The author has been described by News Ltd as an "iconoclast", "Svengali", a pollie's "economist muse", and "pungently accurate". Fairfax says he is a "Renaissance man" and "one of Australia’s most respected analysts." Stephen Koukoulas concludes that he is "85% right", and "would make a great Opposition leader." Terry McCrann claims the author thinks "‘nuance’ is a trendy village in the south of France", but can be "scintillating" when he thinks "clearly". The ACTU reckons he’s "an enigma wrapped in a Bloomberg terminal, wrapped in some apparently well-honed abs."

Saturday, January 28, 2012

Dr Emanuel Derman's mysteries of macro...

My old Goldman colleague poses this question over at his Reuters blog. He could have added that there is currency manipulation via QE too:

Mysteries of macro
By Emanuel Derman JANUARY 27, 2012

1. Consider two countries, America and China. Suppose (only suppose) China manipulates its currency to keep it low, thereby making exports cheaper and imports expensive, benefiting its balance of payments and mercantile ambitions, harming America’s.

2. Now consider America alone, with two subpopulations: borrowers and savers. Suppose someone at the top manipulates T-bill prices, keeping them high (i.e. keeping interest rates low), benefiting the borrowers and harming the savers.

My question:

Why is 1. often considered reprehensible and unfair, while 2. is merely business as usual and unremarkable, even praiseworthy? Is there something fundamentally different about 1. when compared with 2.? Are bonds fundamentally different from currencies, stocks, real-estate, other assets?

Or does it just depend on who you are?

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