Guy Berger

My attitude is -- if people want indie bookstores or record shops, they should feel free to support them by paying a higher price at those places. I don't see why those same people insist on passing laws that force OTHERS to subsidize their aesthetic preferences over shopping venues. In these discussions of small vs big retailers, it doesn't seem like policymakers consider what consumers actually want. One final comment -- let's take it as a given that the French government wants to keep independent retailers. This policy is still a suboptimal means for achieving that end. Guy

I deleted the political stuff from this article, but there's plenty of humorous stuff left.

I was listening to Stanley Turrentine's The Spoiler, which features an absolutely smokin' tune titled "La Fiesta" by a composer named Armando Boza. Anybody have any information on him? Did he compose anything else, and was it recorded? Guy

Have you seen the most recent one? It was great! (And I would agree about its recent predecessors.) Guy

Nonsense. A person does not have to spend 52 hours a year (or more) for each stock owned to "beat the market," that's just silly. Cramer is an ass, but at least now what he's preaching makes more sense, especially compared to his previous churn churn churn ways. I agree that people experienced in following the market don't need to spend an hour per week per stock to beat the market. However, someone inexperienced could easily spend more time and still underperform the market. I maintain that it is relatively simple to identify an undervalued security*. It is far more difficult to predict exactly when it will stop being undervalued, and that is the skill that really leads one to making money. *It is at least as easy to identify an overvalued security, but generally more expensive and time consuming to profit in that situation. I'm curious -- since you guys (if I understand you correctly) believe that there is a way to routinely generate returns beyond those of a simple market index without a greater degree of risk as a freelance investor while doing less than 52 hrs of research per year, have you succeed in doing so? (I don't intend this to sound confrontational, but I am curious.) Guy

Happy birthday, Nate! Guy

I largely agree with the comments by Jim and Chris. (I must say -- I would never have guessed that Chris's writing was by someone with the "limitations" that he ascribes to himself.) In my opinion, the most important thing to remember about writing for others (whether jazz reviews or anything else) is that it isn't about YOU. I think this is a particularly bad problem with rock critics, who often seem to forget that what they are writing ABOUT is a hell of a lot more important than what they are writing. Second, it's writing for OTHERS. It's more important that the readers "get something" out of the writing in question than that it be a "piece of art" or whatever. That said, yeah, I do appreciate high quality writing in a jazz reviewer, IF they bring quality insights to the table. Other things I like -- the balance of "objectivity" (a willingness to step back and realize that one's personal opinion is not necessarily the "truth") with genuine enthusiasm. Guy

This is an amazing place -- I highly recommend visiting it at some point in your lifetime.

Word! (psst Guy - the SF Bay is in California not Carolina ) Anybody want to proofread my posts from now on? Guy ps Though on the plus side this means that San Diego is just a short flight away.

Boohoo, one weekend of bad weather in northern Carolina. The northeast and midwest are barely habitable for at least three frickin' months a year! Guy

You probably know this, but this is why the dime, quarter, half dollar and old silver dollars have ridges on the edges. A carry over from 1964 and before when those coins had silver in them. The ridges were to indicate whether or not they had been shaved of silver. The penny & nickel have smooth edges. No silver in them, so who cares? Shaving the edges off pennies and shipping the zinc to China -- that's where the money's at. Guy

Don't have time to tackle all of these at once, but I'll get to them as soon as I can: "$1 is interchangeable with x units of commodity G" (the fundamental idea of a commodity-based currency) is exactly equivalent to "the price of 1 unit of commodity G is $1/x dollars". So whether G is gold, gummy bears or guavas, a commodity-based currency involves fixing the dollar price of that commodity. The "Austrian response" seems like complete sophistry to me. Is American Express forbidden from doing this? Presumably if they wanted to, they could buy up a bunch of gold and issue IOUs with claims on that gold. As far as I know this is not illegal. Why not wheat or steel? 1) In plenty of countries with similar "legal tender" laws but poor monetary policy, people do indeed switch away from the "legal tender" and toward a more stable currency. When economic incentives exist to abandon a currency, people do so. That has not happened in the US. 2) In plenty of countries that don't have laws obligating the US dollar as legal tender, people STILL like to use USD for transactions. I've heard this before and it's a truly bizarre statement. Whenever anybody (except apparently Austrian economists) talks about inflation, they mean an increase in prices. Try to explain the idea of inflation that involves falling prices ("BUT THE MONEY SUPPLY IS INCREASING!") to anyone. Yes, this pretty much true. I don't see why it's a good thing. At best, in a frictionless economy where prices adust instantaneously, it is a "nothing", because prices are just a unit of measurement. At worst, in an economy where prices adjust at different speeds, it can be very bad because it will lead to substantial economic inefficiencies. Um....

This is disingenuous . You know very well that I was speaking of an economic return of the kind that could justify borrowing . Return from consumption IS an economic return. Well, we'd probably be able to consume more today, but at the cost of consuming less yesterday. But that's just stating a tradeoff, not an argument in favor of reallocating consumption to/from the future (which is what saving really is).....When an individual chooses to save (or not save), they are comparing the worth of consuming that marginal dollar now vs the worth of consuming the returns from investing it...... It's not irrational to forgo future consumption for current consumption (which we all do every day), or to choose a lower standard of living in the future in order to achieve a higher standard of living today. To say that this is , "just stating a tradeoff" implies that it is just a temporal preference when it is not . But of course it is. Given the choice between $1 today and $1.10 next year (let's assume a very optimistic risk-free rate of return), the decision rests on temporal preference. Some people would prefer to consume that dollar today, others the $1.10 in a year. There's nothing that inherently favors one over the other. Agreed, a dollar today is more valuable than a dollar tomorrow. Well, the point that it is irrational to starve oneself to death tomorrow in order to maximize current consumption -- I can't disagree with that. But we are not discussing that straw man. It's trivially true that as long as there are investments that offer positive risk-free rates of return, we'll be better off tomorrow by reducing current consumption -- but at the cost of being less well-off today. Whether the trade-off makes sense depends on personal preferences. People make this decision all the time. Surely not all of us are living in cardboard huts and subsisting on ramen in order to spend the last two years of our lives in a huge orgy of consumption. Again, not true. Excepting those living in cardboard huts and subsisting on ramen in order finance the end-of-life consumption orgy, every single person you meet could increase lifetime total consumption by switching to the hut+cardboard lifestyle. This is a trivial point as long as there are investment opportunities that over positive risk-free rates of return. The two are perfectly consistent. To the person making their decisions, the consumption stream from t=now to t=death is what matters -- but the shape of that stream will vary according from person to person. Guy

It's important to distinguish between three different issues: (A) commodity-based money (B) whether the economy should have a central bank and © what the central bank's role in the economy should be. There are people who think that commodity-based money is a nutty idea but nevertheless oppose having a central bank, and people who support having a central bank but don't think the Federal Reserve fulfills that role properly. I'll focus on (A) and leave (B) and © for a different day. A commodity-based currency involves fixing the price of a certain commodity by law. (One of the most mysterious things about goldbugs is that many are libertarians, and thus intensely against the government intervening in markets -- but apparently not if it involves fixing the price of gold.) That commodity can be anything, not just gold -- it could be butter, kittens or beach towels. There's no inherent reason to choose gold instead of other commodities, and I'm guessing that its popularity among the gold-standard crowd has a lot to do with nostalgia and/or ignorance. One argument frequently used against "fiat money" (the kind we have in most economies) is that "it's just paper" or "it isn't worth anything". But this is obviously false -- I can go shopping with the dollars in my wallet and buy whatever I want, including gold. (Though the dollar price of gold will be determined by supply and demand, not the government.) As long as there are other people in the economy who are willing to accept dollars in ordinary transactions, there will be no problem. A second frequently used argument is that the government can screw around with the supply (and therefore value) of money. Goldbugs are frequently agitated that the government will "debase" the currency by printing too much money and causing inflation. And indeed, the history of fiat money is littered with examples of out-of-control money-printing and hyperinflation. That said, these problems weren't invented with fiat money. A classic example is the Roman Empire -- during its history, the gold coin was continuously debased (by adding cheaper metals) which caused rampant inflation in the Imperial economy. Governments always have a short-term economic incentive to debase the currency, and it's not clear why legislating a fixed price for gold will solve this problem. The government can always legislate a new law. If a government has the political discipline to maintain the fixed price of gold, it probably also has the discipline to maintain the value of fiat money. (Though I suppose you could make some psychological arguments for why that isn't the case.) Now onto the criticisms of commodity-based money. First, gold is obviously a commodity whose value is determined by supply and demand. If the government fixes the price of gold and the supply or demand changes, the price of gold can't adjust (assuming that the government actively intervenes in the market to maintain the price -- if not, a black market will develop); that means that the prices of every other good will have to adjust instead. For instance, let's say there is a huge discovery of gold somewhere in Africa; that will drive up the supply of gold, and reduce the value of gold (and hence the dollar). This means that the price of every other good in the economy will increase -- inflation. Likewise, let's say that the popularity of gold jewelry increases for whatever reason; this will drive up the demand for gold, and increase the value of gold (and hence the dollar). This means that the price of every other good in the economy will decrease -- deflation. A second problem is that the supply of gold does not change at the same rate as the size of the economy. Let's say the economy grows by 3%. That means you have the same amount of money chasing a larger amount of goods. In other words, the economy will experience deflation. If the economy shrinks by 3%, there will be inflation. A third problem results from the fact that, unless every person weighs their gold very precisely, there will always be an incentive for dishonest individuals to tamper with gold coins by shaving small amounts off. This could cause problems under certain gold standard systems. I am sure there are other arguments I have not thought about.

Debt-fueled consumption or consumption untethered from income or personal savings , is financially ruinous both individually and collectively . On an individual level , it is axiomatic that borrowing only makes economic sense if the borrowing is used to earn a return greater than the cost of borrowing . As there is no return on consumption , debt-enabled consumption today is purchased at the cost of reduced consumption and a reduced standard of living in the future . Collectively , debt-based consumption results in a grievous misallocation of savings away from economically productive investment of the kind needed to ensure future income growth and consumption . This is simply not true. The reason we produce stuff is to generate consumption, either now (current consumption) or in the future (investment => capacity for future consumption). The idea that there is "no return on consumption" is false, as any of us listening to a jazz CD, eating a tasty hamburger or watching an episode of Seinfeld will attest to. When an individual chooses to save (or not save), they are comparing the worth of consuming that marginal dollar now vs the worth of consuming the returns from investing it. I'll agree that consumption-oriented borrowing which is completely untethered from one's future income stream is a problem... but aside from that, individuals are just making a decision on how to reallocate consumption over time. It's not irrational to forgo future consumption for current consumption (which we all do every day), or to choose a lower standard of living in the future in order to achieve a higher standard of living today. Guy

Debt-fueled consumption or consumption untethered from income or personal savings , is financially ruinous both individually and collectively . On an individual level , it is axiomatic that borrowing only makes economic sense if the borrowing is used to earn a return greater than the cost of borrowing . As there is no return on consumption , debt-enabled consumption today is purchased at the cost of reduced consumption and a reduced standard of living in the future . Collectively , debt-based consumption results in a grievous misallocation of savings away from economically productive investment of the kind needed to ensure future income growth and consumption . Substituting 'credit-fueled' for 'debt-fueled' in 'Debt-fueled consumption is not necessarily a problem' doesn't change anything either , for while the statement is true strictly speaking ( since grace periods allow disciplined consumers to avoid turning credit-based consumption into financed consumption ) , there would be no consumer credit industry if credit-based consumption didn't in practice become debt-based consumption . It looks like you're answering the question I posed on Christmas Day And it looks like you're saying that the consumer debt business is diverting resources away from more productive uses so that, had there not been a relaxation of credit restrictions in the early eighties, our economies would be better off than they are now, because they'd be able to produce more. But the paradox is that, without the easy credit, that production couldn't be sold, and so wouldn't be produced anyway. MG Well, we'd probably be able to consume more today, but at the cost of consuming less yesterday. But that's just stating a tradeoff, not an argument in favor of reallocating consumption to/from the future (which is what saving really is). Guy

As an economist, I am completely mystified by the distinction between "growth" and "value" stocks.

Instead, the former French bureaucrat was, metaphorically, at the bow when the waves of this year’s global credit squeeze came crashing down on the world’s economies. It was the first financial market crisis fought by BlackBerry from the beach. In possession of such a device but not yet using it, Mr Trichet’s response by fixed and mobile phone and old-fashioned fax was nevertheless swift and bold. As the ripple effects of the collapsing US subprime mortgage market caused global finance to seize up, the ECB announced it would unilaterally pump in unlimited overnight liquidity: in the end it added almost €95bn ($136bn, £69bn). Europe had been hit too early in the morning to allow proper consultations with Washington. “That tsunami that came across the Atlantic had a dimension, when it came to our borders, which was not the dimension it had at the beginning,” explains Mr Trichet. Initial shock at the unexpectedly radical intervention gave way to admiration of its steady hand. As the drama unfolded, the ECB appeared to be setting the pace among central banks. In the ultimate compliment, the venerable US Federal Reserve and Bank of England copied the tactics of an institution not yet 10 years old. Mr Trichet is one of the few to emerge from the turmoil with his reputation enhanced, leading the Financial Times to name him today as Person of the Year. It is true the crisis is not over. The eurozone may yet face a jolt as big as the public UK bail-out of Northern Rock or the US housing slump. The ECB’s initial actions have proved no panacea: financial markets remain on edge as the year ends. Last week the ECB pumped a record €348.6bn into the two-week money markets. But this year has seen the ECB smashing myths about its supposed clumsiness and has secured Mr Trichet’s position as senior prefect among the world’s central bankers. “Especially with Alan Greenspan [the former US Fed chairman] no longer around – Trichet is the most experienced central bank policymaker in existence, by some distance,” says Jim O’Neill, head of global economic research at Goldman Sachs. “The speed at which the ECB responded and its steady tone  . . . have been quite impressive.” “Fancy that at the time we had the reputation of being incapable of taking a rapid decision,” jokes Mr Trichet. It takes just 45 minutes to call a teleconference of its governing council. “The usual criticism,” says Andrew Balls, global strategist at Pimco, the asset manager, “is that the ECB did the right things but six months late. On this occasion they were the first to move.” August 9 was a day for which the silver-haired Mr Trichet, who turned 65 last week, had spent a career preparing. In his first four years at the ECB, his biggest decision was probably to test a still-shaky eurozone economy by raising eurozone interest rates in December 2005, after a pause of more than two years. But he learnt the ropes of global financial crisis management more than 20 years ago when he chaired the Paris Club meetings of international creditors. At the French Treasury he witnessed the 1987 Louvre Accord on shoring up the dollar – and had been at the helm during Europe’s early 1990s exchange rate crises. Mr Trichet was born in Lyons. His father and grandfather were both professors of Greek and Latin. His wife Aline, whose family is of Ukrainian origin, was the head of translation services at the French foreign ministry. Mr Trichet initially trained at university as a mining engineer and briefly worked underground in a coalmine in north-eastern France, later recalling his experience as interesting but tough. He can compare notes with Hans Tietmeyer, the former Bundesbank president, who did holiday work in mines. His experience led him to dally in leftwing politics; he joined the militant PSU political party, earning the nickname Justix after Asterix, the cartoon character, from friends for his defence of workers’ rights. But he quickly rejected his youthful flirtations. His path to the French elite started when he switched to economics and later moved to France’s Ecole nationale d’administration, graduating in 1971, fifth in his class. He then entered the ministry of finance and rose to become director of the Treasury in 1987. “One of his strengths is his ability to manage a crisis – he enjoys that,” says Olivier Garnier, an adviser to Mr Trichet at the Treasury in the early 1990s, now a senior manager at Société Générale Asset Management. Mr Trichet was always even-tempered but forceful in action: “His rules were: act fast, don’t work alone but build your contacts and use your international network of relationships.” Treasury colleagues recall him quoting Napoleon’s dictum “Un bon croquis vaut mieux qu’un long discours”, or “a good sketch is better than a long speech”, capturing the sense that it is better to act quickly. “He is interested in big ideas, strategy and negotiations. He is more a master strategist than a pure central banker sticking to the textbook,” says Mr Garnier. In 1993 Mr Trichet became governor of the Banque de France where he served for 10 years, forging close relations with Germany’s ultra-conservative Bundesbank. He faced criticism from French politicians, notably Jacques Chirac, then French president, for his defence of currency stability and the franc fort (strong franc) and for his veiled attacks on French budget deficits. Even so his credentials in asserting central bank independence made him a plausible candidate for Mr Chirac to nominate as head of the ECB. His progress was interrupted by a long public trial over the collapse of Crédit Lyonnais, the state-owned bank, and his role as Treasury head. His exoneration cleared the way for him to succeed Wim Duisenberg, the ECB’s first president, in November 2003. He arrived with a reputation as someone with diplomatic skills, adept at communicating to financial markets and with little air of French superiority. Mr Trichet has a passion for science, art and poetry – his “secret garden”, says Mr Garnier. The economics editor of L’Express, the French news magazine, once called him “the most cultivated civil servant in France”. He enthusiastically discusses Shakespeare’s sonnets, the works of Léopold Sédar Senghor (the late Senegalese president was a family friend) or François-René Châteaubriand, a pioneer of French romanticism. He regularly reads the Scientific American magazine. These cultural influences were given voice in a speech in the Netherlands in 2004 that was remarkable for a central banker, packed with cultural references and no economics. European integration was built on its diversity – and was richer as a result, he argued: “European-ness means being unable fully to understand my own country’s literature and poetry – Montaigne, Châteaubriand, Baudelaire and Mallarmé – without understanding Dante and Boccaccio, Cervantes and St John of the Cross, Shakespeare and Sterne, Goethe and Heine.” Underlying that speech was Mr Trichet’s fervent belief in European integration. The 1990s exchange rate crises strengthened his support for monetary union and he helped negotiate the 1992 Maastricht treaty, preparing for the euro’s launch seven years later. On a recent trip to Malta, he impressed officials with his enthusiasm for its 16th-century St John’s cathedral, with its individual chapels for each of the langues, or sections, of the knights of Malta. Mr Trichet saw the baroque building as a metaphor for Europe. The euro has this year built its international profile; the dollar’s fall has made it an increasingly plausible alternative reserve currency. Mr Trichet is proud of its success, insisting that he – not any politician – should be seen as “Mr Euro”. (“There is my signature on the notes,” he tells them.) Although at world gatherings the eurozone is still represented by a bus-load of politicians and its fiscal policy is decided in 13 capitals, Mr Trichet’s strength has been to give the ECB a powerful, unified voice. Using political skills honed in Paris, Mr Trichet has imposed discipline over ECB communication, a task not simplified by interacting in 21 languages. Governing council members have learnt not to stray far from the line he sets at his monthly press conferences, which remain an exception among central bankers. In French, Mr Trichet can be eloquent, gently ironic and humorous. Speaking English – the working language of the ECB – he is as animated if not as elegant. Still, ECB watchers observe a pleasing lyricism: he “ships” rather than sends messages to financial markets and does not “think about” or “reflect on” issues but “meditates”. Mr Trichet has not been afraid of controversy, calling for bold structural reforms to boost European growth. He “is a beacon of reform”, says Edmund Phelps, the Columbia university professor who won last year’s Nobel prize in economics. “He is right to stress the need for reform...It looks like it is going to be needed more than one might have thought.” Most resistance is encountered in Paris, where Mr Trichet is seen as being under the spell of the Bundesbank. Indeed Nicolas Sarkozy, France’s new president, has accused the ECB of being obsessed with fighting inflation at the expense of jobs and growth and of letting the euro soar to record levels. In response, Mr Trichet – as during his time in Paris – has stood firm, stressing the inviolability of central bank independence while shunning undignified slanging matches. “Trichet seems to have handled Sarkozy with the appropriate amount of disdain,” says Adam Posen, deputy director of the Peterson Institute for International Economics in Washington. “It is evidence that the ECB has come of age; it is not inherently on the defensive.” His record in crisis management laid the foundation for the ECB’s response to the credit squeeze. Mr Trichet argues that the ECB’s effectiveness was the result of its “lucid” analysis: it correctly read the situation. Although some in financial markets argue that the scale of its initial action on August 9 simply exacerbated the crisis, creating an air of panic, in retrospect the scale of the banks’ difficulties has become clearer. The unlimited amount of liquidity available “was a positive sign of the ECB at least knowing where the problem lay”, says Marco Annunziata, chief economist at Unicredit. Mr Posen argues that the ECB has been “cleaner and more consistent” than the Fed in distinguishing between actions aimed at easing financial market tensions and its interest-rate strategy, aimed at combating inflation. Meanwhile, the Fed and the Bank of England have moved towards the ECB’s system of auctioning funds without applying a penalty rate to a broad range of banks and against a wider range of collateral. Mr Trichet makes much of the fact that he foresaw a market correction; he warned at January’s Davos world economic summit that investors should prepare for a “re-pricing” of assets. Even so, in its “war-gaming” exercises to prepare for financial crises the ECB never imagined a sequence of events spreading across so many markets. The ECB president has played events to the bank’s long-term advantage. In the US, Mr Greenspan won his place in the history books for his forecasting skills and understanding of the forces shaping American capitalism. The eurozone’s less dynamic economies require arguably less economic expertise. But Mr Trichet has as intimate an understanding of the cultural and political forces shaping Europe. His actions in 2007 – the year of the euro’s rise – have left the ECB with credibility and helmsmanship skills that will long outlast the current financial storms. Copyright The Financial Times Limited 2007