Bluematter.

That's US debt held by the public tracked in real time since 1993, and it stands at 9,017,482,214,669.27 as of two days ago.

The Chinese seem to be holding about 10% of that, although the true figure may be somewhat higher - according to the table, the per capita holdings of Luxembourg stand at an astounding $200,000.

Markets play a simple yet crucial role: they price (or 'rate') assets, so as to ensure societal resources are allocated efficiently.

Markets do this better than any other institution yet devised because people need to put their money where their mouth is; it is not enough to say 'I think Greece will default' - if you are going to have an influence on the price, you have to be willing to take the risk of losing money if your opinion turns out to be wrong, and you would only do that if you have confidence in your information and analysis. That way, the price of different assets, including sovereign debt, is determined by the people with the best information (or, as is the case when it comes to extremely deep and liquid markets such as sovereign debt, the best ability to process the information that is freely available to all).

So, it is a serious perversion of this basic principle when the credit ratings agencies spend 60,000 dollars a year (that's the annual wage of a junior analyst) on analyzing Greek debt while investing exactly $0 on it, yet the effect they have on the price of that debt is equivalent to their controlling billions in funds. What the hell does it mean to 'rate debt'? Isn't this what the market is supposed to be doing by setting the price?

This state of affairs is so striking that I have to repeat this again. Markets work because people put their money on the line: ratings agencies don't. Furthermore, information on sovereign debt is abundant and the agencies have no informational advantage whatsoever (not to mention an appalling ratings record). Giving dodgy ratings to obscure CDOs is one thing, but rating sovereign debt should have had no effect on its price - information is aplenty.

I'm trying to work out a model as to why real market participants (you know, the ones with money on the line) don't completely discount the agencies' credit ratings of sovereign debt. Where I've got to so far implies that ratings agencies can only have a destructive effect, leading the market away from the efficient price: since the ratings do not reveal any new information (as I said, info on sovereign debt is abundant), the only reason they can move the price of debt is because they give an opportunity to smart money to profit at the expense of dumb money - money that is too stupid to rate sovereign debt independently, or is restricted from investing in debt below a particular rating.

I repeat: this is seriously messed up. Do the credit agencies have access to superior information on Greek debt compared to everyone (indeed anyone) else? No. Does the $60,000/ year S&P team analyzing Greek debt have such amazingly better insights than the collective might of analysts of hundreds of funds and banks across the globe? Hell no. Then why in the name of all that is folly does what S&P say affects the price of sovereign debt to such an extent?

And let me repeat a crucial point in case it wasn't made clear (a lot of repetition in this post, but this is what happens when your blogger starts getting a distinct feeling that either he has gone crazy or the rest of the world has). Don't try arguing that even if the credit ratings agencies don't have their money on the line they have their reputation to worry about - in case you just arrived on our beautiful planet from somewhere in the outer universe, they seriously messed up with CDOs with no effect whatsoever on their credibility and their ability to make money (there is a word for companies that can provide a crappy service and stay in business: they are called monopolies).

All in all, credit rating agencies have a destructive influence. They facilitate speculation at the expense of market efficiency, creating or reinforcing herd effects where market participants try to outfox the 'bigger idiots' rather than aim for the efficient price, seriously distorting the essential role of the market in accurately pricing assets. They risk nothing when pontificating on the value of different assets, and they add nothing real to the stock of available information - just a focal point for speculation. Furthermore, they are so embedded in the system - with funds having restrictions in their constitution restricting what they can invest in depending on its credit rating - that it's difficult to see a way forward.

We can start by pointing out the absurdity of the situation.

George Soros Speaks at Hong Kong University

Explore our Galaxy (the Milky Way) and the distant Universe in a range of wavelengths from X-rays to the longest radio waves.

Daylight Hours Explorer shows the hours of daylight received during the year for an observer at a given latitude

Intelligent fish?

Introduction to Peak Oil

No one disputes the fact that oil production will peak some day; the disagreement usually revolves around the timing of the peak. It goes from the most pessimistic Prof. Ken Deffeyes, who believes that peak happened in 2005 to the most optimistic USGS which predicts a peak 3 decades from now.

Solarbaeat ambient musicbox, with sounds generated using the orbital frequencies of our solar system.

Warren Buffett rocking as Axel Rose in new Geico commercial

A neat flash shooting game for Friday's lunchbreak

And more new E*Trade Baby Outtakes 2010

How China sees the world (Source: Economist premium content)

What good had Wall Street ever done for America? “There must be something useful in there, but it is really hard to see what,” he says. “That’s everybody’s challenge: come up with a clearly beneficial example of financial innovation without mentioning A.T.M.s, and no one can do it."

The first thing to note is that Greece collapsed [...]

A 2% increase in VAT and 5% cut in public sector pay is NOT a collapse. Neither are single-digit percentage decreases on GDP, or a spread of 300bps on government debt.

Just sayin'.

Now it all makes sense: it's the wife.

Sorry, I don't know the source for this one - Frag just sent it in an email.

I think the image is more prophetic than funny, even if the dates are probably a bit off. I can see the iBoard in classrooms, in offices and on fridges by 2015, and iWalls (OK, iMat may be pushing it) in high-tech offices and homes by 2020. And everywhere by 2030.

It happens all the time: a guy fails to stop at a red traffic light and crashes into another car, causing massive damage to the vehicle and serious injury to the driver.

Now, imagine a world where the offending driver had no responsibility to pay any form of compensation to the victim, and - no matter how substantial the damage - his only punishment was to have his driving license revoked for three weeks.

Crazy? Welcome to the world of professional sport.

Last weekend, Gunners watched in horror as Aaron Ramsey suffered a terrible injury at Stoke. As a direct result of this, he is likely to be unable to play for months, at immense financial cost to Arsenal and the player himself.

Arsenal is prohibited from filling the vacancy quickly by signing a player from another club, and this could well cost them titles and the financial benefits that come with them. Furthermore, players are a football club's most valuable assets*, and in a very direct sense: Ramsey is worth a lot of money to Arsenal, and the club could have even chosen to capitalize on that by selling him to another club. Ryan Shawcrass caused damage to Arsenal's assets much the same way as having taken a baseball bat and wrecked their offices.

Aaron Ramsey seems to have escaped relatively lightly this time, but of course there's always a chance he will never fully recover, losing out on millions of pounds he has been expected to make as a top-flight footballer. And of course there's the psychological trauma he has to go through.

The punishment for the offending player and team? A three week ban on the player participating in club games (ironically, Ryan Shawcross learned of his first England call-up on the very day of the incident)

In econ-speak, this is a classic case of an externality: players and clubs hardly have any incentive to play less agreesively, as they don't have to suffer the consequences of their playing style to the opposing team and its players. Since they don't face the cost, they end up playing more aggressively than is optimal, leading to an inefficiently high level of injuries.

Some people may protest that no player ever intentially injures another, and they would be right. But whether injury is caused intentionally or not is largely irrelevant: it is also the case that no driver ever intends to cause an accident. He merely chooses to take on additional risks by ignoring a stop sign or by driving above the speed limit. Similarly, clubs and players choose to play more aggressively, increasing the probability that any given tackle will cause injury.

FIFA, UEFA and the FA must take action now: any injury caused as a result of foul play should be costed, with the offending club having to pay appropriate compensation to the injured player and his club. This will bring injury rates down, and make the beautiful game better and safer. The current situation is madness.


* Professional sport is really the last example of a labour market where is it OK to buy and sell people; in other areas, such arrangements are strictly illegal: it's called slavery. Even though the status quo is beneficial to both clubs and players, I am deeply perplexed that this is a stable equilibrium, given that all it should take for it to unravel is a single player wanting to declare his contract null and void and bringing the case to a court of law. But this is the subject for a future post.

If present trends continue, the poverty Millennium Development Goal of halving the proportion of people with incomes less than one dollar a day will be achieved on time.

And there's more, from a new NBER paper by Sala-i-Martin and Pinkovskiy entitled AFRICAN POVERTY IS FALLING...MUCH FASTER THAN YOU THINK!(I covered their previous related paper here):

1) African poverty is falling and is falling rapidly; (2) if present trends continue, the poverty Millennium Development Goal of halving the proportion of people with incomes less than one dollar a day will be achieved on time; (3) the growth spurt that began in 1995 decreased African income inequality instead of increasing it; (4) African poverty reduction is remarkably general: it cannot be explained by a large country, or even by a single set of countries possessing some beneficial geographical or historical characteristic.

And there's some lovely graphs too - the style is unappealing, but the content is so sweet it's worth framing them and hanging them on every wall you can find:


And here's where I'll be going in a month's time:


Yes, there is such thing as an uplifting economic paper.

This has gotten a lot of airplay recently. The man behind this is Bluematter's favourite LSE professor Satoshi Kanazawa, so it all makes sense.