The Hidden Risk in Money Market Funds, and What It Means for Virginia

Cranky old man... or seer of the future?
Cranky old man… or seer of the future?

by James A. Bacon

I’m sure many readers are tired of hearing my jeremiads about excess debt, fiscal unsustainability, and the necessity of re-engineering Virginia institutions to survive the inevitable reckoning. Well, too bad. The global economy is severely out of balance, Virginia is part of that economy, and we will suffer the consequences when the world’s 21st century experiment with fiscal and monetary perpetual motion machines collapses. State and local polities that prepare for the inevitable storm will be in a better position to ride it out.

Bacon’s Rebellion has explored the unintended consequences of the Federal Reserve Bank’s policy of monetary easing, which has been magnified by comparable policies of monetary easing and reckless credit creation in the European Union, China and Japan. While near-zero interest rates benefit the world’s largest debtor, the United States federal government, it punishes savers and the institutions that serve them. Thus, the Social Security and Medicare trust funds are generating lower income from their surpluses, leading to premature depletion. Insurance companies are earning less on their capital, causing them to increase premiums. The rate of return for pension funds are earning less money, compelling corporations and governments to bolster their contributions.

Even money market fund are affected. A new study published by the National Bureau of Economic Research, “The Unintended Consequences of the Zero Lower Bound Policy,” has found that zero-interest rate policies create problems for savers who park their cash in seemingly safe money market funds. In an effort to deliver non-negative net returns to their investors, portfolio managers have not only reduced expenses charged to investors but chased higher yields by taking bigger risks.

That money market fund you think is a safe and stable repository for your cash? It may not be as safe and stable as you think. Not only is the yield approaching zero, but you may be shouldering risks you didn’t know existed. What’s worse:

Although our empirical results speak mostly to one part of financial markets, we want to emphasize that the effects we document are not necessarily limited to [the] money fund industry only. The reaching-for-yield phenomenon has been observed in other markets: for example, an average insurance company has shifted its assets toward riskier equity holdings, reaching the level of equity exposure of almost 20% in 2014. Similarly, pension funds expanded their holdings into more than 60% equity, away from typically held bonds. More work is needed to better understand the transmission mechanisms underlying the effects of the zero lower bound monetary policy on the stability of financial markets.

Just as generals are said to fight the last war, economic policy makers fight the last recession. Just as the masters of the universe in Washington, D.C. pursue policies to prevent a repeat of what they failed to foresee in 2007, they are blind to the extraordinary leverage built into the global economy, the linkages between sectors, and the mechanisms by which defaults in one corner of the globe will spread panic and chaos to other parts of the globe.

The best way for state and local lawmakers to insulate Virginia and its communities is (a) to curtail borrowing and (b) stop creating new long-term obligations that cannot be readily pared back. That’s not to say that we should cease borrowing altogether or refuse to launch any new programs, but it is to say that we live in times of great volatility and unpredictability and we should set higher standards for incurring any new liability.

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28 responses to “The Hidden Risk in Money Market Funds, and What It Means for Virginia”

  1. LarrytheG Avatar

    As usual – because Jim insists on slurping Austrian school economics and supply side lunacy – that confuses cause and effect.

    here’s the simple question. Why would anyone who has money CHOOSE to park it in negative interest govt bonds than invest it in the market?

    You would think that the govt policy would actually force investors to NOT park their money in something not only does not earn money but charges for parking the money!

    The govt doesn’t want the money – it’s policies actually seek to discourage investors from buying govt debt instead of investing – that’s why they are now CHARGING interest rather than paying it!

    so investors do have a choice – and they’re CHOOSING to put their money in govt securities – and not invest it in the market.

    Jim and the folks he believes – want to blame the govt (as usual) for that… instead of wanting to actually deal with the real reasons why investors seek the “safety” of zero or even negative interest govt securities.

    why do people who have money want to NOT invest it and instead park it in govt securities that pay no interest? If the govt actually PAID interest – the problem would become even worse!

    Bonus Question: why do seemingly intelligent people buy this bogus tripe from these loons spouting this just nutty nonsense?

    Not even the venerable Wall Street Journal buys it.

    ” Investors Seeking Safety in U.S. Government Bonds”

    1. Larry I’ll set aside all your insults, name calling and mischaracterizations to address the one substantive point in your comment — why are investors seeking safety in U.S. government bonds?

      The answer: Because the perceived risk-reward of investing in other major currencies, where the central monetary authorities are debasing their currencies even more rapidly than the Fed, is superior. Investors also are investing in the Swiss franc and a handful of other well-managed currencies, but those economies are too small to absorb more than a fraction of the capital sloshing around.

      1. LarrytheG Avatar

        Jim – your “answer” is that virtually all the world’s govts have essentially destroyed their economies for investors and now investors are reduced to buying US govt securities and Swiss Francs?

        geeze – WHERE do you get his STUFF?

        How about this? The fundamental relationship of capital and labor has changed as technology and globalization have evolved from labor-based manufacturing to a knowledge-based economy -and we’re still not fully understanding that change?

        I like that better than conspiracy theories and economic philosophies that predict that govt is destined to fail because it provides health care, education and central banks.

        no conspiracy. no concept of all govt on earth failing.. just some fundamental changes as a result of a transition from labor-based manufacturing to knowledge-based

      2. ” … why are investors seeking safety in U.S. government bonds?”

        11 aircraft carriers with 4 carrier battle groups deployed at any one time.

  2. rmaronic Avatar

    My intuition and common sense tell me that you are correct about the dangers of our current high federal and state debt. However, I do realize it was much higher during World War II, but we are currently not involved in a world war. According to the website, the present US national debt is $19.3 trillion and counting. According to the website, the present VA debt is $67.3 billion and counting. Assuming that the rest of the world is economically stable, which is a big assumption, what is the tipping point before the US national debt becomes a huge liability for both us and the entire world? Is it $24 trillion or is the answer to this question simply unknown? Would the US default on its national debt when printing money, reducing spending,reducing interest rates and increasing taxation etc. no longer work? What worries me is if the US goes into another severe recession like 2008, how can the federal government borrow another $5 trillion or more in order to stabilize and stimulate the economy? Where will the money come from?

  3. TBill Avatar

    I will just make one quick comment right now.

    My “guru” economist is A. Gary Shilling who long ago predicted 10-Year “TBill” at 1% and 30-yr TBond at 2%. If only I had the guts to buy more 30-yr TBonds when 99.9% of market strategists insist interest rates will soar any day now (they’ve been saying this for the last 30 years).

  4. LarrytheG Avatar

    US deficits are now 1/2 of what they were 8 years ago. Yes the debt is continuing to increase – and the deficits projected to go back up.

    It’s not a problem that cannot be addressed. We provide more than 1.5Trillion in tax breaks that we do not have to – on stupid things like writing off mortgages on multiple houses and RVs of up to a million dollars instead of one single owner-occupied residence at one median price.

    We charge $122 a month for health insurance for people with 85K in annual income.

    We spend 1.5 Trillion on National Defense -when you properly categorize it to include ALL national defense expenditures and not just base budget DOD.

    but that’s not what the problem is with interest rates that drive investors to buy US Treasury notes.

    The question is why are investors not investing in the world economy and instead parking their money in zero or negative interest securities?


    1. Larry said, “Yes the debt is continuing to increase – and the deficits projected to go back up. It’s not a problem that cannot be addressed. ”

      Yes, the debt issue can be addressed in theory, but the political will to address it does not exist. Too many constituencies and special interests are addicted to federal government spending.

  5. Cville Resident Avatar
    Cville Resident

    We have been hearing the same voices proclaim “hyperinflation” for 8 years now based on ZIRP. There isn’t a single serious economist that would dispute the notion that the world actually needs MORE inflation right now.

    Since 1932, the United States has had a “balanced budget” 11 years out of 84, but the same voices have proclaimed for 4 generations that “collapse is just around the corner.”

    The United States has not had a trade surplus since 1975. 41 straight years of trade deficits. The Cassandras have all said, “collapse is just around the corner.”

    For 20 years, classical economists have proclaimed that Amazon’s equity price was “sure to fall” because “look at the lack of profits”. Amazon’s equity price has increased from 18 to 744 in that time period. That’s not a one or two year blip. That’s a two DECADE body of evidence.

    The housing collapse in 2008 was a convenient excuse for ZIRP. The model that you pine for (3-6% interest rates adjusted for a “business cycle”) was suited for a manufacturing based economy with asymmetrical or no information about inventories. When the global economy started to shift to a services based economy, the old ideas of savings, investment, and interest rates didn’t change with the shift. The reality was that savers and banks took on a lot more risk in a manufacturing economy than a services economy, especially with poor inventory metrics and little to no technology to measure capacity. As the economy shifted to services, a lot of that “risk” started to disappear. Service providers are much more nimble in real-time response to economic shifts than the old factory-based model where capital really could evaporate quickly b/c the enterprise was very slow to shift to economic changes. Then you throw in the improvement in inventory chains and technology for manufacturing…a lot of the “risk” has been eliminated. Not entirely, but there has been a dramatic risk reduction. Manufacturers are no longer “flying blind” as to market conditions/sales/inventory/capacity. They’re getting real time feedback and can adjust production levels and strategies much quicker than they used to.

    So what does the real-time response represent? It means this: We aren’t very likely to see dramatic ups and downs in GDP related to the business cycle any longer. The manufacturing age (with its lack of inventory technology) often did follow a cycle of overproduction/recession/huge GDP expansion as inventories needed to be replenished.

    Whereas our service/technologically enhanced manufacturing economy of today has not had a 4% growth rate since 2000. That’s right, even with all of Bush’s tax cuts/deregulation (which were “magical” keys in the old smokestack economy) peaked with a 3.8% GDP growth rate in 2004. If you average GDP growth from 2001-2015, you get an average of 1.8%. In 7 of the past 9 years, GDP growth has been between 1.6% and 2.5%.

    Finally, throw in the rise of venture/angel private funds and simply very wealthy individuals assuming a lot of the risk in the most cutting edge enterprises instead of banks. That’s another significant economic change in the last 25 years.

    The point is: The economy has significantly changed. ZIRP is more of a change in the basic structure in the economy rather than some massive policy change. If a service/technologically enhanced manufacturing economy is more stable/predictable and adaptable to changing economic conditions, you’re likely to see permanent very low interest rates rather than calling them “artificially” low.

    I believe that’s where we are. There is simply too much evidence that the “old model” is no longer applicable. The trade deficit/budget deficit/Amazon examples are just a few data points of how the old model has been wrong for far too long for it to be considered relevant. The economy has shifted in large, meaningful ways.

    We’re in an age in which service providers will continue to become a greater and greater share of global GDP. Manufacturing will become more and more automated and thus continue to reduce economic “risks” in the “business cycle” as labor costs are reduced. The true “risks” on highly speculative business plays are and will continue to be borne by venture/angel capitalists and wealthy individuals rather than financial institutions. I think ZIRP or extremely low interest rates are here to stay if you’re going to be using CDs or savings accounts.

    My question(s) for you and the authors of this paper: What does the interest rate represent in an economic transaction? Is it a signal of risk in the loan? Or is it supposed to represent a guaranteed stream of income for older savers?

    1. Cville, Interesting theory. I haven’t heard it anywhere else, but maybe that means you’re ahead of the curve. I find bits and pieces of it plausible — such as the diminishing importance of inventories in fueling the business cycle. As for the rest… we’ll see.

    2. TooManyTaxes Avatar

      “Finally, throw in the rise of venture/angel private funds and simply very wealthy individuals assuming a lot of the risk in the most cutting edge enterprises instead of banks. That’s another significant economic change in the last 25 years.”

      I find these remarks to contain a lot of meat and not much gristle. When I entered the workforce darn near 40 years ago, Wall Street banks funded debt directly and through bonds they sold. Wall Street banks also played comparable roles in raising equity capital. Now they seem to be primarily in the business of arbitrage. And imagine what it would be if there were not prohibitions against trading for their own account.

      While Cville offers a lot here; perhaps, a bit more than I’m ready to accept, Cville is most certainly correct in that the economy has changed radically and is likely ready to pop back to what it was. Good insights!

      1. LarrytheG Avatar

        re: ” and is likely ready to pop back to what it was. ”

        could be ….. that might be more wishful thinking than there is reason to have….

        it may well be that – we’re into a totally different economic paradyme and the absolute worst thing to do – is to blindly believe that – continuing to cling to what we’ve always done -and not understanding why it’s not working – and then blaming it on the POTUS or others.

        there seems to be some of that right now in our “where have our jobs gone” politics.

        Maybe a good question to at least entertain – is to ask what if things actually are not going to “pop back” – what would, should we do instead ?

        Sometimes some of our worst problems stem from our refusal to accept change and insist on hanging on to something that is dead – a zombie and expecting govt to do something to preserve it.

        They say those that embrace change – also grab the opportunities and I suspect in this new economy that’s also true.

        those who dally too late – often get hammered.

        Given the radical changes we all are seeing – expecting the same old, same old might be living that dream – way past it expiration date.

      2. Cville Resident Avatar
        Cville Resident


        100% agree about Wall Street.

        1. I agree 99%. Wall Street still performs some useful functions such as raising corporate capital and issuing bonds. Even some hedge-fund trading is socially useful — corporations and investors need the ability to hedge against swings in currencies, commodities, interest rates, etc. But a lot of what Wall Street provides no social or economic value from what I can see. Fortunately, the hedge fund business sucks these days, and hedge funds are shrinking. Maybe the Street will begin deploying capital in more socially constructive ways.

          1. LarrytheG Avatar

            re: ” Maybe the Street will begin deploying capital in more socially constructive ways.”

            Good Grief! Not in a million years would I expect that!

            At the core – Wall Street is all about risk and reward and greed – and shifting risk to others…

            ” The rules governing how financial professionals handle the trillions of dollars they invest on behalf of Americans saving for retirement are about to get a lot tougher.

            The Labor Department, after years of battling Wall Street and the insurance industry, issued new regulations on Wednesday that will require financial advisers and brokers handling individual retirement and 401(k) accounts to act in the best interests of their clients.

            The government move is expected to encourage a shift of retirement funds into lower-cost investments — potentially saving billions of dollars for many ordinary investors — while setting off one of the biggest upheavals in the financial services industry in decades.”

            “The marketing material that I see from many firms is, ‘We put our customers first,’” Thomas E. Perez, the secretary of labor, said in an interview. “This is no longer a marketing slogan. It’s the law.”

            Many consumers assume the individuals and firms investing their money are operating under the same sort of ethical and legal standards as a family doctor — someone who is obliged to provide the very best advice.

            But brokers are generally required only to recommend “suitable” investments, which means, for example, that they can push a more expensive mutual fund that pays a higher commission when an otherwise identical, cheaper fund would have been an equal or better alternative.
            The Obama administration, relying on extensive academic research, estimated that conflicts of interest embedded in the way many investment professionals do business cost Americans about $17 billion a year, leading to annual returns that are about 1 percentage point lower.

            “It has the potential to really change the way advice is delivered to retail investors,” said Barbara Roper, director of investor protection at the Consumer Federation of America. “It is a really big deal. Revolutionary, even.”

            Now – want to guess who opposes these rules ?

            generally – Wall Street and Conservatives… of course.

  6. LarrytheG Avatar

    If I said anything to impugn Jim – personally – I apologize but those who espouse theories that are based on the concept that the govt should not be involved in a Central Bank – if that’s the basis of a view about interest rates , etc – then call me a heavy skeptic – and I’m not alone.

    Mises and Austrian Economics – those who subscribe – fess up.

    Cville Resident – “theory” is not new nor unique – to many mainstream economists –

    Wall Street Journal – again:

    ” How Data May Boost the Global Economy More Than Physical Trade”

    ” Could the international flow of bits and bytes ever mean more for the global economy than the movement of tangible goods?

    It already does, according to a report issued Thursday by the McKinsey Global Institute.

    The merchandise trade that’s driven economic growth since the ancient Phoenicians added about $2.7 trillion to the global economy in 2014. But the contribution of international data flows is even bigger, at $2.8 trillion that year, according to the study.”

    The one thing the naysayers do get right is that the govt is slow to react to change and this is no exception –

    And investors don’t know what to do -either – and that’s why they are parking their money for almost no gain … they’re afraid if they put it in play -they’ll lose it.

    The govt by lowering interest rates is trying to push them away back to the private sector – – the idea being that surely there must be SOMETHING in the economy that will earn more than zero interest!

    the deficit and debt is a separate issue – conflating it with the economy does not lead to better understanding the fundamental forces in play.

    the deficit/debt argument has been with us for a long time as have the perennial gloom & doom, the sky is going to fall and we’re all going to die – folk.

    We DO have the WILL to make the cuts we need to make – when we agree that BOTH Medicare AND National Defense spending have to take equal hits. The idea of cutting MedicAid is going nowhere. You’re talking about the elderly, handicapped, and kids…

    Not only can we not afford to sell health insurance to seniors for $122 a month even when they have an annual income of 85K – we cannot afford to pay people full life time pensions for 20 years of work – who have never been anywhere near a combat zone. We have enough nukes to blow up the world 20 times over – and we pay both civilian and military billions of dollars a year to man it.

    And a real irony in all of this is that Social Security – unlike all the other Federal expenditures – by law – cannot pay out any more in benefits than FICA generates in revenues. We’d be so lucky in that actually applied to other programs.

    But what do the gloom and doom folks do ? Well they point to Social Security as an example of irresponsible and unsustainable finance policies?

    With views like that – we’d trust them to understand the other parts of the budget and economy?

  7. LarrytheG Avatar

    Something to consider. Put aside for the moment the believed or purported reasons behind the dramatically lowered earning potential of funds that rely on interest rates to grow or stocks and bonds to appreciate in value

    and for whatever reason – this is the new normal.

    what’s the impact of that on things like pensions, IRAs 401Ks, etc?

    it won’t have a major impact on govt trust funds like Social security or Medicare… in the longer scheme of things because neither of them will have significant surpluses to earn interest and instead they’ll rely on whatever FICA tax revenues are.

    But people’s savings – for retirement – and in turn how much they actually have to set aside – additional , to compensate for a much lower, non-existent interest rate?

    Doesn’t that translate into a lower standard of living?

    does that mean that FICA and Social Security become even more important as a source of retirement income and that the idea that letting people put money into an IRA/401k rather than Social Security needs to be re-thought?

    finally- is interest earned or return-on-investment – things that we took for granted as always true, just follow that strategy – but now turns out that it’s really not?

    money put aside – is money put aside – it might as well be in a mattress or in some form that will not do any more than keep it’s original value – and nothing more?

  8. In response to Cville’s comment, yes, the economy has changed in significance ways. But that’s what they said in the S&L crisis. And the Internet bubble. And the real estate meltdown. I’ve been around long enough to have lived through each of these crises. And every time people were saying, “This time it’s different.”

    Maybe it really is different this time. Or maybe we’re just not smart enough to know where the new fracture points are in the economy. I’m betting that our “experts” and “leaders” aren’t half as smart as they think they are.

    1. Cville Resident Avatar
      Cville Resident

      You could be 100% right. And I agree that experts and leaders aren’t half as smart as they think they are.

      I’m not so sure it’s “different” in that there will always be business cycles and speculative bubbles. But I do think we have a lot more tools in the private sector and public sector to detect trends than we used to which does help soften the business cycle. We also have a lot more flexibility to adapt to those trends (tech workers can learn new skills faster and cheaper than the old manufacturing economy where capital was “trapped” in a lot of large facilities/equipment).

      As always, we’ll see!

    2. TooManyTaxes Avatar

      I think Cville is on to something with respect to manufacturing and other capital intensive businesses. They have declined in relative size while financial services has increased. That in and of itself is not bad. We need people who can assemble capital on a macro level and access to financial services at a micro level.

      But while the financial services sector still does this, much of what it does is run Las Vegas on steroids. Which way will the price of commodities go? Again there’s nothing wrong with buying gold, copper or oil when the price seems low and trying to sell when the price is high. But more and more, supply and demand has damn little to do with commodity prices. We are still awash in oil, yet the prices have gone up considerably. Trading in futures has added a premium to the prices of commodities. And tell me how that benefit society?

      A few years ago, I was at a picnic. Senator Dick Saslaw was there. Most know he is somewhat of a gas station baron in Fairfax County. We were talking about gas prices. The senator said he learns the price of gas for the next day from a message from New York. Nothing to do with supply and demand. It’s what Wall Street says it is on a short-term basis.

      I’m very tax adverse and fear giving the government more money. But I sure can support substantial increases in taxes on short-term gains on commodity holdings/futures of less than six months. The proceeds could go to rebuild infrastructure.

  9. John B Avatar

    Not all US debt is bad. For a minimum investment of at least $1k you can buy a Treasury Inflation Bond rated by Moody’s AAA at about a 1.4 premium with a coupon of 3.63% paid semi annually. Not a great yield but quite safe.

    Not sure I’d buy any Puerto Rico, however even with their yield.

  10. LarrytheG Avatar

    re: S&L, subprime crisis- et al –

    All of those were people purposely taking overt risks on things that they convinced themselves were not risky.

    That’s totally different than fundamental changes in the way that commerce occurs -such that even prudent and careful investors drawn up in it.

    But again – these kinds of things – should not be conflated with deficit and debt – they’re totally different things.

    You can have a perfectly reasonable 20th century economy where blue chip investments are just hunky dory and the govt can be irresponsible on the budget.

    You can actually have a 21st century economy that goes haywire compared to what happened in the 20th century and that does not guarantee – for instance, that the govt will cut or not cut DOD or Medicare.

    what’s changed is how people earn dividends on their savings – or not – and how that affects their retirement – and in turn – how much money they have to set aside – for their retirement if it is not going to “earn” 5-10% a year and instead 1-2%.

    The un-intuitive thing is that as long as FICA tax is collected – people will still get SS benefits – and that normally FICA tax does not “earn” interest except for the part that is in excess of pay-out – i.e. the “surplus”.

    Once the surplus is gone – and SS is whatever FICA can pay out – there is no “interest” earned – unlike what people might expect from IRA and 401ks.

    And ironically – over the years – Conservatives has advocated putting SS into a stock market fund – a strategy that would have ended in disaster during the sub-prime crisis as most folks lost a quarter to a half of their retirement funds.

    Finally -on public defined-contribution pensions – yes – there’s going to be a whole lot of pain…. and folks will go to the General Assembly and ask them to make up the shortfall – and if the General Assembly does what it has doe – they’re going to say “no” (and ought to) and that will mean that not only will SS recipients be getting less from FICA but also both private and public sector pensions will pay out less.

    I don’t think we should “wait and find out”. I think we ought to be preparing for that kind of outcome – in case it does turn out the be the reality.

    The bottom line – I’d posit is – folks will end up with a lower standard of living… less money for living prior to retirement if more of your work earning have to be set aside to compensate for lower pension fund earning.

    That will put us much closer to the standard of living in other OECD countries – we’ll be buying smaller homes, one car instead of 3 , fewer vacation homes and vacation cruises, etc.

    Now – we can buffer this – if we figure out how to get our health care costs down in the same range as other OECD countries … 😉

  11. LarrytheG Avatar

    re: ” I’m very tax adverse and fear giving the government more money. But I sure can support substantial increases in taxes on short-term gains on commodity holdings/futures of less than six months. The proceeds could go to rebuild infrastructure.”

    Good GAWD!

    Shades of Elizabeth Warren! ;-0

    and fyi:

    ” The Impact Of An Inverted Yield Curve | Investopedia
    Historically, an inverted yield curve has been viewed as an indicator of a pending economic recession. When short-term interest rates exceed long-term rates, market sentiment suggests that the long-term outlook is poor and that the yields offered by long-term fixed income will continue to fall.

    1. TooManyTaxes Avatar

      A true believer in free markets should also believe in policing fraud, manipulation and market power. A free market is an open and fair market (i.e., no manipulation, fraud or market power). There is good evidence that commodities traders are able to manipulate commodity prices such that they truly don’t reflect supply and demand.

      Similarly, tax policy is often used to promote desirable behavior and discourage undesirable behavior. Wall Street is overly focused on short-term profits and not on long-term growth.

      1. LarrytheG Avatar

        TMT – you DO REALIZE that many Conservatives who spout “free market principles” disagree with you and consider the Govt and it’s actions to “protect” you actually harm you AND the economy – right?

        It’s a long recurring theme right here in BR whether we’re talking about payday loans, certificate of need, health insurance, car dealerships, mortgage loans, etc, etc,…

        Even Jim, at times forgets his own schtick and complains about his own insurance company “jacking up rates” and how the govt should be making sure the insurance company is not “ripping him off”…


        looks like this might be yet another one of those things where we essentially agree on the overall principles but not on the actual implementations, eh?

  12. Cville Resident Avatar
    Cville Resident

    I mentioned this thread to a friend in finance, and he made the following observation which you all might find interesting about the changing nature of the economy:

    There is much more real-time information available to the private and public sectors about money flows than 10 years ago. Even 10 years ago, the information was weeks or months behind as to the various sectors and funds that were adding or subtracting capital. The “Beige Book” was still useful a decade ago. Now, it’s possible for the Fed and large Wall Street institutions to know the flow very quickly and adjust course. At no time in world financial history have we had so much real time global economic and financial information available so quickly.

    It will be interesting to see how or if this affects economics and finance.

    1. That’s true, there is more information than ever before. But the world economy and finances are more complex than ever before.

      We’ll see how it all turns out. I hope I’m wrong.

    2. LarrytheG Avatar

      That’s what I read also – to include crypto currencies … like bitcoin that can move money in seconds and move it again in a few more seconds – and make or lose money in the second transaction.

      Has anyone noticed that gas prices now can and do change even on an hourly basis ? What in the world would cause that? what benefit would it be to those who would change it that often?

      Jim sees all of this as somehow connected to governments being financially irresponsible.

      I don’t discount that governments are – but I think conflating the two as connected just totally mixes apples and oranges.

      What I do agree with is that governments are not nimble in their policies with respect to technology-driven changes not only in the economy – but elsewhere.

      Just look at their struggles trying to deal with net neutrality or drones.

      I don’t see this as corrupt or incompetent or representative of irresponsible policies… I see it as typical of the human condition which is forever flawed in their dealings with real world realities.

      Governments are flawed – because people are and people ARE the government.

      Jim thinks we’re doomed because we are incapable of not spending more than we take in.

      I’m not of that school of thinking although I do acknowledge that there are countries in this world whose governments have royally screwed up – like Greece and Venezuela.

      We all agree – the economy has changed and it may well have changed in such fundamental ways that things we take for granted – like 401K earning at “good” rates – may change.

      But it’s NOT because Government is inherently incompetent about things like Central Banks or deficit and debt… they’re different things…

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