what we have now. I highly recommend it.”

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BOOK REVIEW: “THIS TIME IS DIFFERENT: EIGHT CENTURIES OF FINANCIAL FOLLY”

 A very comprehensive analysis by Reinhart and Rogoff on economic crises world experienced during last eight centuries. Below placed two paragraphs from the book will give you some insights about the idea followed in the book. Have a nice reading!

“This book provides a quantitative history of financial crises in their various guises. Our basic message is simple: We have been here before. No matter how different the latest financial frenzy or crisis always appears, there are usually remarkable similarities with past experience from other countries and from history. Recognizing these analogies and precedents is an essential step toward improving our global financial system, both to reduce the risk of future crisis and to better handle catastrophes when they happen.

Our immersion in the details of crises that have arisen over the past eight centuries and in data on them has led us to conclude that the most commonly repeated and most expensive investment advice ever given in the boom just before a financial crisis stems from the perception that "this time is different." That advice, that the old rules of valuation no longer apply, is usually followed up with vigor. Financial professionals and, all too often, government leaders explain that we are doing things better than before, we are smarter, and we have learned from past mistakes. Each time, society convinces it, self that the current boom, unlike the many booms that preceded catastrophic collapses in the past, is built on sound fundamentals, structural reforms, technological innovation, and good policy.”

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