How Money is created
Monetary & Quantitative Easing
Yesterday I posted this diagram, but it had some significant errors in it. I have since corrected it and wanted to share the new version. Enjoy.
So I created this diagram showing what Quantitative Easing and Monetary Easing is and more generally how new money is created and put into circulation, thus increasing the money supply.
How Money is created
Monetary & Quantitative Easing
So I just finished creating this diagram showing what Quantitative Easing and Monetary Easing is and more generally how new money is created and put into circulation, thus increasing the money supply.
Freeman’s Three Laws of Money
1) Money only exists when it is in motion.
2) The total value of money owned, whether by an individual or a society, will always change at an exponential rate.
3) The number of specialized experts in a society is always proportional to the abundance of money in that society.
I came up with these three laws recently as I have been refreshing my studies and going significantly in-depth on economic theory and the nature of money. I’d be curious to hear people’s impression of it.
So the same friend (actually family) who I was discussing Quantitative Easing with yesterday that prompted the long post continued the conversation with me today. I responded again with novel-sized response laying out why QE isnt really a bad thing (or at least less bad than doing nothing). Since I think it might be informative for some people I want to reshare his comment and my rather long response here for anyone who wants to read more about Quantitative Easing and the recent COVID economic “bail-out”.
My cousin mike originally made the following assertion to which I will be responding WRT the 2020 economic bailout:
of course if you ride the wave you’re going to make money.
I wouldnt advise anyone to bet against the fed for that reason. They have more money.
But the fact is not everyone is a trader or investor.
This is going to have a horrible lasting inflation tax on the average american.
And we’ve printed
22% of the total money in circulation in 2020 alone
Weve matched 08-16
Not so we could do it in a shorter time
But because as the bubble inflates it needs more
It’s similar to a drug
We’re building a tolerance to injections.
But now we’re at the point where if the feds stop printing it will likely be devastating
Because they never allowed us to fully recover in 2008
Bail outs and QE entices poor behavior in businesses who are in bed with government.
That is all very misleading for a few reasons. I’m not sure if your missing some key concepts or it is a difference of opinion, let me try to address them each.
I will reply to each in its own comment so I dont get a runaway like before (and in case you want to discuss it without dealing with a wall of text).
22% of the total money in circulation in 2020 alone
Ok so two major problems with this.. 1) the money supply printed in 2020 was preceded in the two years before hand with a reduction in money supply of 700 billion. So ignoring that we reduced the money supply just one year prior, and then re-increased it, and only citing the money created in 2020 and ignoring the money supply decrease in 2018-2019 is highly inaccurate.
Second, the percentage of physical notes and bills has absolutely no effect on inflation of any kind and never has, because it is not representative of the money supply, the money supply consists of 6 tiers of money: M0, MB, M1, M2, M3, MZM. They are guaranteed to have fixed value between them and be interchangeable. The value of the dollar, and the effect on inflation has 0 to do with the physical notes and bills in circulation and instead is determined by the total money supply.
This should be obvious if you consider it. Imagine there was 1T in circulation (MB minus M0), 0.5T held in bank vaults (M0) backing half of all bank balances with another 0.5T of bank balances without physical cash (M2, including M1, but excluding MB and M0) to back it. You wouldn’t have 1.5T of money, you would have 2T of money. Paper money has no special value, it is determined by the total monetary value. If everyone started taking out their cash as the 0.5T in reserves is depleted M0 would shift into MB. As this happens more money is printed to allow withdraws to take place but the actual supply of money remains fixed. Likewise if everyone starts depositing their money then the notes are destroyed as there is an excess of notes, but your balance goes up by an equal amount, so again the total money supply remains fixed.
Paper money is not money, they are IOUs, they are effectively cashier checks written by the central bank and nothing more. So talking about how much money is printed or not printed has no value what so ever when talking about inflation, if you wish to talk about inflation then we would have to talk about the total value of MZM instead, of which physical notes is a very small percentage, on the order of 10% of the total money supply.
I wouldnt advise anyone to bet against the fed for that reason.
This seems to presume the federal reserve is a for-profit entity out to make money at the expense of the people whom it bets against, none of that is true.
1) The federal reserve is not owned by anyone, it is run by a board that is democratically chosen (the president selects them). If the fed makes money there are no owners who are able to cash out on that money.
2) The federal reserve is a non-profit, entity, in fact, they are even less capable of earning profits than a non-profit. A non-profit can earn profit so long as that money is used to expand the business and cant get withdrawn by owners. But the Fed cant even do that much, any profit they earn, minus some minimal operating expenses, must by law be transfered to the US Treasury, they cant make money if they tried.
3) The 12 reserve banks which make up the Fed are also similarly non-profit, and they do not have owners, their profits, again, can not be kept anyway.
In short the fed is an autonomous, democratically elected body. They are not privately held, their member banks are not privately held. The only difference between them and a typical government agency is that they have some level of autonomy in how to implement policies.
To put it another way, any money the fed makes is your money. It cant be used for anything else other than to give it back to the people in one way or another. You are never “betting against the feds”
But the fact is not everyone is a trader or investor.
The huge benefits we are seeing are not limited to investors, not in the least. You need to keep in mind everyone generates wealth, not just investors they just do it in different ways, and it all benefits from the same factors.
QE along with the 0% interbank interest rate that goes along with it bolsters every aspect of the economy, not just the stock market. For example it means mortgage rates are at the lowest they have been in history, as are the rates on personal loans. This means people can now afford to and are encouraged to, buy the car they need to get a job, the business location they need to start a small mom & pop store, the home they need to raise a family, or if they want cash monies to go investing in the stock market. Low interest rates and QE encourages people not to hoard cash, which is generally a horrific money management technique to begin with, and instead to use that money to generate wealth. The worst thing for an economy or for an individual is to sit on liquid cash monies.
So yes, not everyone is a trader or an investor. But everyone (almost) does work and make money in countless ways. Have access to as close to free a loan as you can get means everyone, at every level, is now far more enabled to generate wealth and good financial practices (IE not sitting on liquid cash) is encouraged which benefits us all.
In short it means everyone is making money more easily either directly or indirectly, that’s why we do it, we don’t do it just for investors.
This is going to have a horrible lasting inflation tax on the average american.
Well no, not really, inflation is a very misunderstood concept. The absolute value of inflation means nothing on its own. The absolute level of inflation would be like saying is the amount of dollars in $1 increments it takes to buy things in general.. for example the amount of money it takes to buy bread, or to afford the cost of living, or a home. If the same home costs twice the amount of money in 100 years it does now we would say inflation doubled, and most people would look at that and say it is universally bad, or at least, worse than the situation 100 years ago, but this isn’t true, the absolute inflation has no meaning on its own of any real use, that’s not how economic analysis use it either. In reality “bad” and “good” inflation is a very different concept than most people understand.
The way you would measure if inflation is good or bad, roughly speaking, is by taking the rate of inflation (not the actual amount of inflation) and taking it as the ratio of new wealth generation (not to be confused with new money generation, which is completely unrelated to wealth).
Lets take a simple example to show why this is.. Lets talk about wealth in terms of the number of homes I own (though it could just as easily be loafs of bread or anything else), lets presume one “standard” home costs 50K, we will call a single home, or the cash equivalent “one unit of wealth. At the start of this scenario if i have 100K then I have two units of wealth, even though its all cash and not in the form of a house.
If the cash I have in this scenario is experiencing inflation at 100% per year (real inflation is nowhere near this, just picking easy numbers for the math), then if all i do is sit on a pile of cash, then by the following year that cash can only buy one home instead of two. So I would have one unit of wealth the following year instead of two. Each year my wealth is cut in half. Since inflation is high, and I am doing nothing to generate wealth, the effect of the inflation is bad, very bad.
However instead imagine I buy one home for 50K and the wood and materials (but not labour) to build 2 additional homes. Presuming a home costs half its price in parts to build and half in labour. So I spend 50K for one pre-built home, and 50K for the parts and supplies to build 2 homes, leaving me with no cash to pay for anything else, including the labour to build the homes. At this point I still have two units of wealth, it is just in the form of a home and supplies rather than cash.
Next assume I don’t even use the supplies to build a home, lets say I just sit on the supplies and my personal home with $0 in an account for a year. Because inflation means in a year it costs twice as much to buy a home as it did the year before in a year I will have 200K in assets instead of 100K. You might think this means I now have more wealth, but because the money is worth half what it was the year before I actually dont, I have exactly the same amount of wealth I did before. That’s why we are measuring wealth in the number of homes I either have, or can buy.. So after a year I still have exactly 2 units worth of wealth, one home, and supplies that are worth the value of another home (but capable of building two)… So if i convert my money to homes + lumber then instead of my wealth being cut in half each year it remains constant. In this case the even though we have a 100% inflation rate it is neither a good nor bad thing. Each year I am just as well off as I was the year before, the inflation causes no harm.
Finally consider a third scenario, I buy the home and supplies as before, but now instead of just sitting on it I trade with a few people who are poor and have no money (as they are suffering from the recent recession that caused the inflation due to QE or whatever else). I offer them a free home to live in, and food, and in exchange I ask that they do the labour of building a home for me, which I already have the material for. Now I start out with 100K in cash which is 2 units of wealth, convert my liquid wealth into a home and supplies, still at 2 units, and then turn the 50K worth of supplies into two homes. So now after a year I have three homes, no supplies and no money. In a year I can sell my three homes for 300K, meaning I started with 100K and in a year have tripled the money I have. So I went from having 2 units of wealth to 3 units of wealth.
Now here is the interesting part. If we had the same scenario but without inflation I would have turned 100K into 150K in a year, I would have made 50% cash profit in a year, 50K profit total. But that sane scenario with a hyperinflation of 100% in play means I made 200% in a year instead of 50%, a profit of 200K on top of my 100K instead of just 50K. So because of inflation I am making money FASTER than I would otherwise. So the increased rate of making money counters the increase rate at which the money devalues, which means they cancel eachother out and even with insane hyperinflation I am still making both money and wealth.
This isn’t just limited to homes or large investments mind you.. Inflation also means you see an increase in the average salary too. Everyone benefits, the only caveat is that you aren’t just hoarding money but actually using it to be productive. This is a good thing, we don’t want people hoarding money, money hoarding is an economy killer.
So back to QE, what this means for QE is simple… QE, as we already see with the stock market boost, causes two things:
1) an increased rate of inflation
2) this is offset with an increase rate of wealth generation.
During times of recession the benefits of #2 outweigh (by far) the draw backs of number one. so while there will be some inflation in the absolute sense, the wealth generation will exceed the inflation rate and overall wealth and prosperity grows and doesn’t decline…
In short, inflation isnt a bad thing, it can be good, it can be bad, it depends on what causes it.
But now we’re at the point where if the feds stop printing it will likely be devastating because they never allowed us to fully recover in 2008
Not true, and we have the cold hard numbers to prove it.
We stopped “printing” (really you mean QE, printing money is only a small part of that) in 2013, yet new wealth generation remained at an alltime high despite this. As covered earlier from 2009-2013 QE was in effect, we saw an increase in DJI growth rate from 7% to 18%… from 2013 to 2018 QE stopped entirely and there was no new delusions, despite having stopped “printing” whether generation remained at an all time high, twice above the baseline of 7% at 14%. Not only was stopping printing not devastating, but we were flourishing. In fact we even took it one step further, from the start 2018 to most of the way through 2019 we had reverse QE (reducing money supply and fed hold assets), and even with a reverse QE it still wasn’t devastating. We saw a higher than base rate generation of new wealth with the DJI growing at 8.37%, that is still higher by 1.4% over the 20 year base rate on wealth generation.
Not only is none of this statement true, we have all the numbers and facts to show the exact opposite is true. While I use DJI as an example this is true on all levels. Yes even individuals are better off now than they were before and wealth of everyone, of every class, is growing.. Consider:
Prior to the COVID lockdown the unemployment was the lowest it has ever been in 66 years.. the last time unemployment levels were as low as they were just before COVID was in 1954, which only lasted breigly
The Gross National Product Also reached record high prior to covid, the highest we have seen in the entire history of the USA. Moreover the rate at which the GNP was increasing was growing, not diminishing. We saw record and unprecedented rates of growth.
There is really no way you can dice it that makes your assertion true when weighted against the facts.
Bail outs and QE entices poor behavior in businesses who are in bed with government.
On this i somewhat agree. Bailing out an industry or company with a wad of cash to keep them from going bankrupt is bad policy, and it is harmful. That is not what QE is however, we did do this, in addition to QE, back in 2009 when we bailed out mortgage companies. This was a bad move and ultimately harmful to the economy, so I agree on this point.
However QE itself is not a bailout, it is not industry specific (usually) and it does not preferentially help businesses, whether they are in bed with government or not. The funds injected into the economy by QE is done in such a way that anyone, individuals and companies, can benefit from it. The very reason I encourage QE is because of this point, because it is fair and the value is auctioned to everyone freely. It is a better alternative than an actual bailout which would help companies.
The way QE works is the government will buy some sort of a secured or semi-secured loan at a fixed interest rate on the open market it, then buys it back later. These can be short-term or long-term in nature. This is done in the form of an open-auction such that anyone can buy it, you, me, and investor, at an affordable rate determined by free market. In effect they are giving out low-interest loans to anyone who wants one without credit checks or approvals. There is no favoritism to corporations in such a deal.
For a more specific example lets talk about how this worked in the 2020 QE. In this case the government purchased a type security called a “repurchase agreement”. This is where you can short them a repo agreement and they give you cash, which you then have to pay back the next day at a fixed interest rate, or pay the interest and you can hold it longer. Because QE means the mass shorting of these repurchase agreements it means their normal rate was extremely low, near 0. Effectively this means anyone could borrow some money for a short period of time at a very low interest rate. They are sold on the free market and not preferential to investors, anyone with a brokerage account can get them. they are a type of “Money Market Security”, you just hop on, and buy it or short it like you would a stock and you have near-free money in your account to invest with short term.
The reason QE works, and is so much better than the other solutions is exactly this, it represents a free market transaction and not a favoritism towards businesses. Once you realize the feds money is the peoples money you cant even think of it as breaking the free-market, it only helps encourage the market to be more liquid to encourage wealth generation, everyone benefits
A response I gave to a friend who felt the Quantitative Easing used during the COVID epidemic would ultimately hurt everyone, and that an absolutely free market is the only market. While I do agree with free market sentiments the truth is QE does work when used to avoid massive market crashes and as long as it is reversed at a later point once markets recover then it does far more good than bad. Here I lay out all the math to show why.
In an ideal world I do agree that there should never be market interference. But that only works when you truly live up to that at every level, something that you can't truly have and still have a government.
Consider, the only reason we needed to handle a depression at all is because the government first interfered with the market by using law to force shutdown of businesses or their ability to accept customers inside. If the free market were not tampered with in that regard there would have been no significant depression to deal with in the first place. So we are doing cleanup at this point, so the point is somewhat moot.
That said the assessment that interfering now with QE results in more problems later isnt entirely true, only somewhat. You are correct of course that there will be a downward pressure on the market into the future for sometime, which is what you're referring to. But I think its important to understand the exponential nature of money and while earlier short term gains can far outweigh later long term loss.
Basically the dynamic plays out like this when we see QE going down in times of depression.. 1) ROI on market investments soar many times higher than what would normally be possible in the short term. 2) There is more money in the system so far more people are able to leverage that ROI than they otherwise would in the short term. These two principles combined means people see huge financial gains during a time when we would otherwise have huge losses. This is followed by a longer period of time, on the order of 4x to 6x the length of time where we see a boost where the market is now going to underperform, but at a much lower hit than the gain we saw during QE.
So lets use real world numbers to demonstrate the idea with some solid math. I will pull the numbers from the real world numbers and spitball some figures minimally and try to underestimate so as no to bias it in my favor for numbers we don't actually know but that follows the proposed premise of short term gains followed by long term downward pressure from QE that is higher but distributed over a longer time period... Here are the numbers im going with pulled from real world numbers:
Dow Jones industrial average baseline annual return when QE is not evoked, taken from the 20 year average: 7.03%
First lets look at how things would play out if you invested at the start of QE, which was after the COVID lockdowns and the initial covid drawdown (optimal time to invest):
Short term annualized pressure from QE: 93.79% (1)
Short term annualized P&L based on DJ movement (baseline + QE): 100.72%
Long term loss pressure from QE over following 20 years: -74.19% (2)
Long term annualized QE loss pressure: -6.54% (3)
Long term annualized P&L (expected DJ movement, baseline +/- QE loss): 0.49%
Portfolio P&L on 100K invested at beginning of QE after 2 years: +$290,032.80(4)
Portfolio value on 100K invested at beginning of QE after 2 years: $390,032.80 (4)
Portfolio value after 22 years when starting at 100K with QE: $430,088.72 (4)
Portfolio P&L over 22 years on a 100K investment with QE: +$330,088.72 (4)
Total 22 year percentage P&L with QE: +330.08% (4)
Annualized percentage P&L over 22 years with QE: +6.85% (4)
Time to DJI recovery with QE (actual observed): 275 days (0.75 years)
As you can see the gains are still quite nice even with QE slowing the market down to a crawl for 20 years. Just for comparison lets run the same numbers without QE doing our best to use the real world figures again.
Observed drawdown loss due to covid with QE: -36.77% (5)
Projected drawdown loss due to covid without QE: -85.58% (6)
Historic annualized recovery rate with QE (2009 - 2013): 18.82% (7)
Historic post-QE annualized P&L (2013 - 2018): +12.63% (7)
As you can see, even post QE for the almost 5 years that followed we saw an annualized **increase** in ROI over the baseline of 7.02% and not the decrease you propose or expected.
Time for covid recovery without QE: 10,418 days or 28.5 years (8)
So we can see the time to recover your pre-covid investments without QE is only 275 days compared to without QE we are talking 10,418, or over 28.5 years. Thats huge. So more importantly what would a pre-covid portfolio look like in 22 years with and without QE. Remember the above portfolio numbers were if you invest at the beginning of QE, an optimal point, not pre-covid drawdown, which is the least favorable point.
Loss on pre-drawdown 100K at minima with QE: -$36,770 (9)
Portfolio value on pre-drawdown 100K at minima with QE: $63,230 (10)
Portfolio value on pre-drawdown 100K after 22 years with QE: $271,939.58 (11)
Gain on 100K due to covid drawdown with QE: +$171,939.58 (12)
Now for the numbers without QE
Loss on 100K due to drawdown without QE: -$85,580 (13)
Portfolio value on pre-drawdown 100K at drawdown without QE: $14,420 (14)
Portfolio value on pre-drawdown 100K after 22 years without QE: $62,594.80 (15)
Portfolio P&L on pre-drawdown 100K after 22 years without QE: -$37,405.20 (15)
Portfolio percentage on pre-drawdown 100K after 22 years without QE: 62.59% (16)
Portfolio P&L percentage on pre-drawdown 100K after 22 years without QE: -37.4% (16)
Portfolio P&L on pre-drawdown 100K annualized from 22 years without QE: -2.1% (17)
(see notes at bottom to see how these were calculated from the real world numbers)
As you can see under a QE scheme we recover in a fraction of the time to baseline, only takes us three quarter of a year before we are back to where you started and after 22 years you've still managed to turn your original investment into 4.3x its value in 22 years, and gaining just a little below base rate per year on average at 6.85% gain annualized. By comparison without QE your original investment would actually have lost value over a 22 year period being reduced by almost a half with portfolio investment dropping by -37.4% of its starting value and with an annualized average return over that time of about half at -2.1% loss per year. So clearly QE applied early on before a recession has a chance to fully realize, even with a theoretical economic hit that applies in the 20 years that follows (though we have not observed this historically), is more profitable for everyone than it is to just let the market naturally recover.
This is, in fact, as shown, demonstrated by historic values which agree with currently observed and calculated values here. In fact I was ultra conservative and the real numbers are likely far better. QE tends to cause recoveries proportional to the rate at which the QE occurs followed by an increase in future gains rather than a decrease for at least half a decade out. In fact even when we reversed the QE from 2018 to 2020 there was no noticeable hit to the economy which was still growing in part due to the fact that it was thriving from the effects of earlier QE in past recessions.
This doesn't mean QE works as a general principle outside of extreme circumstances such as a significant recession. It will effectively weaken the dollar when it comes to foreign trade as a direct result, which is reversible through reverse QE. We can see that with the current QE, the effect is relatively quick.
Pre-covid/lockdown the dollar had a value of 0.93 relative to the euro, during the economic crash of covid, but before QE was initiated the dollar crashed from 0.93 down to 0.88 relative to the euro at the point QE was initiated. QE had the initial effect of raising the dollar in the short term from 0.88 to ~0.935 but as WE progressed the dollar ultimately crashed back down from QE to 0.845. As such it went from 0.88 to 0.845 due to QE with only a temporary value boost of a few months. Essentially it reduced the value of the dollar by 4%. This value, as with past QE is realized very shortly after QE ends and stabilizes flat without any further reduction in the dollar due to QE after it ends. So while it does negatively impact the dollar, the impact is not huge. Moreover since it significantly bolsters local economic growth both long term and short term as a result ultimately the QE will/can be reversed at a later date without economic impact and the value of the dollar will gain back that 4% plus whatever value it gained as the result of the boosted economy.
So while its effect on the dollar would cause us to discourage its use in non-recession periods, and it is a tactic that has diminishing returns if used in that way, so not effective. Overall when used during recessions it is an effective tactic that overall reduces the fallout from a recession significantly and boosts economic recovery overall, rather than harming it.
==== Notes if you want the math ====
(1) to calculate the annualized gain from QE is simple. There was a 60.6% rise in the DJ from march 23rd until today, that's 248 days. The following equation will turn that into this year's annualized DJ gain: daily return = 1.606^(1/248), yearly return = (1.606^(1/248))^365. So we have a daily return of 0.19% daily or 100.82% yearly ROI. Now we already know that the baseline ROI is only 7.03%, so we can therefore calculate that at the current rate of annualized gain is 100.82-7.03 = 93.79% **over baseline**
(2) For this we don't know the actual number but we can estimate based on first principles. Let's assume that the negative effect of QE is twice that of the annual positive effect, but spread over 20 years rather than condensed into a short period like positive effects are. In terms of percentage that would be: 1 - 1/(1.937*2) = -0.7419, so basically there is an upward pressure in year one of ~93%, representing a near doubling (100% or 2x), and then a downward pressure of -74.19% the following 20 years which represents a quartering (1/4th or 0.25x) over the 20 years to follow.
(3) to go from the 20 year figure to the annualized figure we have the following equation: 1 - (1/(1.937*2))^(1/20) giving us a annualized loss pressure due to QE of -6.54%
(4) For this we have to determine how long the positive effects of QE last before the proposed negative pressure kicks in. It is hard to say for sure and we would have to do our best guessing based on historical examples of QE. What we know is the returns from QE follow a logistic curve (similar to a logarithm but restricted such that it will have a maximum attainable maximum value before leveling off). As such the initial gains you see will be sharp and appear linear at first and at about half way through you will start to see the gains slowly taper until finally leveling off. Right now we can see from the current DJI market movement we are still in the early part of seeing the GAINS from QE and must not even be half way through. So assuming the gains will last at least 2 or 3 more months before the tapering is noticeable, indicating we are about half way through the gains then a reasonable estimate is we should see these gains for at least a total of 2 years since the start of QE before the gains dissolve and a downward pressure begins to be applied instead.
Therefore assuming we see QE gains at observed rates for only 2 years before transitioning to the negative effects lets calculate what that is. We know annualized gains due to QE during the positive phase is 93.79% above baseline, taking that to a 2 year figure is:
(1.9379)^2 -1 = 2.755 or +275.5%
Add in the baseline rate to arrive at the 2 year gains during the positive period of QE:
2.755 + ((1.0702)^2 - 1) = 2.90032804 or +290.03%
Now to calculate our portfolio value n 100K after 2 years:
(100000 * 3.90032804) = $390,032.80
Subtract 100K to see profit value:
(100000 * 3.90032804) - 100000 = +$290,032.80
Now lets calculate the portfolio value after 20 more years of QE negative pressure, this would result in previously stated annualized P&L for the next 20 years of 0.49%.
390,032.80 * (1.0049^20) = $430,088.72
and subtract initial investment to see what that is in P&L:
390,032.80 * (1.0049^20) - 100000 = $330,088.722
The P&L as a percentage is simple now:
(430088.72/100000) - 1 = 3.3008872 or +330.08%
Lets get that to its annualized value:
4.3008872^(1/22) - 1 = 0.06855798324 or 6.85% annualized return
(5) This is the actual observed drawdown due to COVID before QE was employed, after which the stock market started to rise. Keep in mind QE was applied before covid has completely run its course so in reality we would have likely seen this trend continue throughout the lockdown period at a minimum and probably longer. The loss during max drawdown observed due to covid was from ~february 20th to march 23rd, only a 31 day period!
(6) To project the overall loss we first observe the initial downward spike was linear at a constant rate more or less. We can project that out to what it would look like if allowed to continue into the end of lockdown without intervention to artificially reverse it. Covid restrictions began easing across most states by late may and lockdown was over by late june and into july, though restrictions remain in effect for non-essential employees going back to work still by then. Being conservative so the numbers don't work in favor of my argument let's just assume the projected covid loss would have gone to the end of lockdown then the loss would have abruptly ended with a reversal and recovery. So from February 20th to July 1st which is 131 days would have been the natural drawdown period.
first with take the -36.77% loss over the observed 31 day period and turn that into our daily rate:
1 - (1-0.3677)^(1/31) = 0.01467 or -1.467% daily loss
Then we take our daily loss and apply it to a 131 day period:
1 - (((1-0.3677)^(1/31))^131) = 0.8558748085 or -85.58% total drawdown
(7) Next let's take a look at an example of QE in recent history, we used QE extensively from 2009 to 2013 for our economic recovery from the 2008 recession. This is also the most comparable drawdown to the COVID drawdown we have. The recession began 1st of october 2007 and reached its bottom point on the 2nd of february 2009 with a total drawdown of 49.43% over 490 days. The DJI recovered to the value it was at on oct 1, 2007 for the first time since then on January 15, 2013, or 1443 days.
QE began to be employed only one month prior to bottoming out from 2009 recession and was the reason we began to see recovery at this point. However in this case the QE applied was spread out over a 4 year period very slowly, as such the recovery took much longer and the damage done was much greater. In fact the total quantity of QE due to COVID is almost exactly the same as it was when applied to the 2009 recession except for two important details 1) the QE was applied over a 4 year period instead of a few months 2) Trump spent 2 years prior to 2020 from 2018 to the end of 1029 **reducing** the QE from the Obama era by 22% before employing QE again. This means that overall the total QE is in fact less than the QE used to recover from the 2009 recession but applied over a much shorter period. This is absolutely key to the success, if you are going to take a hit from QE you want the gains to be concentrated as much up front as possible to have the best long term gains. Spreading out the QE ultimately caused a lot of harm.
Still we can ue 2009 QE as a historic example of how QE can be successful, even long term, and we can also use it a bit later as a comparison against the current QE to get a sense of just how much better performance we get out of QE concentrated up front as opposed to being spread out. So lets take a minute to look at what sort of numbers we see from this.
Considering the projected drawdown due to covid is significantly higher than the earlier recession, which is understandable considering it literally halted all business everywhere, we would expect a similarly long recovery, in fact even more so since covid didn't just go away on that date, economies around the world are still crashing. What you notice if you look at the recovery post 2009 is that the market movement went higher than baseline expectations of growth at the usual 8 some percent when not in a recession though after the recovery it went back to about baseline. In fact we never really noticed much of an economic hit long term from the QE at all as you might expect as it was overshadowed by the gains of capital injection. Now covid as I stated would have likely had far more significant long term effects and and the increased rate of recover over baseline from 2009 is from the QE, a natural recession will recover at below baseline for some time before eventually recovering to a baseline recovery rate. But lets see what the historic QE based recovery rate is based on 2009's QE.
First lets calculate the percentage needed for the DJI to recover to baseline once the recession has reaching its minima:
1/(1-0.4943) - 1 = 0.97745699031 or 97.74% needed to recover from -49.43% loss
this was over 1,443 days (3.95 years) so the daily percent return seen during the recovery was:
(1.9774)^(1/1443) - 1 = 0.00047258762 or 0.0472% daily
To annualize that:
((1.0004725)^365) - 1 = 0.18817886404 or 18.82% annualized gains
That is, indeed, quite a bit above the usual 7% - 8% we calculated outside of QE. But was there a long term hit? Well lets look at the growth rate once QE ended which was beginning of april 2013 until 2018, which is when Trump began reversing the QE.
From april 1 2013 to Jan 1 2018 the DJI increased a total of 76.21% over 1,736 days or 4.76 years. We can annualize that figure and get:
(1.7621^(1/4.76)) - 1 = 0.12638560229 or +12.63%
(8) Now let's calculate the projected recovery time from COVID given a natural baseline recovery rate without QE, which we stated earlier was 7.02%. Again remember this is extremely conservative and real numbers are likely to be below baseline during recovery until we recover and only then would baseline growth be realized again. But I want conservative results that are not favorable to my assertion to prove my point.
First let's calculate the total percentage needed to recover from the covid drawdown of -85.58%:
1/(1-0.8558) - 1 = 5.93481276006 or 593.48% (yes it is that huge!)
Now assuming post-covid lockdown we have a baseline recovery rate with an annualized P&L of 7.02% how long would that take in order to compound to the point we would have the needed total percentage of gain to equal the above figure?
First we calculate the daily percentage gain off the 7.02% baseline annualized figure.
1.0702^(1/365) = 1.00018589549 or +0.01858% daily
Now lets take that and use it to figure the number of days needed to recover to pre-covid DJI:
(1.00018589549)^days - 1 = 5.9348
(1.00018589549)^days = 6.9348
log(6.9348) / log(1.00018589549) = 10,418.39 days or a whopping 28.5 years
(9) This is easy as we know the covid draw down of -36.77%
100000 * -0.3677 = -36,770
(10) to get total portfolio value just sum our losses and our starting value
100000 - 36770 = $63,230
(11) We know from earlier that if you had invested at the bottom of the drawdown with QE applied as it is and held for 22 years we would have the earlier stated gain of +330.08%. Therefore now that we know the amount we would have held at that dip if we invested pre-covid we simply apply that to the value to see our portfolio value after 22 years:
63230 * 4.3008 = $271,939.58
(12) for this we just subtract our initial 100K investment:
63230 * 4.3008 - 100000 = +$171,939.58
(13) We already know we have a -85.58% projected drawdown without QE so we get
100000 * -0.8558 = -$85,580
(14) subtract our loss from the last step from our initial investment to see the portfolio value at the bottom of drawdown:
100000 - 85580 = $14,420
(15) Since we know the baseline annualized growth under free market conditions is 7.02% on average, and we know the amount of money we would have on 100K investment at the minima of the drawdown it is trivial to calculate the amount we would have after 22 years.
Since we would hit the minima after 132 days (the length of time of the drawdown) then we subtract this from the number of days in 22 years (8030) and that is the amount of time we spend in the recovery phase.
8030 - 132 = 7898 days or 21.64 years
An annualized return of 7.02% reduced to a daily return is:
1.0702^(1/365) - 1 = 0.00018589549 or +0.0185% daily profit
Apply this across 7898 days:
1.00018589549^7898 - 1 = 3.34083241673 or +334.08%
Now apply this percentage to $14,420 and it will give us our total portfolio value after 22 years
14420 * (1.00018589549^7898) = $62,594.80
The P&L figure is just this value minus initial investment
62594.80 - 100000 = -$37,405.20 (a loss even after 22 years)
(16) As a percentage our 22 year portfolio value is:
62594.80 / 100000 = 0.6259 or 62.59%
Minus 100% to see that figure as a P&L figure: -37.4%
(17) Finally lets turn that into an annualized P&L as a percentage
0.6259^(1/22) - 1 = -0.02107 or -2.1% annually
"“It can scarcely be denied that the supreme goal of all theory is to make the irreducible basic elements as simple and as few as possible without having to surrender the adequate representation of a single datum of experience.”
(The origin of the following psudo-quote most likely)
“Everything should be made as simple as possible, but no simpler”
I get that many people in prison did bad things. But we need to get past our petty feelings of revenge and hurting back people as "justice". We can do better.
So apparently the Japanese produced this sewing machine that had a slot for a Gameboy color and connected to it withrough the game slow. This would bring up an interface on the gameboy so that you can control the sewing machine with it.
This has got to be the most Japanese thing on the face of the planet.
This is my favorite part of the harry potter books because it was such a character twist. It shows that the man we thought was the caring father figure (Dumbledore) was in fact callus and even cruel in being willing to sacrifice someone he acted like a father figure to. Meanwhile the one man we all thought was the asshole was really the one who cared about him more than even Dumbledore...
"So the boy… the boy must die?" asked Snape quite calmly.
"And Voldemort himself must do it, Severus. That is essential."
Another long silence. Then Snape said, "I thought… all these years… that we were protecting him for her. For Lily."
"We have protected him because it has been essential to teach him, to raise him, to let him try his strength," said Dumbledore, his eyes still tight shut. "Meanwhile, the connection between them grows ever stronger, a parasitic growth: Sometimes I have thought he suspects it himself. If I know him, he will have arranged matters so that when he sets out to meet his death, it will truly mean the end of Voldemort."
Dumbledore opened his eyes. Snape looked horrified.
"You have kept him alive so that he can die at the right moment?... You have used me… I have spied for you and lied for you, put myself in mortal danger for you. Everything was supposed to keep Lily Potter's son safe. Now you tell me you have been raising him like a pig for slaughter…"
"But this is touching, Severus," said Dumbledore seriously. "Have you grown to care for the boy, after all?"
"For him?" shouted Snape. "Expecto Patronum!"
From the tip of his wand burst the silver doe: She landed on the office floor, bounded once across the office, and soared out of the window. Dumbledore watched her fly away, and as her silvery glow faded he turned back to Snape, and his eyes were full of tears.
"After all this time?"
"Always," said Snape.
“A Cherokee elder was teaching his young grandson about life.
"A fight is going on inside me," he said to the boy. "It is a terrible fight and it is between two wolves. One is evil- he is anger, envy, sorrow, regret, greed, arrogance, self-pity, guilt, resentment, inferiority, lies, false pride, superiority, self-doubt and ego.
The other is good- he is joy, peace, love, hope, serenity, humility, kindness, benevolence, empathy, generosity, truth, compassion and faith.
This same fight is going on inside you—and inside every other person, too."
The boy thought about it for a minute and then asked his grandfather,
"Which wolf will win?"
The elder simply replied,
"The one you feed.”
― Tsalagi Tale
"Give a man a match he will be warm for a minute, light a man on fire he will be warm for the rest of his life" -- The Osiris Child
I wanted to share a write up I did not to long ago explaining circuit duals with a specific focus on magnetic circuits. They behave the same as an electric circuit in the sense that anything you can do with an electric circuit there is an equivalent way to do it with a magnetic circuit. A magnetic circuit is a circuit that uses the magnetic fields propagating through “wires” rather than electric fields. It’s a very cool idea and worth a read, though all the usual electric concepts are flipped, for example instead of talking about electromotive force (EMF/voltage) you would use magnetomotive force instead (MMF) as filling the same function as voltage in an electric circuit.
Let me know what you think, this tutorial was a week long effort to write.
Just a reminder to anyone in the fediverse, including people i havent met yet... If you are struggling with depression, mental illness, or just need someone to talk to, please reach out to me anytime. I care about you even if i dont know you and if i can help I will do my best, even if you need more attention or help than some nice words or a chat, i will try to be there for you.
I think all too often people struggling with these things feel no one cares or that it is hopeless. So to whoever you are im telling you now, I care. It doesnt matter if we argues, if we dont agree, if you were mean to me. I care and want to help.
long post my opinion about attack on lyon
last time I comment about using religion as the crux to incite further violence,
and I browse on muslim community, I'm seeing many of the ustaz (religion teacher) trying hard to keep calm the muslims using argument :
"are you saying what he's drawing is actually our beloved prophet muhammad (pbuh) true face?" that would be blasphemy if they say "yes"
which is reasonable and not contradicting to what happened in the past. try browsing 'ancient depiction of prophet muhammad', the picture is beautiful and it's exist.
and also from Christian perspective the attack is actually injust, there's distinction between atheist and christian but what this muslim radicals attacking is all on to the church as if 'YOU ARE COMPLICIT TO THE ACTION'.
If only that fools know how atheistic minded french people are and even christian's faith is also suppressed by government on France.
now they're asking for problem, when do war don't do to others a friendly fire, don't force the 'neutral'to be your enemy. Even if you're on the stronger side of history.
and some of my people are saying is killing 3 people are enough to fulfill your duty? and yet you vent it again? no ... we're saying french here, they don't hold christian value, I don't know what will happen but christian might better to bring weapon and even suspect any of foreign face or be racist all together to avoid to be killed.
it would be a never end fight and it might end with the deportation of all immigrant on french without any mercy.
or might be there'll be policy about re-educate all considered as dangerous religion by using china's method.
if I can point the fault: it's the IMAM on france, they should be exchanged by true peaceful advocating imam. You can't change everything just because one bad apple, you throw bad apple off.
*and maybe this is the immigration failure to the europe. I read something in USA about how the immigrant never go outside of their ghetto, they never mix and retain the original traits.
lastly, I can be sure, if now there's no change there'll be more killing on french. This is do or die situation.
a group for general discussions, no topic enforced.
The fediverse's first open managed group server.
brought to you by QOTO
No hate. Be kind, be respectful