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Would you consider USD also subject to a Keynesian Beauty Contest?

by adrianscott 8y ago

lordnacho 8y ago
Yes, there's a 24/5 FX market where people decide what it's worth in relation to other currencies.
- adrianscott 8y ago
  agreed
- brokensegue 8y ago
  The prices fluctuate not due to mere speculation (on the beauty of currencies) but the need to convert currencies to run a company or live your life (e.g. you have dollars and you need to pay your supplier in yuan).
- fjsolwmv 8y ago
  FX markets are open all night but close on weekends?
  - derekp7 8y ago
    To paraphrase Jimmy Buffet, It is always between 9:00 AM and 5:00 PM somewhere.
Terr_ 8y ago
Along with most stocks. I think the key isn't whether something is/isn't a KBC, but how much other stuff exists that helps anchor it to some kind of objective reality.
JumpCrisscross 8y ago
> Would you consider USD also subject to a Keynesian Beauty Contest? No. The Fed puts its thumb on the scales. We've known since about the 19th century that growing economies and fixed-supply currencies don't play well together.
- gebregl 8y ago
  > We've known since about the 19th century that growing economies and fixed-supply currencies don't play well together. Can you give some examples? I don't know much about 19th century economics.
  - omegaham 8y ago
    The late 1800s had some rather severe panics that were caused by deflation - specifically, the Panics of 1873 and 1893. The problem with fixed-supply currencies is that if the economy is growing, and the supply of currency stays constant, currency is worth more. If your debt is measured in that currency, your debt just increased, and you might no longer be able to pay it. Large numbers of foreclosures are bad. Incidentally, one of the biggest political movements in response to these panics was a push to put the US onto the silver standard. Silver is more common, so it's easier for the supply of currency to increase (read: inflation) as the economy increases. A guy named William Jennings Bryan made a rather famous speech[1] about it. Today, we eschew a metallic standard entirely and just focus on achieving a constant rate of inflation. Zero inflation would be fine, but it's hard to achieve, and any missteps might lead to deflation. So, the Fed aims for 2% inflation - low enough for the value of the dollar to be pretty stable, but high enough that if the economy does something weird, we don't enter a deflationary state. [1] https://en.wikipedia.org/wiki/Cross_of_Gold_speech https://en.wikipedia.org/wiki/Cross_of_Gold_speech

Would you consider USD also subject to a Keynesian Beauty Contest?

lordnacho 8y ago

Yes, there's a 24/5 FX market where people decide what it's worth in relation to other currencies.

adrianscott 8y ago
agreed
brokensegue 8y ago
The prices fluctuate not due to mere speculation (on the beauty of currencies) but the need to convert currencies to run a company or live your life (e.g. you have dollars and you need to pay your supplier in yuan).
fjsolwmv 8y ago
FX markets are open all night but close on weekends?
- derekp7 8y ago
  To paraphrase Jimmy Buffet, It is always between 9:00 AM and 5:00 PM somewhere.

Terr_ 8y ago

Along with most stocks. I think the key isn't whether something is/isn't a KBC, but how much other stuff exists that helps anchor it to some kind of objective reality.

JumpCrisscross 8y ago

> Would you consider USD also subject to a Keynesian Beauty Contest? No. The Fed puts its thumb on the scales. We've known since about the 19th century that growing economies and fixed-supply currencies don't play well together.

gebregl 8y ago
> We've known since about the 19th century that growing economies and fixed-supply currencies don't play well together. Can you give some examples? I don't know much about 19th century economics.
- omegaham 8y ago
  The late 1800s had some rather severe panics that were caused by deflation - specifically, the Panics of 1873 and 1893. The problem with fixed-supply currencies is that if the economy is growing, and the supply of currency stays constant, currency is worth more. If your debt is measured in that currency, your debt just increased, and you might no longer be able to pay it. Large numbers of foreclosures are bad. Incidentally, one of the biggest political movements in response to these panics was a push to put the US onto the silver standard. Silver is more common, so it's easier for the supply of currency to increase (read: inflation) as the economy increases. A guy named William Jennings Bryan made a rather famous speech[1] about it. Today, we eschew a metallic standard entirely and just focus on achieving a constant rate of inflation. Zero inflation would be fine, but it's hard to achieve, and any missteps might lead to deflation. So, the Fed aims for 2% inflation - low enough for the value of the dollar to be pretty stable, but high enough that if the economy does something weird, we don't enter a deflationary state. [1] https://en.wikipedia.org/wiki/Cross_of_Gold_speech https://en.wikipedia.org/wiki/Cross_of_Gold_speech