Three Charts I Think I’m Thinking About

Here are some pretty pictures I think I am thinking about:

1. The USA is bankrupt, part 3,478. It’s been at least 1 or 2 blog posts since I talked about the USA being bankrupt so I would be remiss if I didn’t remind you that the USA is actually not bankrupt at all.

This chart comes to us courtesy of Mary Meeker’s annual internet report. Now, the annoying thing about this chart is how the government is being compared to a corporation. This doesn’t make sense. The government is more like a non-profit. For instance, let’s pretend we live on the Island of Pragcap and the neighboring residents at the Island of Mises.org find us to be intolerable defenders of fiat money and attack us. In response, we form a government to organize our defense and fund that war operation by pooling our capital. We spend millions of fiat dollars and defeat the fools at Mises.org because they tried to fund their operation with gold bars and they couldn’t mine the gold fast enough to keep up with their financial needs.¹

Anyhow, the point is, this war would obviously be a money-losing operation for the government. It is hard to earn a positive return on investment when your workforce dies and you blow up your inventory. But this is basically what a government is – it is a pooled entity that we use to finance things we need that the private sector economy probably can’t make earn a profit doing. Whether or not these things earn a profit does not tell us whether or not these things had a positive ROI for our society. Just like the way that winning a war might be a financially harmful operation that has a very beneficial outcome for society.

(Click on image to enlarge)

2. Forecasters suck, part 1. Here’s a chart from Deutsche Bank showing how bad Fed Funds Futures are at predicting future rate changes. As you can see, the futures curve is pretty much always curving upwards and interest rates haven’t followed. So, DB concludes that forecasters are bad at predicting rates. Except that’s not at all what the futures curve actually depicts. The futures curve depicts the potential change in the curve based on expected future inflation. In other words, the curve is really just a different way to expressing short-term interest rate risk relative to inflation.

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