money is not magical
Jul. 7th, 2015 11:45 amAs you might imagine, since I am a humanist with an economics background, I find reading most punditry about the Greek austerity vote aftermath excruciating. Krugman's ok. Zizek pretty much nailed it. But most of the pieces haven't been about Greece, and politics, and humanity, but about the markets, the markets, the markets. Not the people with investiments in the markets, but the actual feelings that numbers might have. This is absurd. I don't really need to rehash what Zizek said about it.
Yet the specific agony I have is itself inhuman and concerns numbers. Perhaps you have yourself run into journalists or columnists noting that bond markets haven't panicked, which suggests they've already priced in the possibility of a Greek default.
Can you spot it? Have you guessed what makes me crazy in that last sentence?
Of course they've already priced in the possibility of a Greek default. That's why Greek bonds return high interest rates. Those interest rates literally price in the possibility of a Greek default. That's how they work. That is the function of interest rates that exceed inflation. An interest rate is you saying, "yes, I will loan you this money, but I'm not really sure you'll pay me back, so you have to sweeten the pot until I'm willing to gamble on you." It's as tautological as saying casinos may have considered the odds of a given number coming up on a roulette board and adjusted their payouts accordingly.
All of these people who muscularly assert that markets will find the right most efficient outcome don't seem to understand very well how they do that.
Yet the specific agony I have is itself inhuman and concerns numbers. Perhaps you have yourself run into journalists or columnists noting that bond markets haven't panicked, which suggests they've already priced in the possibility of a Greek default.
Can you spot it? Have you guessed what makes me crazy in that last sentence?
Of course they've already priced in the possibility of a Greek default. That's why Greek bonds return high interest rates. Those interest rates literally price in the possibility of a Greek default. That's how they work. That is the function of interest rates that exceed inflation. An interest rate is you saying, "yes, I will loan you this money, but I'm not really sure you'll pay me back, so you have to sweeten the pot until I'm willing to gamble on you." It's as tautological as saying casinos may have considered the odds of a given number coming up on a roulette board and adjusted their payouts accordingly.
All of these people who muscularly assert that markets will find the right most efficient outcome don't seem to understand very well how they do that.