Ask MetaFilter questions tagged with finance and economics

Economics' greatest hits? ... or... Where's the science in economics?

zaebiz — Tue, 23 Jun 2009 12:54:37 -0800

As a former scientist, help me gain some faith in economics. What were the great successes of economics as a tool for making better decisions in the last 100 years? The Queen of England said it best for me : Why did none of the big shot economists see this crisis coming?

Having been scientifically trained, I have always had this belief that economics is a mostly mathematical rationalisation of events after-the-fact with the same predictive capabilities as astrology and whose validity decreases as more people believe in it. Why am I wrong? what demonstrable uses has it had? Also interested in any books or papers discussing either side of this debate.

How can the Fed Destroy Money It Created?

Pastabagel — Thu, 19 Mar 2009 07:41:35 -0800

[MonetaryPolicyFilter] In relation to the Fed's huge injection of money yesterday, please explain to me how, if at all, the Federal Reserve can destroy money on its balance sheet in a way that offsets the inflation that normally would result. The Fed's announcement yesterday that is it going to flood the economy with dollars would, in normal circumstances, be horrifically inflationary. But these are not normal normal circumstances. My questions are:

1) Why isn't this inflationary? To what extent have deflationary factors stemming from the credit crisis not yet worked their way into the economy such that they will offset what inflation results?

2) Explain Federal Reserve accounting to me. I sort of understand that the Fed can create this $1 trillion from basically thin air, but can it destroy money just as easily as it creates it?

3) Because the Fed is buying debt and debt-related instruments, can the Fed take the principal and interest payments it receives from these debtors (e.g. the U.S Treasury), and destroy that money just as easily as it created that money? In other words, when Treasury makes interest payments to the Fed on the bonds the Fed bought, can the Fed simply take that money and strike or "disappear" it from it's balance sheet forever?

4) If the Fed can do what is described in (3), is that the mechanism the Fed intends to use to avoid inflation that would normally result from such a huge injection of money? Has the Fed said anything about what it intends to do with the interest payments it receives?

5) Any resources related to Federal Reserve accounting or explanations of how its balance sheet works would be greatly appreciated.

I'm looking for accurate financial answers here, not lunacy or chatfilter. Thanks in advance for your help.

Is the yield curve broken?

up in the old hotel — Sat, 29 Nov 2008 16:11:30 -0800

MoneyFilter: Help me understand the Treasury yield curve. According to Mutant and others, US Government Securities Yield Curve is an excellent predictor of the future of the U.S. economy. Specifically, an inverted yield curve (the rates on short term Treasury bills are higher than the rates on long term Treasuryy notes) is supposed to be very good at forecasting trouble ahead.

Right now, in the midst of all this turmoil in our economy, the spread between 3-month T-bills and 30-year notes is more than 3 percent, which some call a sign of economic health. But this defies common sense, because we're headed for a recession. Or are we?

Shouldn't the yield curve be flat or inverted now? Is something keeping short-term rates from rising (or their prices from falling)? What's happening here?

Level-up, Economics.

dead_ — Fri, 14 Nov 2008 13:28:09 -0800

I'm looking for a good, intermediate economics textbook. I would like to get a few recommendations on intermediate/advanced economics textbooks that are well suited to self-study. I am particularly interested in macroeconomics and development economics. What are the standard books typically assigned in college courses? Which books have been particularly helpful in moving you from a beginner to intermediate understanding of macroeconomics? Also, books that have associated online content (quizzes, tests) are a plus.

Help me find an internship in Oregon!

thatbrunette — Sat, 01 Nov 2008 13:16:54 -0800

Help me find an internship in Oregon! I am not sure of my next move, at this point. I live in a small town in Oregon, about an hour from Salem and an hour from Portland. My majors are Economics and Mathematics, and I would be so thrilled to find an internship in strategy consulting, RND, finance...the problem is the commute. I'm carless, and while the bus ride to Salem is manageable (40 minutes each way), the one to Portland is less so (2 hours each way). I've tried my professors as resources, and the career department is on a lookout, but the pickings are pretty slim it would seem. I'm reaching out to the Hive Mind for any possible connections that may be there! Any suggestions for expanding my search would be greatly appreciated, I've never interned before.

Is there a sound economic theory which predicts an 80 year cycle of great depressions?

Kattullus — Mon, 22 Sep 2008 17:15:53 -0800

In a book by Arthur C. Clarke (Ghost from the Grand Banks if I remember correctly... if I'm wrong please correct me) he talks about an economic theory which predicts great depressions every 80 years or so. Now, current events have brought this prediction rather starkly to mind. Was there a sound basis for that prediction or is it merely that bad economic shocks happen often enough for a fake pattern to emerge? Was it maybe just a lucky guess? I've done a lot of googling of 80 year cycle and other terms that I've thought might get me somewhere interesting but all I get is conspiracy theorists and worse. Now, I know that Ghost from the Grand Banks is lesser Clarke but I'd like to think that he was a little bit more up on his economics than internet conspiracy theorists. The 80 year cycle thing might also have been mentioned in an introduction or afterword.

Questions about the possible economic depression

mintchip — Tue, 16 Sep 2008 21:06:01 -0800

Questions about the best course of action to prepare for a possible economic depression I'm no economist, but I'm trying to learn about the possible economic depression everyone's been talking about since the recent financial upheaval. I have a number of questions.

1. I have always read that there are huge bargains to be had when the stock market tanks. If this is so, what stops investors from jumping INTO the market when there is a huge crash? For example, why not invest in an index fund as soon as the market drops off 500 points? Why *wouldn't* this be a good idea for the individual investor (assuming it isn't).

2. What would happen to people's outstanding debt if the companies they owe $ to went under? For example, did people's debts get wiped out with the banks that closed up shop during the Great Depression? What about nowadays...for example, what would happen to student loan debt if virtually nobody could afford to make payments?

3. Let's say you've got some extra cash flow right now...what's would be the best bet when preparing for a possible period of economic depression? Pay off outstanding debts? Stockpile money in order to buy up things once they've lost value? Etc.

4. How were some people able to purchase "bargains" during the great depression if indeed inflation caused money to lose most of its value?

5. Does FDIC insurance REALLY ensure that money is safe and accessible (up to the limits specified)?

6. Anyone care to venture a guess about what the next few years are going to look like economically?

Did UAL's billion-dollar drop affect banking?

anildash — Tue, 16 Sep 2008 11:33:02 -0800

Did the United stock drop have any catalyzing effect on other recent collapses? Obviously, big banks fail because of years of mismanagement, and the credit crunch has an order of magnitude more impact than a single day's blip in even a large company like UAL. But I'm curious if anybody with relevant financial knowledge can identify any connections between the blip caused by the resurfacing of the old Sun-Sentinel UAL bankruptcy story and any of the larger institutions that went from teetering to collapse recently.

Tenuous connections welcome! :)

Credible returns on investment in virtual world finance?

vizsla — Tue, 12 Aug 2008 21:30:37 -0800

Anybody have experience in investing in virtual world banks/businesses/markets (such as those in SecondLife.com etc)? Do they provide a serious way of making a sensible risk/reward on five or six figure investments? I have found discussion of investing in virtual worlds in this article for example which concludes its very high risk but maybe someone has heard of a viable diversification strategy out there?

What's the safest possible thing that I can do with my money?

Afroblanco — Thu, 20 Mar 2008 12:18:24 -0800

What's the safest possible thing that I can do with my money? Anyone who's seen me around the finance threads knows that I take bearishness to an extreme. Having witnessed the 2000 tech crash, I have no faith in the stock market or the US economy. I keep all of my money (USD) in a savings account. However, with the recent financial turmoil, I have a few questions :

1) Is it conceivable for the FDIC to fail?
2) If so, is there a place where I can put my money that will be safer than a savings account?
3) What's the safest, most risk-free way for me to save money and not get killed by inflation and the tanking US dollar?
4) If there is a safe way for me to save money and not be punished by inflation and the depreciating dollar, is there a way that I can do this without having to stress out and micromanage my finances? I don't want to be checking the finance page and making adjustments every day.

One thing that I must ask of you all - please do not turn this into a political debate. I know that issues of economics are often politically charged, but I ask you to please not address that aspect of the situation. Also, please take it easy on me. Even though I follow finance news, I've never done any investing or money management other than socking money away in my savings account. I'm a n00b, I admit it, so please don't talk down to me.

Any links to relevant articles or informational resources - especially those readable to the layman - will be appreciated.

Thank you.

Is there such a thing as a currency-neutral measure of prices?

Nelson — Wed, 07 Nov 2007 10:03:08 -0800

Is there such a thing as a currency-neutral measure of the price of a commodity? The price of oil has gone way up in dollars. But the dollar is also way down against other world currencies. I'm looking for a graph that shows the price of oil in a way that's currency neutral. Ie, a graph that filters out the fluctuations in the US dollar. I'm not just interested in oil, really what I want is to translate dollars to "world currency" for a variety of things.

Naively I think you could do this by creating a virtual currency, an average of various world currencies weighted by the currency's economic influence. Ie: "30% USD, 20% EUR, 20% CNY, ..." But I'm not an economist and I'm not sure what I'm asking for even makes sense.

I did find a set of graphs of oil prices in various currencies, including vs. gold. The comments include a discussion about exactly what I'm asking for, with inconclusive results. The most interesting was a suggestion to look at oil vs. the CRB index. I don't really understand the CRB index, but what I do understand suggests it's not the right thing to normalize against.

Dollars to donuts

doctorcurly — Thu, 20 Sep 2007 05:42:04 -0800

Should I be worried about an impending collapse of the US dollar? There's been a lot in the news lately to suggest that the US dollar is headed for even deeper trouble than it's been, starting with various oil-producing countries moving away from the dollar standard, and China's threatening to off-load its stash of dollar reserves.

Any economists out there care to comment?
This question was asked also about a year ago, but the times, they are a-changin'...

Where can I find historical fed statements?

GregX3 — Wed, 31 Jan 2007 15:47:20 -0800

Every time the US federal reserve meets to decide on changing interest rates, the news articles say something like "in their statement the fed says ...". So my question is where can I find a listing of the statements for the past 10 or 20 years? I'd like to see how the words change over time. My ideal answer if a link to a webpage that has them somehow. But just knowing the official term for these statements or if they get published officially anywhere would be immensly useful.

How do you figure the value of a blog?

mrgreyisyelling — Sun, 03 Dec 2006 17:22:28 -0800

How do you value the content of a blog, or any media company, whose content isn't made up of physical assets? Myself and I are debating this: How would one figure out the worth of a company who's assets are primarily non-physical?

The example I'm trying to work out is if two people incorporate to create a blog to generate income. It will be a standard blog where an article a day is written. And after doing this for 5 years, Person B wants to buy a house and wants to sell his stake in the company to Person A. How do you value the assets of this company, so that you know what 50% of the company means? It can't be just the physical assets, like computers and office space, because the income from the articles is the actual asset. Is it the value of the projected income from these articles over a certain amount of time? Is it just what ever the person is willing to pay?

I'm essentially looking for a semi-logical method to estimate this value. Thank you.

Readable corporate statistics

vincentm — Tue, 10 Jan 2006 04:57:55 -0800

I'd like to find a webpage or document that consolidate the number of employees and the revenues of the biggest corporations in the world. Where can I find an easy to read page like this ? Wikipedia have all the information but you have to browse from an article to another...

Is New York really losing 400 million dollars a day?

kingfisher, his musclebound cat — Tue, 20 Dec 2005 05:43:05 -0800

What does it mean when they give an estimate of a financial loss to a city? Bloomberg has given an estimate that the strike will cost the city $400 million a day. But . . . does that mean money that does not come in to the city and money that leaves the city? Or are they being shifty and calculating some revenue and not others. That is, money still circulates, is it really lost or is its path being altered?

Earning income from stocks

daksya — Mon, 09 May 2005 19:44:16 -0800

How do shareholders of Berkshire Hathaway earn income? It seems that dividends haven't been issued since 1967. Short of selling the stock, isn't the investment "tied up"? On a broader note, how does one earn money from stocks?

I can think of 2 ways:

1)Dividends.
2)Sell it off for a profit.

..and maybe, earn interest off it (if so, how?).

Help me understand the global monetary system.

Pretty_Generic — Thu, 06 May 2004 15:06:44 -0800

Money confuses and scares me. [further within] Is there a fixed amount of money in the world today, or is it variable? If I find a new gold deposit and sell it for cash, am I creating new money or just spreading the old stuff around? If I put my money in a bank account and they lend it to someone else, isn't that doubling the amount? Do countries have to destroy old banknotes before they can print new ones? What's to stop a nefarious foreign government from printing shedloads of new banknotes and spending it all on Hawk jets before anyone notices? If money in the West used to be based on precious metals, but is now based on securities and services, how did they manage the changeover, given that comparing the two seems entirely based on instantaneous and transitory sentiment?