Long or Short Capital

In a post a few months ago, we outlined the power of Zimbabwenomics, as outlined by economic genius Robert Mugabe in his Mugabe Efficiency Theory. A gap in his theory noted by none of you, is that he does not explicitly address interest rates. Luckily, John McCain, has been working to plug this gap. Per Matthew Yglesias writing on last night’s Republican Presidential Debate:

John McCain on monetary policy: “I’m glad whenever they cut interest rates, I wish interest rates were zero.”

Recommendation: This stance dovetails well with Mugabe Efficiency Theory and extends the “if you make things more affordable, people will buy more” rationale to interest rates. If interest rates are zero, assets will only continue to increase in value because they are more affordable and thus there will be more demand for them, making them worth more. This much is obvious and there is no downside to a zero interest rate policy. But why stop at zero? Negative interest rates would make things even MORE affordable. We look to negative interest rates as the next frontier of Zimbabwenomics.

If you’ve gone into finance from any liberal arts college, you almost certainly have encountered and befriended in the past people who act like finance types are scammy. “They don’t really make anything.” “They just move numbers around and somehow get paid for it.” “They have to be leeches.”

Normally our response was something like “At age 32, I will be worth my weight in gold, literally” or the more cogent, “Finance is a coordinator of economic activity, a grand sorter of what endeavours are the best for the world.”

But with this admission by Citigroup (NYSE: C) that it is loaning money to KKR to buy hung loans off Citi’s books, we will admit it: finance is a scam. A big scam in which people who are incrementally better than you in every way, smugly take money from the plebes, launder it through assorted transactions, and then redistribute to themselves in the form of huge bonuses, bonuses incommensurate to the zero value which they add to society.

From user Ignatius:

Even as economists have derided the U.S. dollar as heading toward parity with Monopoly money, Monopoly money itself has held its value with marked consistency.

Price of Boardwalk in 1950: m$400
Price of Boardwalk in 2007: m$400
Concurrent decline in the purchasing power of the U.S. dollar: 87%

Recommendation: Not only would the switch to monopoly provide the US with a more stable currency, but it would also grant the Fed even further control over the economy by enabling them to set the “house rules.” By determining the “Free Parking Rules” and financial outcomes from such events as “rolling snake eyes” and “landing directly on Go”, the Fed could steer the economy with even greater precision. Too little liquidity? Just tell the “banker” to actually become a bank and provide loans rather than solely acting as a cash register. More research is needed, but there seem to be real and compelling reasons for the US to switch to the Monopoly currency.