Sunday, March 23, 2008
Lesson for the Fed
"Why doesn't the value of the quarters drop relative to the $10 bill? The answer is that as fewer coins are being used, they get returned to the central bank, which perhaps sells them as scrap metal, issuing $10 dollar bills instead. The same process can work for any two currencies of two different countries. ... The issue isn't that 'we will never have a perfect model of risk', as Mr. Greenspan appears to think. What we need is accountability, not perfection". Reuven Brenner (RB) at the WSJ, 18 March 2008.
Right on RB. I go further. Your quarter principle applies to almost all saleable assets. Even mortgages and mortgage-backed securities. It's called arbitrage. See my 8 November 2007 post.