The Return Of Bitcoin

Like a movie sequel bitcoin has blasted its way back into the news after being presumed finished after its dramatic crash last April. Like the Death Star it has returned in the exact same way as before and has re-ignited the debate over the value of an uncontrolled currency. As I write this bitcoin is hovering around the price of $450 and it will probably reach $500 soon enough. Its return has surprised commentators (such as myself) who had presumed the currency was done for.  Unfortunately, like the Death Star, it has the exact same flaw that will undo it as before. Bitcoin is soaring high at the moment, but it is only a matter of time before it crashes. Continue reading “The Return Of Bitcoin”

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Time To Bury The Ricardian Equivalence

There is a peculiar argument against stimulus called the Ricardian Equivalence. It argues that if individuals have rational expectations, then when the government gives the economy a boost during a recession by cutting taxes or deficit spending, individuals will know that this deficit will have to be paid off at a later date and therefore the extra money will merely increase savings. This increase in saving will cancel out any stimulating effect the deficit might have. In other words it doesn’t matter whether taxes are raised now or later, the effect will be the same. In 2010, the President of the European Central Bank, Jean-Claude Trichet and current head of the IMF, Christine Lagarde both mentioned the Ricardian Equivalence as a reason why they didn’t support a stimulus. Continue reading “Time To Bury The Ricardian Equivalence”