Book Review: American Default by Sebastian Edwards

 American Default: The Untold Story of FDR, the Supreme Court, and the Battle Over Gold.

This is a history book about the Great Depression, and it's controversial and it's a long read. What I like about this book is that it explains the opposite argument of quantitative easing, which is something we don't get to read in mainstream media, i.e. why printing money to bail out companies and markets lengthens the recession.

The rhetoric is always central banks acted quickly to release money to prevent a market crash. Hail central banks! However, where does all that money come from and where does it go?

The anti-QE argument is that the government will need to eventually cut back on spending or increase taxes to recoup the amount of money it printed. The businesses that would have otherwise failed, are artificially propped up, much like putting businesses on expensive and no-yield life-support machines. If the unprofitable businesses were not put on life-support, the impact would have been faster and greater, and the survivors would be able to grow their business because they are able to increase their market share (the share that was previously held by the unprofitable businesses). This will allow the market reset to happen faster, and end the recession faster too. 

The pro-QE argument is that when there is a demand or supply shock, or in the case of covid19, demand AND supply shock, we must save all businesses, regardless if they are profitable, because if the profitable businesses shut, the impact to the economy will be greater, i.e. profitable businesses take a very long time to develop. The idea is also that when the economy recovers, the government will be able to earn back the money, so the priority is to reduce shock and spread out the impact, by flooding the markets with money to support businesses, support jobs, etc, much like the damping graph in physics.

In1930, they printed so much money that the government had to unpeg the dollar from the gold. It was also a difficult choice because there were bank runs one after another as there were thousands of banks and many were collapsing. The government had to print money to bail out the banks. The unprofitable ones were made to shut or consolidate. All the while, the government maintained a ratio, reduced the ratio when they needed to print more money, and eventually they printed so much money that all the gold in the world was insufficient to back the dollar, so they unpegged from gold. That was the road to stocks prosperity for those who like to analyse stock markets from 1929 when the great depression started. However, behind that rosy stock market growth, was the supposedly untold stories of government forcing farmers to destroy crops so that prices can rise, and help farmers earn more, and also ensure the president get re-elected because farmers form a big majority of voters. The government also confiscated all gold from every citizen, reduced all asset values by 40%, banned export of gold, banned import of commodities, so that prices of goods could be controlled and be increased by the government.

The similarities with what's happening in the US now is the trade tariffs imposed to help protect the US farmers. The intent is to fix prices to raise prices, so that farmers earn more, and also win the farmers vote. However, if we don't address the real problems, of perhaps quality, costs, and demand, the economy is never real. 

Eventually demand never really improved and the political struggles across the world led to World War II. Unfortunately, it was WWII that helped reset the markets. The post war rebuilding efforts was a big driver for the recovery of economies around the world. The arms race was the growth engine.

Moral of story: markets need to reset, wipe out the unprofitable companies, redistribute market share, to get out of a recession. Somehow, based on those arguments, I feel that we never really got out of the recession from 2008. The big question is how many cycles can such money printing cushion the impact of recessions? To a certain point, it's effect will not be felt. Inflation may be so high that causes the income gap to rise because of uneven asset distribution, and then people fight among themselves again because they feel that they have nothing else to lose. 

Book Review: Outliers by Malcolm Gladwell

It was one of those days where I was reflecting about what I have been doing with my life, and thinking about how some people just have the luck to be at the right place, right time, with the right person, when my friend recommended me this book Outliers. Basically, his message was that the world is unfair and we just have to accept it. It's not that we are not as capable, not as intelligent, we were just not as lucky.

There were three main things that really sunk into me. 

1. The society and institution set the rule books. Rule books can favour certain people over others.

2. The privileged simply have more opportunities, hence chances, to succeed, than others.

3.  The earlier you clock your 10,000 hours of practice to hone your skill, the earlier you can monetise the skill. If you get ahead of the pack, you can win big.

The first half of the book was about a research done on birthdays of junior hockey league players. It was a serendipitous moment where someone noticed that the birthdays of the players were mostly in Jan and Feb. The junior hockey leagues were designed to have many levels, and the grouping is by calendar year, starting from primary 1. The research found that at the 1st year, those born in Jan and Feb had more time practising hockey than those born in Nov and Dec, hence usually made it into the more superior levels in the following year. Year after year, the Jan and Feb players keep moving up the ranks, get better coaches, spend more time training, and eventually have higher chances of becoming national players.

Moral of story: Exams, just like junior hockey leagues, favour the Jan and Feb babies. Banded subject classes, streaming students based on grades, should be thrown out of the window, because it just makes the students who are ahead, much better, than those falling behind. Over time, because the pace of those falling behind will be slower and slower, it's just going to end up worse as the years go by.

The second half of the book was about a few prominent billionaires and their growing up years. Usually one reads that Bill Gates dropped out of Harvard to start Microsoft, or Zuckerberg dropped out of Harvard to start Facebook, but nobody says that prior to dropping out, they had already clocked their 10,000 hours of professional practice and was already working on a business. In fact, they had clocked their 10,000 hours before they finished secondary school. Their parents were also well-to-do, hence gave them the opportunity to clock those programming practice hours. They beat their peers to the programming practice because they had access to computers for longer periods of time, unlimited and free access that came from privilege.

Moral of story: I really should have started a software development business or writing business back when I was in school, instead of wasting my 10,000 hours of programming practice and 10,000 hours of writing practice. I made a sub-optimal decision to start clocking stock analysis practice hours while studying. Now I have all these skills that are not part of a supply chain, hence I can't do a 1+1+1=10 kind of magic. I really should beat myself up for not being a millionaire now.