The Wise Words of Mervyn King

Mervyn King, Governor of the Bank of England, has been making speeches. He thinks that using ordinary people’s deposits to secure Wild West trading isn’t a nice thing to do. He also thinks that doubling the administrative costs when a hedge fund buys shares using 99% leverage won’t make the transaction any safer, but will make it more expensive.

He’s probably right, but I doubt anyone will listen to him, so here’s something else he wrote instead. Once upon a time, Mr King was at an economics conference in Sachat. Apparently he was rather bored, and together with a friend called Sandmo wrote this excellent article, Some Theorems that are Almost True.

Highlights:

“If the quantity of money is almost zero then the determinant of the effective demand functions for other commodities vanishes almost everywhere.

Proof: In an unpublished paper, the authors have provided empirical evidence of their efforts to purchase a very large sample of baskets of commodities without any money (a Nice – Monte Carlo study). These attempts were unsuccessful.”

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IMPRIMATUR: the blog of ricardus.co.uk

The question has been posed: so what’s the point of all this?

I’m not sure I understand the question.

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