Treasure

Treasure (pronounced trezh-er)

(1) Wealth or riches stored or accumulated, especially in the form of precious metals, money, jewels, or plate; wealth, rich materials, or valuable things.

(2) A thing, beast or person greatly valued or highly prized.

(3) As the verbs treasured & treasuring, carefully to retain or keep in store, as in the mind; to regard or treat as precious; cherish; to put away for security or future use, as money.

(4) A term of endearment in the sense of “cherish” (archaic).

1125–1175: From the Middle English tresor, (displacing the native schat) from the Old French tresor (treasury, hoard, treasure (trésor in Modern French)), from the Gallo-Roman tresaurus, from the Latin thēsaurus (storehouse, hoard; anything hoarded (source also of Spanish & Italian tesoro)), from the Ancient Greek θησαυρός thēsauros (store, treasure, treasure house) (related to tithenai (to put, to place), from a reduplicated form of the primitive Indo-European root dhe- (to set, put).  In Middle English there was also the spelling thresur, the modern spelling is from the sixteenth century.  It replaced the Old English goldhord & maðm and the meaning extended from hoards of precious metals etc to a general sense of "anything valued" from circa 1200.  The verb emerged in late fourteenth century Middle English, a derivative of the noun.  It meant literally "to amass treasure; to store up for the future" but was used also in the figurative sense as "regard as precious, retain carefully in the mind" from treasure.  The first recorded treasure hunt happened in 1913 a relatively modern alternative spelling was the now almost extinct treasuer.  Treasure is a noun & verb, treasurable & treasureless are adjectives, treasury, treasurership, treasuress & treasurer are nouns, treasuring is a verb and treasured is a verb & adjective; the noun plural is treaures.

The noun treasurer was from the late thirteenth century, from the Old North French & Anglo-French tresorer & and the Old French tresorier, from tresor.  The noun treasury (a room or vault in which to store and safeguard treasure) dates from circa 1300, from the eleventh century Old French tresorie (treasury), from tresor.  The meaning "department of state that controls public revenue" was recorded from late the late fourteenth century and the first treasury bill was issued in 1797.  An Old English word for "room for treasure" was maðm-hus and for "treasury", it was feo-hus (connected to the modern fee).  There is a connection with the noun hoard, from the Old English hord (a treasure, valuable stock or store, an accumulation of something for preservation or future use and hence "any mass of things preserved by being deposited together," from the Proto-Germanic huzdam (source also of Old Saxon hord (treasure, hidden or inmost place)).  It was cognate with the Old Norse hodd, the German Hort and the Gothic huzd (treasure; literally "hidden treasure"), from the primitive Indo-European root (s)keu- (to cover, conceal).

T-Paper

US Treasury Building, Washington DC.

T-paper (Treasury-paper) is the collective term for securities issued by United States Treasury.  The US Treasury Department sells bills, notes, and bonds at auction with a fixed interest rate.  When demand is high, bidders pay higher than face value to receive the interest rate.  When demand is low, they pay less, thus the yield declines as the price rises; at times of crisis, yield drops as investors seek security at the expense of income.  T-paper gained the name from being once issued on physical paper or cardboard) but are exist in now digital form and are also referred to as “Treasurys”.

1864 US $100 three-year treasury note (6% annual interest rate, compounded semi-annually, payable at maturity); a bearer-bond, paid over-the-counter, to whomever held the physical paper.  

Although physical paper is no longer much associated with T-paper, a linguistic legacy persists in the “coupon stripping” market.  There’s long been a secondary market for T-paper, one flavor of which is where the interest and principal components have been separated, or "stripped" so they may be re-sold as separate products.  The name is derived from the days of paper and cardboard when traders literally would separate the paper interest coupons from the paper securities.  In the secondary market, the two pieces of paper than became independent retail items, one yielding interest, the principal re-sold as a zero-coupon bond.  The correct name in the digital age is Separate Trading of Registered Interest and Principal Securities (STRIPS).  STRIPS, more than some other products, reflects the dual role of the Treasury as both regulator and participant in the financial gambling market, not itself an issuer of STRIPS (that part of the market reserved for brokers and the non-retail arms of banks), instead the maintaining the transaction and ownership register.

1976 US $5000 ten-year treasury note with 8% rate.

The difference in types of T-Paper are defined by the length of the term: the time until the bond the matures at which point it is repaid.  All T-paper are really bonds, the nomenclature just part of the jargon of the industry.  Treasury Bills are issued for less than a year, Treasury Notes for 2, 3, 5, and 10 years and Treasury Bonds for 30 years.  Still unconfirmed is whether recent discussions by Treasury about longer-term bonds will be pursued although demand seemingly exists, fifty and even hundred-year bonds mentioned.  There has been speculation about the demand which, given the amount of money said now to be “sloshing around” the system, wasn’t unexpected and the large holdings of various sovereign wealth funds may also find the longer terms attractive, for reasons political as well as fiscal.  It anyway represents one school of thought on what to do about the money supply. 

A more recent creation is the Treasury Inflation-Protected Security (TIPS), bond, the principal of which is indexed against inflation using the Consumer Price Index (CPI).  As the CPI rises, the principal is adjusted upward; if the index falls, the principal is adjusted downwards, the coupon rate remaining constant, but generating a different amount of interest when multiplied by the inflation-adjusted principal.  This has the effect of protecting the holder against the inflation rate as measured by the CPI.  The current version of TIPS was created in 1997 and is offered with five, ten and thirty year maturities.

Spikes and waves:  US T-Note yield against inflation projections and outcomes with events noted, 2000-2020.

Inflation-indexed bonds became common in government bond markets in the late twentieth century, many emerging in the inflationary environment which followed (1) the distortions in US government spending the 1960s, (2) the structural changes to the Bretton-Woods system in the 1970s  and (3) the consequences of the oil shocks in the same decade; they’re essentially a form of hedging.  In the orthodox bond market, even those issued for long terms promise the holder a fixed dollar (or whatever currency) income flow for the term of issue.  That contrasts with the outgoings of an individual or corporation because prices tend quickly to adjust to external changes and unexpected changes can increase the general level of prices, altering the real purchasing power of money which is a risk to both holders and issuers of orthodox bonds.  The indexed bond substantially reduces this risk in that the lender’s receipts and the borrower’s payments become linked to movements in the general price level.

Lindsay Lohan attending the LA premiere of Treasure Planet, Cenerama Dome, Hollywood, California, November 2002.

Again, while used as a hedge, it is still a gambling market, the incentive for governments, beyond the political attractions of being able to offer the product, being the ability substantially to reduce borrowing costs  The UK government first issued indexed bonds in 1981 as a part of an attempt to reduce (it was actually an attempt to kill) inflation.  The markets however had noted the post-war performance of successive governments and were sceptical, holders of orthodox bonds, in effect, charging the government on the basis of an inflation rate substantially higher than the government intended the outcome to be.  This is how gambling works.  In issuing indexed bonds, simultaneously the government flagged a new seriousness in monetary policy and an intent to reduce funding costs by promising to compensate investors for high inflation only if inflation did not fall.  Unexpectedly, the government’s strategy proved successful and substantial savings in borrowing costs were realised.  The effect of the increase in the money supply induced by the COVID-19 responses will ultimately produce higher inflation because, unlike the restorative measures in the wake of the global financial crisis (2008-2011) which essentially gave money only to the rich, greater disposable income was gained more widely.  If the inflation is sustained or (in response to new, unexpected events) spikes, New Zealand's approach (which included products actually marketed as "inflation-proof bonds") might be re-visited.   

The New Zealand experience was different but the small size of the market, while making it an interesting and manageable thing for modelers and analysts, does mean caution must be taken if attempting to apply that experience at scale.  The NZ government issued inflation-adjusted government securities between 1977-1985 and, in a period of historically high inflation, they were popular, eventually accounting for some 15% of domestic debt on issue.  Post-war NZ had evolved into what is possibly the West’s most extreme example of an open political system being combined with a highly regulated economy and that did tend to work until the convulsions of the 1970s to which the NZ hybrid proved unable to adjust.  The adjustments were made after a change of government in 1984 and the inflation adjusted bonds offered by tender in 1983-1984 entered a market where the official inflation target was considerably lower than the buyer’s expectation.

New Zealand Consumer Price Index (CPI) 1970-2015.

Almost immediately, the new government ceased issuing indexed debt.  Perhaps paradoxically, the same credibility gap confronted the government in its own use of more orthodox methods to cut inflation.  Because it was expected the costs of selling long-term nominal bonds would be high, in 1986, issues longer than five years were suspended, the government making clear that would prevail until their inflation target had been met or exceeded.  The approach, while textbook correct, wasn’t without risk because, although shortening the term of a government’s nominal debt can be an appropriate response where inflation outcomes are uncertain, it does heighten the risk of higher costs when rolling-over maturing debt.  As it turned out, for one reason and another, some fairly brutal, inflation was tamed and in 1995, the government returned to the index-linked market.  Many countries created markets, Finland and some of the Nordic zone as early as 1945 and Israel ten year later.  A cluster of Latin American countries issued between 1964-1972 and a number of OECD nations followed the New Zealand and UK in the 1980s although the US Treasury wasn’t active until 1997.

Inflation

Inflation (pronounced in-fley-shuhn)

(1) In economics, a persistent, substantial rise in the general level of prices, often related to an increase in the money supply, resulting in the loss of value of currency.

(2) Of or pertaining to the act of inflating or the state of being inflated.

(3) In clinical medicine, the act of distending an organ or body part with a fluid or gas.

(4) In the study of the metrics of educational standards, an undue improvement in academic grades, unjustified by or unrelated to merit.

(5) In theoretical cosmology, an extremely rapid expansion in the size of the universe, said to have happened almost immediately after the big bang.

1300-1350: From the Middle English inflacioun & inflacion, from the Old French inflation (swelling), from the Latin inflationem (nominative īnflātiō) (expansion; a puffing up, a blowing into; flatulence), noun of action from the past participle stem of inflare (blow into, puff up) and thus related to from īnflātus, the perfect passive participle of īnflō (blow into, expand).  The construct of the figurative sense (inspire, encourage) was in- (into) (from the primitive Indo-European root en (in)) + flare (to blow) (from the primitive Indo-European root bhle- (to blow)).  The meaning "action of inflating with air or gas" dates from circa 1600 while the monetary sense of "a sustained increase in prices" replaced the original meaning (an increase in the amount of money in circulation), first recorded in US use in 1838,  The derived noun hyperinflation dates from 1925 when it was first used to describe the period of high inflation in Weimar Germany; earlier, surgeons had used the word when describing certain aspects of lung diseases.  The adjective inflationary was first used in 1916 as a historic reference to the factors which caused a rapid or sustained increase in prices.

The early meaning related to flatulence, the sense of a “swelling caused by gathering of "wind" in the body” before being adopted as a technical term by clinicians treating lung conditions.  The figurative use as in "outbursts of pride" was drawn directly from the Latin inflationem, nominative inflatio, as a noun of action from past participle stem of inflare (blow into; puff up).  The now most common use beyond the tyre business, that of economists to describe statistically significant movement in prices is derived from an earlier adoption by state treasuries to measure volume of money in circulation, first recorded in 1838 in the US; the money supply is now counted with a number of definitions (M1, M3 etc).  The first papers in cosmological inflation theory were published in 1979 by Cornell theoretical physicist Alan Guth (b 1947).

Cosmic Inflation

Cosmic inflation is a theory of exponential expansion of space in the early universe.  This inflationary period is speculated to have begun an indescribably short time after the start of the big bang and to have been about as brief.  Even now, space continues to expand, but at less rapid rates so the big bang is not just a past event but, after fourteen billion-odd years, still happening.

Definitely not to scale.

One implication of the scale of the expansion of space is the speculation that things, some of which may have been matter, may have travelled faster than the speed of light, suggesting the speed of light came into existence neither prior to or at the start of the big bang but after, possibly within a fraction of a second although, within the discipline, other models have been built.  The breaking of the Einsteinian speed limit may suggest conditions in that first fraction of a second of existence were so extreme the laws of physics may not merely have been different but may not have existed or have been even possible.  If that's true, it may be nonsensical to describe them as laws.  Matter, energy and time also may have come into existence later than the start of the big bang.

The theory has produced derivatives.  One notion is, even though it’s possible always to imagine an equation which can express any duration, time may not be divisible beyond a certain point; another that there can never exist a present, only a past or a future.  Perhaps most weird is the idea the (often labeled chaotic but actually unknown) conditions of the very early big bang could have progressed instead to expanding space but without matter, energy or time.  Among nihilists, there’s discussion about whether such a universe could be said to contain nothing, although an even more interesting question is whether a genuine state (non-state?) of nothing is possible even in theory.

Price Inflation

In economics, inflation is in the West is suddenly of interest because the rate has spiked.  The memories are bad because the inflation associated with the 1970s & 1980s was finally suppressed by central banks and some political realists good at managing expectations combining to engineer recessions and the consequent unemployment.  After that, in advanced economies, as inflation faded from memory to history, there tended to be more academic interest in the possibility deflation might emerge as a problem.  As the Bank of Japan discovered, high inflation was a nasty thing but experience and the textbooks at least provided case-studies of how it could be tamed whereas deflation, one established and remaining subject to the conditions which led to its existence, could verge on the insoluble.

In most of the West however, deflationary pressures tended to be sectoral components of the whole, the re-invented means of production and distribution in the Far East exporting unprecedented efficiencies to the West, the falling prices serving only to stimulate demand because they happened in isolation of other forces.  However, the neo-liberal model which began to prevail after the political and economic construct of the post-World War II settlement began to unravel was based on a contradictory implementation of supply-side economics: Restricting the money supply while simultaneously driving up asset prices.  That was always going to have consequences (and there were a few), one of which was the GFC (global financial crisis (2008-circa 2011)) which happened essentially because the rich had run out of customers with the capacity to service loans and had begun lending money to those who were never going to be able to pay it back.  Such lending has always happened but at scale, it can threaten entire financial infrastructures.  Whether that was actually the case in 2008 remains a thing of debate but such was the uncertainty at the time (much based on a widespread unwillingness of many to reveal their true positions) that everyone’s worst-case scenarios became their default assumption and the dynamics which have always driven markets in crisis (fear and stampede) spread.

What was clear in the wake of the failure of Lehman Brothers (1847-2008) was that much money had simply ceased to exist, a phenomenon discussed by a most interested Karl Marx (1818-1883) in Das Kapital (1867–1883) and while losses were widespread, of particular significance were those suffered by the rich because it was these which were restored (and more) by what came to be called quantitative easing (QE), actually a number of mechanisms but essentially increasing the money supply.  The text books had always mentioned the inflationary consequences of this but that had been based on the assumption that the supply would spread wide.  The reason the central bankers had little fear of inducing inflation (as measured by the equations which have been honed carefully since the 1970s so as not to frighten the horses) was that the money created was given almost exclusively to the rich, a device under which not only were the GFC losses made good but the QE system (by popular demand) was maintained, the wealth of rich increasing extraordinarily.  It proved trickle-down economics did work (at least as intended, a trickle being a measure of a very small flow), the inequalities of wealth in society now existing to an extent not seen in more than a century.

Salvator Mundi (circa 1500) by Leonardo da Vinci.  Claimed to be the artist's last known painting, in 2017 it sold at auction in 2017 for US$450.3 million, still a record and more than double that achieved by the next most expensive, Picasso’s Les femmes d’Alger (Version ‘O’), which made US$179.4 million in 2015.

Post GFC inflation did happen but it was sectorally specific, mansions and vintage Ferraris which once changed hands for a few million suddenly selling for tens of millions and a Leonardo of not entirely certain provenance managed not far from half a billion.  The generalized inflationary effect in the broad economy was subdued because (1) the share of the money supply held by the non-rich had been subject only to modest increases and (2) the pre-existing deflationary pressures which had for so long been helpful continued to operate.  By contrast, what governments were compelled (for their own survival) to do as the measures taken during the COVID-19 pandemic so affected economic activity, had the effect of increasing the money supply in the hands of those not rich and combined with (1) low interest rates which set the cost of money at close to zero, (2) pandemic-induced stresses in labour markets and supply and distribution chains and (3) the effects of Russia’s invasion of Ukraine created what is now called a “perfect storm”.  The inflation rate was already trending up even before the invasion but it has proved an accelerant.  In these circumstances, all that can be predicted is that the text-book reaction of central banks (raising interest rates) will be (1) a probably unavoidable over-reaction to deal with those factors which can be influenced by monetary policy and (2) will not affect the geopolitical factors which are vectors through which inflation is being exported to the West.  Central banks really have no choice other than to use the tools at their disposal and see what happens but the problem remains that while those tools are effective (if brutish) devices for dealing with demand-inflation, their utility in handling supply-inflation is limited. 

First world problem: It’s now hard to find a Ferrari 250 GTO for less than US$70 million.

Fiscal

Fiscal (pronounced fis-kuh l)

(1) Off or relating to the public treasury or revenues.

(2) In casual use, of or relating to financial matters in general.

(3) A prosecuting attorney in Scotland, a contraction of procurator fiscal.

(4) In philately, a revenue stamp (a postage or other stamp signifying payment of a tax

(5) In some countries, a public official having control of public revenue.

(6) In some civil law or common-civil hybrids (including Spain, Portugal, the Netherlands, and former colonies of these countries and certain British colonies), the solicitor or attorney-general

1560s: An English borrowing from the Middle French Fiscal, derived from the Classical Latin fiscus (public money) and fiscālis (of the state treasury).  The Latin is of unknown etymology and suggestions are speculative: a connection with findō (I cleave) or a link to the rhyme with rarer riscus, a likely Celtic borrowing into Latin and Ancient Greek.  Most convincing is fidēlia (earthen pot, sometime translated as a purse or basket made of twigs in which money was kept).  The general sense of "financial" entered US English in 1865 and was abstracted from phrases like fiscal calendar and fiscal year.

Fiscal Drag

Also known as bracket creep, fiscal drag is the tendency of revenue from taxation to rise as a share of GDP in a growing economy.  Tax allowances, progressive tax rates and the threshold above which a particular rate of tax applies usually remain constant or are changed only gradually.  By contrast, as an economy grows, income, spending and corporate profits should rise, the tax-take therefore increasing without any need for government action.  This helps slow the rate of increase in demand, reducing the pace of growth, making less likely higher inflation. Thus fiscal drag is an automatic stabilizer, as it acts naturally to keep demand stable.  Economists did much work to adjust their models to reflect the post-GFC economy in which, while aggregate growth continued, the gains have tended to be concentrated in the hands of the rich with the incomes of most falling or stagnating in real-terms.  The historically peculiar effect the COVID-19 pandemic seems to have exacerbated these trends in fiscal outcomes, the most interesting of which has been the behavior of inflation now the allocation of the money supply is so distorted.

Salvator Mundi (Savior of the World, circa 1507), attributed in whole or in part to Leonardo da Vinci (1452–1519) sold at auction in 2017 US$450.3 million.  A 1967 Ferrari 275 GTB/4 Spider (NART) by Scaglietti sold at auction in 2013 for US$27,500,000.  It may yet prove a bargain.  In 2018, a 1962 Ferrari 250 GTO sold for $US48.4 million, a handy increase on the previous auction record of US$38.1 million paid for a 1963 250 GTO a year earlier and an even more impressive jump from its US$7 million sale in 2000.  Setting the record for the most expensive car ever sold was a privately-traded 250 GTO which in 2018 brought US$70 million.

Although it’s misleading to compare inflationary numbers with those of the 1970s & 1980s because the math of the calculation is now so different (and some of the changes did make sense), there’s no doubt the novel phenomenon of low inflation in the low-end of the economy and high inflation in the more rarefied air, is a product of very unusual circumstances, a succession of jolts and shocks, from the Greenspan put of the early 2000s, through the GFC, to the pandemic.  For two decades, the jolts and shocks have been buffered by seemingly limitless free money, now able to be distributed in a way which avoids general inflationary pressures while simultaneously driving up asset prices in objects as diverse as old masters and vintage Ferraris.  Economists are divided, both on whether this model can indefinitely continue and whether it’s a good idea, either in concept or its current specifics although all seem to concur it shouldn’t suddenly be stopped.  It’s not just the US Federal Reserve’s discount window which has been wide-open, the quantitatively-eased largess has been popular with many central banks so when adjustments to policy are made, there will be consequences.

Fiscal Neutrality

Fiscal neutrality is a term to describe the net effect of taxation and public spending being neutral, neither stimulating nor dampening demand. The term can be used to describe the overall stance of fiscal policy: a balanced budget is neutral, as total tax revenue equals total public spending.  It can also refer more narrowly to the combined impact of new measures introduced in an annual budget: the budget can be fiscally neutral if any new taxes equal any new spending, even if the overall stance of the budget either boosts or slows demand.

Fiscal policy

A nation’s fiscal policy is one of the two instruments of macroeconomic policy, the other being monetary policy. It comprises public spending and taxation, and any other government income or assistance to the private sector (such as tax breaks). It can be used to influence the level of demand in the economy, historically with the twin goals of maintaining low unemployment without triggering excessive inflation.  It can be deployed to manage short-term demand through fine tuning, although, since the beginning of the neo-liberal era in the 1980s, it has more often been targeted on long-term goals, with monetary policy preferred for shorter-term adjustments.  Disputes do exist, among both economists and politicians.  Some argue for a balanced budget as a structural end in itself while others suggest persistent deficits (public spending exceeding revenue) are acceptable provided, the deficit is used for investment in infrastructure or something useful rather than consumption.  However, even most deficit hawks concede fiscal policy should be counter-cyclical, aiming to automatically stabilize demand by increasing public spending relative to revenue when the economy is struggling and increasing taxes relative to spending towards the top of the cycle.

Eurodollar

Eurodollar (pronounced yoor-oh-dol-er)

A US dollar deposited in or credited to an offshore (originally a European) bank.

1958: A compound word, Euro + dollar.  Euro is a contraction of Europe, from the Ancient Greek Εὐρώπη (Eurṓpē); no relationship to the latter-day (eurozone) currency.  Dollar is attested since about 1500, from the early Dutch daler or daalder, from German Taler & Thaler, from the Sankt Joachimsthaler (literally “of Joachimstal”) the name for coins minted in German Sankt Joachimsthal (St. Joachim's Valley, now Jáchymov in the Czech Republic).  Ultimate source is Joachim + tal (valley); cognate with the Danish daler.  Initially, in 1957, known as “Eurbank dollars” and so named after the telex address of one of the first banks involved in the sanction-busting transactions.

Eurodollars

Eurodollars are US dollars on deposit at banks outside the United States.  They’re thus a part of the US money supply not under the jurisdiction of the Federal Reserve (the Fed, the US central bank) and, because of the special role of the US dollar as the world’s reserve currency, are interesting in that they’re subject to oversight by a number of central banks which are national and not international institutions.  The term was originally coined for US dollars in European banks but soon came to refer to all offshore deposits.  Eurodollar is entirely a technical term of the money markets and has no connection with the latter-day currency of the Eurozone although, in the general population, there was some early confusion in the early days of the physical Euro, some mistakenly describing the new paper as Eurodollars.  Within the specialized world of the currency traders, the euro-prefix is sometimes used to refer to any currency held offshore so there’s also the Euroyen, the Europound and even the Euroeuro which, in a charming linguistic paradox, can exist anywhere except within the Eurozone.

In the years immediately following World War II, there was a worldwide shortage of US dollars, the quantity of which outside the US began significantly to increase only as Marshall Plan money began to recapitalize European economies and imports rose in the US, soon to become the largest consumer market of the post-war years.  Another important factor driving the deposits of US dollars into European banks were the pre-emptive moves by the major communist powers, the USSR and the PRC (communist China) to shift their assets from US banks to avoid Washington’s sanctions.  Peaking acted in 1949 at the start of the Korean War; Moscow in 1956 after their invasion of Hungary.

Eurodollars grew in volume also as offshore banks began to offer higher yields on deposits than were available from US institutions; by the early 1970s some US$400 billion (when a billion dollars really was a lot of money) was booked offshore in both short and long-term deposits.  It’s now measured in multiples of trillions (at least for now, a trillion dollars is still a lot of money) but the most important development in the Eurodollar world came in 1981 with the introduction of Eurodollar futures contracts.  Eurodollar futures are an interest rate product, unlike currency futures where contracts are built around actual buying and selling of the commodity.  They’re thus a derivative instrument where players bet on interest rate movements.  Beginning in 1981, during the early days of the Reagan/Thatcher de-regulation project, they were the first of the products which took advantage of the rules of casinos being applied to capital markets.  None of the market crashes since 1987 would have been possible without derivatives.

Eurodollar futures traders who use the market to track short-term US interest rate expectations have for some time been pricing in a rate hike by the Fed by Q3 2022, quite an acceleration on what their earlier charts suggested but increasing uncertainty about the Fed’s reaction to US inflation numbers has seen some traders expect a tightening even earlier.  Some traders have had their Eurodollar fingers burnt before, watching the Fed maintain their existing position and sticking to their long-standing mantra that the US economy needs to achieve certain employment and inflation marks before interest rates will move but the view is now hardening that inflation numbers will force the issue.

The Fed’s position seems to belong to the pre-Omicron world which feels now such a distant memory.  The futures are a bet on the direction of the short-term London interbank offered rate (LIBOR), one of the most widely used interest rate benchmarks in global financial markets.  Investors hedge interest rate risk in the Eurodollar market and in early December 2020, the September 2023 Eurodollar futures contract showed an implied yield of 0.50%, suggesting traders were expecting the Fed to deliver a 25 basis-point hike by then.  Since then the world has changed.

Changed so much that predictions for the inflation outcome seem enough for the Fed to reconsider the “Greenspan put” (named after Dr Alan Greenspan (born 1926; Chair of the US Federal Reserve 1987-2006) and the actions he took in ensuring sufficient liquidity remained in the US system for business to continue as close to "normal" as possible; now often called the "Fed put"), in place (off and on) for over thirty years, despite recent declines in US stocks and other risk assets, the tech-heavy Nasdaq having fallen over 10%.  That’s how much the specter of inflation can spook central bankers and the Eurodollar futures suggest the traders have priced-in a quarter-point rate rise for March and perhaps a full percentage point by the end of calendar year 2022.  Despite that, traders still are not writing an obituary for the Greenspan put, noting it has been debatably the most influential tool in the Fed’s century-long history and, as an essentially reactive institution, it’s revival to deal with even a few local difficulties will not be unexpected.

Exuberant

Exuberant (pronounced ig-zoo-ber-uh nt)

(1) Of people (and sometimes applied to animals), very high-spirited; effusively and almost uninhibitedly enthusiastic energetic and enthusiastic; extremely joyful and vigorous.

(2) In literary use, of things that grow, abundant, luxuriant, profuse.

(3) In medicine, profuse in growth or production.

1425-1475:  From the late Middle English, from the Middle French exubérant, from the Latin exūberantem (nominative exūberāns), (overabundance; superfluous; extraordinary),  the present active participle of exūberō (be abundant) snd present participle of exūberāre (be abundant, grow luxuriously).  The construct was ex- (out (though here probably in the special sense of "thoroughly)) + ūberāre (be fruitful) which was related to ūber (udder or fertile), from the primitive Indo-European root eue-dh-r-, the original idea being the image of a cow or she-goat which was producing so much milk it naturally dripped or sprayed from the udder.  From the 1510s it was used to mean "growing luxuriantly, and within decades it picked up the idea of describing "an overflowing", a borrowing from the contemporary French exubérance, from the Late Latin exuberantia (superabundance) the abstract noun from exuberare, this extending to the figurative sense of "affections, joyous emotions etc by the mid-seventeenth century (the noun euberancy noted since the 1610s).  Exuberant is a adjective and, exuberance and (the archaic) exuberancy are nouns, exuberating is a verb and exuberantly an adverb; the noun plural is exuberances

Fedspeak, Alan Greenspan and irrational exuberance

Dr Alan Greenspan (b 1926) between 1987-2006 served five terms as chairman of the US Federal Reserve (the US central bank), remarkably, under four presidents from both parties.  Among the Fed’s chairs, he remains the best remembered exponent of a specific fork of officialise: Fedspeak, the jargon-laced technique of expression described by economist Alan Blinder (b 1945) as "a turgid dialect of English" used by Fed chairs to make wordy and vague statements which, while reassuring, are designed not to encourage financial market traders to over-react; some labelled it “constructive ambiguity”.  The coinage is a nod to Newspeak in George Orwell’s (1903-1950) dystopian novel Nineteen Eighty-Four (1949), the invented language of a totalitarian state constructed around a simplified grammar with a closed vocabulary set suitable for expressing only the ideas and concepts of the regime.

Blowing smoke.  Fed chairman Paul Volcker appearing before a congressional committee in 1986, a time one could smoke a cigar at such events.

Previous Fed chairs were well-aware those in financial markets attributed great value to statements from the governors and that could lead to some self-fulfilling prophecies.  To try to prevent this, in their public statements, governors adopted Fedspeak to deliver ambiguous and cautious statements, purposefully to obscure and detract meaning from the statement, Greenspan describing Fed-speak as learning “…to mumble with great incoherence.”  He may have been thinking of the (possibly apocryphal) remark by one pope: “When one is infallible, one has to be careful what one says”.  Once, when a US senator told Greenspan he understood what he’d just said, the chairman replied “Then I must have misspoken" and was delighted when different organs of the financial press reported his speeches using headlines with diametrically different meanings.  There’s always been the suspicion the style emanating from the Fed was intended also to deflect the attention of politicians, Richard Nixon (1913-1994; US president 1969-1974) sometimes complained about the jargon-laden text issued by Arthur Burns (1904–1987; Fed chairman 1970-1978) and the formidable Paul Volcker (1927–2019; Fed chairman 1979-1987) was known to adopt Fedspeak to bat away unwelcome congressional enquiries although he was noted also for plain-speaking about inflation, the money supply and growing structural imbalances in the US economy, forcefully making his views known even to presidents.  In 1987, Ronald Reagan declined to offer Volker another term; perhaps the chairman should have used more Fedspeak.

It’s something of an irony that Greenspan’s best remembered phrase, "irrational exuberance", is really not Fed-speak although the two words were part of a long, complex speech, much of which certainly belongs to the genre.

Clearly, sustained low inflation implies less uncertainty about the future, and lower risk premiums imply higher prices of stocks and other earning assets.  We can see that in the inverse relationship exhibited by price/earnings ratios and the rate of inflation in the past.  But how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade?  (Tokyo, 5 December 1996).

Rationally exuberance: Lindsay Lohan collecting an award, 2005 MTV Movie Awards, Los Angeles June, 2005.

Immediately after the speech, the local market unexpectedly dropped 3%, exchanges around the world following the Nikkei’s lead.  The reaction however was short-lived and a major slump didn’t happen for another three years, the biggest dip on the NASDAQ (National Association of Securities Dealers Automated Quotations) composite, the tech-heavy board listing many of the stocks Greenspan thought priced at levels induced by irrational exuberance.   It was only in retrospect the phrase became well-remembered and part of colloquial speech.  Given the history of Fedspeak, "Greenspeak" briefly gained currency but never caught on, presumably because “green” was so vested with connotations in its usual (modern) context and thus easily and erroneously associated with concepts such as “greenwash” & "green-sheen".  Indeed, although Greta Thunberg (b 2003; Swedish weather forecaster) in her critique of COP26 (The 2021 United Nations Climate Change Conference of the Parties, Glasgow, October-November 2021) provided "blah, blah, blah" as a memorable sound-bite, "greenwash" remains the preferred (dismissive) term with which to refer to any superficial or insincere display of concern for the environment, especially one issued by individuals or institutions whose activities remained environmentally destructive.  Constructions like "Greenspanspeak", "Greenspannian", "Greenspanistic" or "Greenspanesque" all just too much of a mouthful, Fedspeak had to do.

All the chairman’s men: Dr Greenspan and his presidents

Ronald Reagan (1911-2004; US president 1981-1989).

George HW Bush (George XLI, 1924-2018; US president 1989-1993).

Bill Clinton (b 1946; US president 1992-2001).

George W Bush (George XLIII, b 1946; US president 2001-2009).

Since the Greenspan epoch, the meaning has shifted, Fedspeak now very much in the tradition of Humpty Dumpty in Lewis Carroll's (1832-1898) Alice Through the Looking-Glass (the 1871 sequel to Alice's Adventures in Wonderland (1865)) which are two of the most marvelous books ever written

"When I use a word," Humpty Dumpty said, in rather a scornful tone, "it means just what I choose it to mean—neither more nor less."

"The question is," said Alice, "whether you can make words mean so many different things."

"The question is," said Humpty Dumpty, "which is to be master—that's all."

The governors claim post-Greenspan Fedspeak is an exercise in imparting meaning in simple, plain-English with no (intended) attempt to obfuscate.

Numismatic

Numismatic (pronounced noo-miz-mat-ik, noo-mis-mat-ik or nyoo-miz-mak-ik)

(1) Of or pertaining to currency (coins, paper money etc); of or pertaining to historical coins and coinage.

(2) Of or pertaining to medals, tokens etc, based on the resemblance of many to coins (less common).

(3) Pertaining to the hobby or business of numismatics.

1765: From the late sixteenth century French numismatique (of currency; notes & coins), from the New Latin numismaticus, from the Latin numismat- (stem of numisma (coin, currency, stamp on a coin)) from the Greek nomismat- (stem of νόμισμα (nómisma)) (current coin, piece of money; usage (literally "what has been sanctioned by custom or usage”)) + the Latin –icus (-ic).  The Ancient Greek nomizein (have in use, adopt a custom) was from nómos (custom, law, usage), from the primitive Indo-European root nem- (assign, allot; take).  An earlier form in the same sense was the mid seventeenth century nummary, from the Latin nummarius, from nummus (a coin) and in the late fifteenth century a numelarian was a "money-changer" (from the Latin nummularius).  The adjective numismatical dates from 1716).  The existence of the numismatist (a student of historic coins and coinage) was first noted in 1788, from the French numismatiste, from the Latin numismat-, from numisma; it was one of the most developed and documented fields in archeology because metal coins existed in such volume, survived well in the archeological record and were simple to date.  The noun numismatics (the study of coins and medals with especial reference to their history and artistry) was first used in 1829, describing the discipline of the numismatists.  Numismatic & numismatical are adjectives, numismatically is an adverb and numismatist & numismatics are nouns.

Nummular was from the Latin nummulus ((small amount of) money) + the English -ar (the suffix forming adjectives with the sense “of, pertaining to, or near”).  Nummulus was the diminutive of nummus (a coin; piece of money) + -ulus the (diminutive suffix) and nummus was from the Doric Greek νοῦμμος (noûmmos), from the Ancient Greek νόμος (nómos) (usage, custom; kind of coin), from νέμω (némō) (to deal out, dispense, distribute), from νέμειν (nemein) (to dispense, divide, assign, keep, hold), ultimately from the primitive Indo-European nem- (to distribute; to give; to take”) + -ος (-os) (the suffix forming nouns).

The suffix -ic was from the Middle English -ik, from the Old French -ique, from the Latin -icus, from the primitive Indo-European -kos & -ḱos, formed with the i-stem suffix -i- and the adjectival suffix -kos & -ḱos.  The form existed also in the Ancient Greek as -ικός (-ikós), in Sanskrit as -इक (-ika) and the Old Church Slavonic as -ъкъ (-ŭkŭ); A doublet of -y.  In European languages, adding -kos to noun stems carried the meaning "characteristic of, like, typical, pertaining to" while on adjectival stems it acted emphatically; in English it's always been used to form adjectives from nouns with the meaning “of or pertaining to”.  A precise technical use exists in physical chemistry where it's used to denote certain chemical compounds in which a specified chemical element has a higher oxidation number than in the equivalent compound whose name ends in the suffix -ous (for example sulphuric acid (H₂SO₄) has more oxygen atoms per molecule than sulfurous acid (H₂SO₃).

Numismatics became formalized in the nineteenth century, the Royal Numismatic Society founded in London in 1836, the first meeting of American Numismatic Society conducted in New York in 1858; the US organisation remains one of the nation’s oldest cultural institutions.  Related disciplines include Exonumia (which is the UK is known as paranumismatica) which encompasses coin-like objects such as medals & tokens, whether issued for commemorative purpose or as surrogates for currency.  The surprisingly recent field of notaphily collects and studies paper money (banknotes) which now of course includes the new polymer issues (still mostly refered to as “paper”).  Being in some sense a store of value, paper notes have long been accumulated by many people in many countries but it was only in the 1920s it became an identifiable field.  One aspect which can make notaphily an attractive hobby for a certain sort of collector is that some countries maintain registers of all notes issued which, unlike coins, are individually numbers and therefore unique in a sense minted metal is not.  Many numismatists are both exonumists and notaphilists and some even dabble in scripophily, the study and collection of stocks and bonds, items frequently of artistic as well as historic interest which, being printed usually of paper which was both larger and of higher quality than that used for bank notes, offered designers considerably more scope.  Unlike the metal and paper issues associated with currencies, physical stocks and bonds in the collectable sense are now rare because so much of the transactional record has become digital.  The Numismatic Bibliomania Society (NBS) is an educational association founded in 1979 to support and promote the use and collecting of numismatic literature.

One central bank with a great interest in numismatics is the Reserve Bank of Fiji (RBF) which since 1974 has issued hundreds commemorative and other limited-edition runs of currency, the best known of which are the various seven dollar notes issued in honor of successes enjoyed by the national rugby sevens teams.  Most collectors seem to agree the most attractive were the blue notes issued in 2017 to mark the gold medal won at the 2016 Olympic Games and that series was interesting too because one side was printed in portrait mode rather that the in the more usual landscape aspect (although historically, portrait mode was once not uncommon).  Although of interest to collectors, the seven dollar notes were issued in the normal manner, at face value and are counted as part of the Fiji Dollar (FJD) money supply.  On the basis of advertized sale price, it seems perfect copies of the $7 notes trade at a premium of up to 60% against the face value.

More unusual still was the RBF’s recent 88 cent note which used a Chinese theme.  Issued not through the usual channels but sold directly by the bank for FJ$28 (US$12.77), although legal tender within Fiji, the RFB advised the Bank for International Settlements (BIS) and the International Monetary Fund (IMF) that it was purely a numismatic issue and thus the aggregate value was not be included in the FJD money supply.  Given the spread between the bank’s sell (FJ$28) and buy (FJ$.88) prices, it’s doubtful any will be used as transactional currency.  The design features imagery drawn from Chinese tradition, alongside Fiji’s coat of arms and the RBF were quite open in saying it’s aimed at the Chinese and wider Asian market, cultures in which the number eight is considered lucky and likely to bring wealth and good fortune.  The RBF must have been advised that the more eights the better because the 88 cent collectors' item was released on the eighth day of the eighth month of the year.  Along with all the lucky eights, one side of the note features an image of the Chinese god of wealth and a money tree with the words "Good luck and good fortune. May prosperity be yours" printed in the corner.  On the reverse is a hibiscus flower, the Fijian coat of arms and the signature of the RBF’s governor.

Despite the RBF indicating the note had been introduced purely as a component of their revenue-raising programme, the issue has generated some controversy because of geopolitical tensions associated with concerns over China's increasing interest in seeking to extend its influence in the pacific.  Putting up as solid a defense as that for which Fiji's rugby sevens are renowned, the RBF dismissed any suggestion it was dabbling in foreign affairs and that its issues were "… similar to that of stamp production, whereby hobbyists can purchase the banknotes and coins for their collections" and since 1974 they have issued hundreds of banknotes and coins with themes as varied as Christmas imagery, noted landmarks and Fijian flora & fauna, over the years raising some FJ$8 million.  Opposition politicians seemed suspicious, one noting that while there was nothing unusual about the RBF creating themed numismatics banknotes and coins, they were usually associated with something specific, often a “commemorative event of national and sometimes international significance".  He added that the meaning wasn’t clear asking: “What does it signify? What does this commemorate?"  Commemorative or not, it’s certainly an achievement for the RBF given there can’t have been many who have convinced the Chinese to pay $28 for something worth 88c.

A note with a face value of 88c is certainly unusual but there have been many issued with denominations outside of the long traditional ($1, 2, 5, 10, 20, 50 100) numbers.  Although the US Treasury in 1969 purged the large value notes (ie anything above US$100), they had earlier printed notes with values has high as US$10,000, these almost unknown in general use, restricted to institutional and inter-departmental purposes.  During the 1930s, there was even a US$100,000 note but it was technically a “Treasury Gold Certificate” which never entered circulation, use restricted to transactions between branches of the Federal Reserve.

Better known still were the big-value notes associated with economies suffering hyperinflation, a phenomenon which affected the Papiermark, the currency of the German Weimar Republic (1918-1933) between 1921-1923 and economists differ on exactly when the post-war inflation became hyperinflation but by 1923, the Reichsbank had been compelled to print 50 trillion (50 billion: 50×10¹²) mark notes and photographs of people using wheelbarrows filled with bundles of banknotes to buy a few groceries are still printed by German newspapers when warning of the dangers of inflation.  That sounds big but in 2008, Zimbabwe’s central bank issued Z$100 trillion (100 billion: 50×10¹⁴) notes.  Although, all other attempts at amelioration having failed, the Zimbabwe government had attempted to solve the problem of inflation by ceasing to publish the data, economic reality anyway proceeded and inflation peaked (and estimates vary, the actual number not that significant above a certain point) at around 250,000,000%, the existence of big-value notes both a symptom an cause of the problem.  Eventually the government gave up on the dollar, announcing a basket of foreign currencies would be regarded as local tender and citizen’s Z$ balances and holdings could be exchanged for US$ (up to a certain value at something of a discount), a move necessitated apart from all else by lacking the funds to have banknotes printed.

The hundred billion dollar note is impressive but in 1946, facing their own problems of hyperinflation (consumer prices having long been more than doubling every day), the government of Hungry issued 100 quintillion (100 million trillion: 100×10²⁰) pengő notes and that’s apparently the largest denomination bill ever issued.  As in Zimbabwe, the big notes made the problem worse and the currency was replaced which meant the 1 sextillion (one thousand million million million: 100×10²¹) pengő notes which had been printed were never issued.

Many countries (and some financial institutions have over the years issued notes in what would now seem irregular values.  Even the old lady of Threadneedle Street (the staid Bank of England) once printed £4, £15, £25, £40 & £80 notes.

Lindsay Lohan one dollar novelty note.