Papers by Immersion Ed Nomel
the material is concerned, specifi cally the rights of translation, reprinting, reuse of illustra... more the material is concerned, specifi cally the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfi lms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specifi c statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use.
Europe, the source of the Enlightenment, the birthplace of modern science, is in crisis. The 2008... more Europe, the source of the Enlightenment, the birthplace of modern science, is in crisis. The 2008 global financial crisis morphed seamlessly into the 2010 "euro crisis." This part of the world, which hosted the Industrial Revolution that led to the unprecedented changes in standards of living of the past two centuries, has been experiencing a long period of nearstagnation. GDP per capita (adjusted for inflation) for the eurozone 1-the countries of Europe that share the euro as their currency-was estimated to be barely higher in 2015 than it was in 2007. 2 Some countries have been in depression for years. 3 When the US unemployment rate hit 10 percent in October 2009 most Americans thought that was intolerable. It has since declined to 5 percent. Yet the unemployment rate in the eurozone reached 10 percent in 2009 as well, and has been stuck in the double digits ever since. 4 On average, more than one out of five youths in the labor force are unemployed, but in the worst-hit crisis countries, about one out of two looking for work can't find jobs. 5 Dry statistics about youth unemployment carry in them the dashed dreams and aspirations of millions of young Europeans, many of whom have worked and studied hard. They tell us about families split apart, as those that can leave emigrate from their country in search of work. They presage a European future with lower growth and living standards, perhaps for decades to come. These economic facts have, in turn, deep political ramifications. The foundations of post-Cold War Europe are being shaken. Parties of the extreme right and left and others advocating the breakup of their nation-states, especially in Spain but even in Italy, are ascendant. What had seemed inevitable in the arc of history-the formation of nation-states in the 19th century-is now being questioned. Questions are arising, too, about the great achievement of post-World War II Europe-the creation of the European Union. The events that precipitated the acute euro crisis were symptoms of deeper problems in the structure of the eurozone, not its causes: interest rates on the bonds issued by Greece and several of the eurozone countries soared, peaking in the case of Greece at 22.5 percent in 2012. 6 At times, some countries couldn't get access to finance at any terms-they couldn't obtain the money they needed to repay the debts they owed. Europe came to the rescue, providing short-term financing, with strong conditions. After the euro crisis broke out in early 2010, Europe's leaders took a succession of
or introduced into a retrieval system, or transmitted, in any form or by any means (electronic, m... more or introduced into a retrieval system, or transmitted, in any form or by any means (electronic, mechanical, photocopying, recording or otherwise), List of Figures 1.1 A glossary of capital markets 4 1.2 Japanese credit expansion in relation to its economic size 12 2.1 Annual inflation in the USA and Canada 24 2.2 Annual inflation in the UK and Australia 24 2.3 Annual inflation in Germany and France 24 2.4 Annual inflation in Italy and Spain 25 2.5 Annual inflation in Japan and Sweden 25 5.1 Proportion of corporate credit supplied by US commercial banks 73 5.2 Structure of world financial markets at end-I995 values and exchange rates 74 5.3 Estimated values of UK fixed capital and personal wealth at end-June 1997 77 6.1 Estimated proportions of liquid and near-liquid assets in total financial assets ultimately owned by the household sector at end-I 995 90 6.2 Allocation of US personal saving flows 95 6.3 Morgan Stanley Capital International World ex-Japan equity price index 101 7.1 Billion dollar losses involving derivatives 108 7.2 The trillionaires club (as at end-I995) lI5 9.1 General govern.ment financial balances as a proportion of GDP 145 9.2 Comparison of money and bond markets 1970-97 150 9.3 Financial stability cone (as at end-I995) 158 10.1 Benchmark ten-year bond yields at selected dates 163 10.2 Ratio of US Baa-rated to Aaa-rated corporate bond yields 168 ix DEBT AND DELUSION 11.1 Net addition to the stock of bonds in 1995 179 12.1 Tobin's Q for the USA 201 13.1 Debt accumulation in the USA 215 13.2 Ratio of the domestic stock of credit to nominal GDP versus real GDP per capita 220 14.1 Foreign holdings as a percentage of total privately held US public debt 233 14.2 Bankruptcy liabilities as a percentage of nominal GDP for Japan 238 App.2.1 EV/EBITDA for the UK stock market 267 App. 2.2 US stock market capitalization as a percentage of nominal GDP 268 x XVI I A Clearing of the Mist 'Then lots of food was brought in to them-milk and pancakes with sugar, apples and nuts. Afterwards two beautiful little beds were made up with white sheets, and Hansel and Gretel climbed in and thought they were in Heaven.' The Brothers Grimm, Hansel and Gretel I. The money and foreign exchange markets 2. The securities markets 3. The financial markets 4. The capital markets Examples Currency (notes and coins) Deposits with banks and other financial institutions Loans from banks and other financial institutions Certificates of Deposit (CDs) Commercial bills Government debt (e.g. Treasury bills) maturing within one year Bonds issued by governments and their agencies Bonds issued by industrial, commercial and financial corporations Bonds issued by banks Bonds issued by supra-national organizations (e.g. the World Bank, the European Investment Bank) Equities issued by industrial, commerical and financial corporations Equities issued by banks Equities issued in the context of the privatization of state-owned assets Loans which have been 'securitized' (that is, repackaged as bonds) Derivatives (forwards, futures, options and swaps) Interest rate (money market) derivatives Bond derivatives Equity derivatives Credit derivatives Commodity derivatives All of the above All of the above, plus the markets in residential, industrial and commercial property
List of Tables and Figures vii Acknowledgements x Foreword by Christian de Brie xi Preface to Eng... more List of Tables and Figures vii Acknowledgements x Foreword by Christian de Brie xi Preface to English Edition xvii Introduction 1. Globalisation and the Neo-Liberal Offensive 2. The Concentration of Capital 3. Globalisation and Exclusion: the Marginalisation of the Third World and the Strengthening of the Triad 3 6 4. Financial Globalisation 5. Globalisation and the Growing Debt Burden 6.
would like to acknowledge the cooperation of the dozens of venture capitalists, entrepreneurs, in... more would like to acknowledge the cooperation of the dozens of venture capitalists, entrepreneurs, investment bankers, and others who gave me some of their most precious resource-time-so that I could complete this book. In particular, I'm grateful to Roger McNamee of Integral Capital Partners, who wrote the foreword and provided invaluable advice and insight into how the venture capital industry really works. I'd also like to single out entrepreneurs Hugh Martin of ON1 Systems, David Roberts of Zaplet, and Glenn Kelman of Plumtree Software, who gave me unusual access to the inner workings of their companies' progress along the start-up trail. And The Kingmakers would not have been possible without the backing ofJohn Wiley & Sons and my editor there, Matthew Holt. Finally, I must thank two people who provided absolutely critical support: editorial researcher Andrew Freiburghouse and content editor Eric Nee, who let me know, as always, what worked and what didn't. V This Page Intentionally Left Blank XI x11 PREFACE dustry now extends its reach into virtually every nook and cranny of our economy. For as the Internet Age transforms our institutions the way the Industrial Age did 150 years ago, venture capital transforms the Internet Age. Venture capitalists-with their access to huge and growing sums of money, their knowledge, their strategic advice, and their choices-literally determine which new companies will live or die. Venture capital financed the development of high technology and biotechnology, the two revolutions that are shaping our future, for better or for worse. Today, venture capital has become the accepted means of financing and nurturing innovation wherever it occurs. Corporations old and new, wealthy individuals, ordinary investors, governments, notfor-profits-all are getting into the act. The economic boom of 1999 and early 2000 largely rode on the back of venture investing; the bubble burst when the VC industry's excesses resulted in too many unprofitable, cash-burning companies. The professional VC industry is currently in a state of crisis-triggered, ironically, by its own success. The primary question: Can venture capital scale? Once a collegial fraternity, the industry has become a world-class financial power, but in the process it has both gained and lost: gained respect, unprecedented sums of money, and worldwide attention; lost some of its vitality and vision and willingness to bet the farm on a promising idea. Kingmakers tells the story of this industry, from its roots to its tremendous flowering today. Included are tales of superstars like John Doerr, leading companies like Intel, entrepreneurs whose start-up companies may be the Intels of tomorrow, angels, accelerators, incubators, and a host of other new forms. This book explains what venture capital is, describes the key players, and forecasts how the industry might weather its crisis. Above all, it introduces a fascinating set of memorable people who are changing their world, and yours. Chapter 1 opens with a bang: the initial public offering (IPO) of a venture-financed company. The IPO is the culmination of the entrepreneurial dream and the payoff for the VC partners whose skill and dollars turned that dream into reality. Chapter 2 details the workings of venture capital, what the industry is like today, and how it got that way. Chapter 3 goes back to the beginnings of venture capital to trace its evolution and the key patterns that persist today. Chapter 4 introduces the super-tier of venture capital, firms whose accomplishments and reputations make them the most sought-after financiers
First American edition published in 2016 by Encounter Books, an activity of Encounter for Culture... more First American edition published in 2016 by Encounter Books, an activity of Encounter for Culture and Education, Inc., a nonprofit, tax exempt corporation. viii Contents part two: banking eleven NetJets Doesn't Multiply Airplanes, and Banks Don't Multiply Money and Credit 85 twelve Good Businesses Never Run Out of Money, and Neither Do Well-Run Banks 97 thirteen Do We Even Need Banks? 105 fourteen The Housing Boom Was Not a Consequence of "Easy Credit" 113 fifteen Conclusion: Why Washington and Wall Street Are Better O Living Apart 123 part three: the fed sixteen Baltimore and the Money Supply Myth 135 seventeen Quantitative Easing Didn't Stimulate the Economy, Nor Did It Create a Stock-Market Boom 146 eighteen The Fed Has a Theory, and It Is 100 Percent Bogus 155 nineteen Do We Really Need the Fed? 162 twenty End the Fed? For Sure, But Don't Expect Nirvana 167 twenty-one Conclusion: The Robot Will Be the Biggest Job Creator in World History 176 Notes 181 Index 193 ix foreword Rob Arnott As you read this volume, prepare to be surprised. John Tamny makes many controversial and provocative claims that run contrary to the prevailing views of the academic economics community and of the policy elite. Indeed, many of his claims will provoke anger among the guardians of the status quo. Readers should consciously set aside their commitment to mainstream economic thinking and read the book with an open mind. You may not come away agreeing with everything Tamny says, but you will-most assuredly-leave aware of a very new perspective on some very old topics. Your gray matter will be stimulated! The field of economics was originally called "political economy," because policy choices have a profound impact on macroeconomic growth. With this latest volume, Tamny encourages us to take a fresh look at money and credit. He writes, as always, with clarity and insight, and skewers conventional economic thinking with great gusto. In so doing, he shows us that economics is no arcane field best left to the experts. The most important aspects of "political economy" can be understood by anyone with a healthy dose of curiosity and common sense. In their clarity and depth of insight, Tamny's writings remind me of Jude Wanniski's The Way the World Works. This type of critical thinking forces us to reexamine the prevalent economic theory in both academia and politics. This is no heavy-handed tome on the evils of central banks. There are no polemics here. Through a series of insightful-yet controversialobservations of the modern U.S. economy, Tamny leaves us with some Foreword xiii Tamny's conclusions are controversial. He suggests that the Fed is un necessary and has the potential to do far more harm than good. He suggests that the protracted "zero interest rate policy" cannot possibly have helped to fuel the second-largest equity bull market in history. He suggests that artificially controlling the government's cost of capital guarantees a misallocation of resources away from the private sector to the public sector, funding current public-sector spending at the expense of future growth. He also suggests (as does Milton Friedman) that deficits are irrelevant; what matters is the level of public-sector spending. Readers may agree or disagree with each of Tamny's conclusions. If we approach this important and highly readable book with a spirit of curiosity and a willingness to reexamine our beliefs, then we are guaranteed an intellectually stimulating adventure. Be prepared to reconsider your core assumptions about the nature of money and of credit. xv acknowledgments A lengthy chapter could be dedicated to thanking and acknowledging all the people who made Who Needs the Fed? possible. I'll do my best to keep it somewhat brief, and declare from the outset that any errors of the factual or theoretical variety are mine. Up front, Hall McAdams rates very special thanks. I first visited with him in 2003, and since then he's become a very important-and patientfriend. An expert on banking and free market economics, Hall has been pushing my buttons about banking, credit, and the Fed for years. His skepticism about conventional thought on all three nourished my own thinking in a major way. Absent Hall there would be no book, simply because our regular communication opened my eyes to the ideas that led me to write it. Hall's wonderful wife, Letty, similarly deserves mention for encouraging the constant communication between Hall and me. Hall's teachings piqued my interest in finance and ultimately led me to books on banking by Robert H. Smith. Ironically Smith lives on the same street as my parents. This requires mention mainly because name recognition led to conversations and e-mails with Smith that provided me with essential information and insights that, in turn, gave life to Who Needs the Fed? Absent Smith, what I presume to be good about this book would be substantially neutered. Arguably the toughest part of writing any book is putting pen to paper for the initial chapters. In this regard, Jessica Disch requires significant mention for attending a Taylor Swift concert with my wife, Kendall, and xviii Acknowledgments Many of the people mentioned here I know thanks to Ed Crane. Ed made libertarianism cool, and his thinking very much informs my own. Ed has been consistent in his contention that government spending itself is the true economic burden. Who Needs the Fed? works o of Ed's thinking, which reveals government spending as the wrongly ignored source of credit destruction. Big thanks go to David Nott, president of Reason Foundation. I'm proud to call Reason home, and I'm there thanks to David's belief in me. Nick Gillespie, Julian Morris, and Melissa Mann have similarly been very welcoming to me, and I'm excited to accomplish great things with all of them. Roger Kimball of Encounter Books requires prominent mention for his early excitement about Who Needs the Fed? It's been a thrill working with him, along with Katherine Wong and Sam Schneider. Their optimism has greatly enhanced mine. As for the great Steve Forbes, a day doesn't go by in which I don't think about how much he's done for me both personally and professionally. I'll surely fail in trying to repay all of his kindness to my wife and me, not to mention what he's meant to me professionally. Steve has the ear of ceos and world leaders, but he's always made time for me and has always encouraged me. No words can adequately describe all that he's done on my behalf and all that he's taught me. A greater, kinder person would be hard to find, or fathom. And then there are the people to whom I dedicate this book, Peter and Nancy Tamny. I can't believe how lucky I am that they're my parents. Unrelenting in their belief in and support of me all of my years, they also passed on to me genetic skepticism about conventional thinking. I'm truly grateful that they've always been there for me, along with my sister, Kim. I don't deserve a sister like her. Her enthusiasm about all that I do means more to me than she knows. Last, but certainly not least, there's my wonderful wife, Kendall. All the books (one can hope!) are certainly for her. Kendall's influence on me has been profound. Without her there are no books, and there's not much happiness either. I hit the jackpot in convincing her to marry me, and time spent with her is a constant reminder of just how lucky I am. 1 introduction If we were to destroy every piece of paper currency in the world, and every bank account entry, we would not have destroyed one shred of real economic wealth.-Warren T. Brookes, The Economy In Mind, 81 On August 13, 2015, and in an op-ed for the Wall Street Journal, the economist Alan Blinder posed the following question: "Will the Fed raise interest rates?" At first glance there is nothing abnormal about his query. A Google search of "Fed" combined with "Interest Rates" leads to 45 million results. Particularly within the economics profession, it's broadly accepted that the Fed can-and should-actively seek to manipulate the cost of credit. But imagine if Blinder's opinion piece had asked a slightly di erent question: "When will the Central U.S. Hamburger Authority raise the price of Big Macs and Whoppers?" The Journal's editors would have been inundated with letters from incredulous readers protesting Blinder's conceit, let alone that of the federal government. The prices of hamburger meat, buns, lettuce, tomatoes, and name o erings like the Big Mac and Whopper are set in local, domestic, and international markets. Reasonable readers would correctly point out that no central authority could ever successfully plan the price of these most American of food items. Worse, assuming a government decreed submarket price, it's fair to say that the supply of Big Macs and Whoppers would quickly shrink on their way to disappearance. Rare is the business that can remain in operation if the prices it's allowed to charge are a lot or even a little below its costs. To this unlikely scenario, some might reply that money is di erent, particularly the U.S. dollar. Perhaps there's an argument for a central-Ludwig von Mises, The Theory of Money and Credit, 287 On July 15, 2015, pop singer Taylor Swift performed for two straight nights at Nationals Park in Washington, D.C. Globally popular thanks to catchy songs that sometimes describe past romantic relationships with the famous, Swift is one of the most important acts in music. To properly understand the power that Swift wields, it's useful first to travel back a little less than a month before her arrival in D.C. It was then that Apple, the creator of the iPod, iPhone, and iPad, and the most valuable company by market capitalization in the world, announced its new Apple Music streaming service. Amid its rollout, and with the idea of luring customers away from popular competitors such as Pandora and Spotify, Apple o ered a free, three-month trial. Enter Taylor Swift. Understandably...
In the recent history of economics: Who are the most significant economists? What are the most si... more In the recent history of economics: Who are the most significant economists? What are the most significant events? Which are the biggest theoretical and policy issues?
Suppose that A and B exchange with each other a number of units of the commodities m and n. A acq... more Suppose that A and B exchange with each other a number of units of the commodities m and n. A acquires the commodity n because of the use-value that it has for him. He intends to consume it. The same is true of B, who acquires the commodity m for his immediate use. This is a case of direct exchange.
who are profound sources of joy, pride, faith, love, and unbounded optimism.
The International Monetary Fund is a powerful international institution. Founded in the aftermath... more The International Monetary Fund is a powerful international institution. Founded in the aftermath of World War II, its basic purposes were to facilitate world trade and promote national prosperity. The founders hoped that never again would the world experience the trade policies that led up to the Great Depression. Soon after its inception, the IMF became involved with developing countries. Over the course of the past 50 years, this involvement has grown so that most developing countries have participated in its programs of economic reform. These "IMF programs" grant governments access to loans, but this access can be swiftly cut off if the governments fail to comply with specific policy conditions. IMF conditional lending impacts the lives of individuals in intimate ways. The policy conditions address government expenditures, so IMF programs help determine whether roads, schools, or debt repayment take priority. By addressing interest rates and currency valuation, IMF programs may even impact the very purchasing power of the money in people's pockets. Unfortunately, in terms of economic development, there is scant evidence of the success of IMF conditional lending. • Why do so many governments participate in IMF programs? • Who controls the IMF? • How should it be reformed? By addressing the more demanding aspects of the institution, its debates and controversies in a clear and accessible fashion, this book will provide readers with a definitive introduction to link economic studies of the IMF with the political science literature.
I owe a huge debt of gratitude to many people for helping me think about, research, and write thi... more I owe a huge debt of gratitude to many people for helping me think about, research, and write this book. Many people read various early drafts of the manuscript and gave me invaluable suggestions, criticisms, and comments. I am hugely indebted to each of them for their generosity of time and effort. I owe particular thanks to
En science economique ou sociale Ia mythologie est au coeur meme de nos pensees. Nous nous constr... more En science economique ou sociale Ia mythologie est au coeur meme de nos pensees. Nous nous construisons un domaine bien abrite contre les vents, bien fortijie, meme contre les malejices qui sont les faits. Bien au chaud dans notre interieur, nous fermons vite les fenetres des qu 'arrive un courant d'air .... ' Alfred Sauvy' Histoire economique de la France entre les deux guerres. ('In economics and the social sciences the very core of our thinking is all too often a tissue of mythology. We build ourselves a mug little home for our ideas, well protected against the icy blasts, fortified against everything, even those arch-nuisances, facts. Warm and comfortable indoors, we hasten to shut the windows as soon as we feel a draught .... ') I should like to take this opportunity of thanking Mrs J. Thuillier and Miss A. Bottega for most patiently typing what must have seemed at times a never-ending series of drafts of this English translation of Jacques Riboud's Mecanique des monnaies. Special thanks are also due to Miss Angela Milburn for reading the early drafts and making many valuable suggestions regarding style and the general presentation of the book.
While there is some danger to them of implicating people in this work, I have taken advantage of ... more While there is some danger to them of implicating people in this work, I have taken advantage of my position as teacher to extend my reach through term papers of students not only in the courses mentioned but also in earlier courses on European economic history generally. I may omit some names because I have not always taken full notes, but the record shows that I have been helped by
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Papers by Immersion Ed Nomel