Mind Matters Natural and Artificial Intelligence News and Analysis


Stocks and Bonds Closeup

Aren’t US Treasury Bonds Supposed to be Safe?

How can you lose money selling treasury bonds?

For context, read Bartlett’s two previous articles on the fall of SVB and interest rates. Some people are confused as to how you can lose money selling treasury bonds, since they are supposed to be “safe” assets (the government is not expected to default on its loans, and, if it does, the economy probably has bigger problems). Economist Bob Murphy put together a great explainer thread on Twitter, which I will largely follow here. Let’s say that there is an asset that always yields a 1% return every year on however much you have invested, but you never get the principal back except by selling it to someone else. Let us call this asset ABC, and let us say that it is Read More ›

Vintage Bank Sign

Why Did the Tech Bubble Correspond with Low Interest Rates?

Ultimately, our economy’s deeper problems aren’t so much a result of “money” as they are bad allocations of resources.

For context, read Bartlett’s article explaining the fall of SVB here. I wanted to make a quick note about why tech bubbles tend to correspond with low interest rate environments. Interest rates essentially dictate how long someone can wait before they need to produce something of real value. In a 20% interest rate environment, it will be evident really quickly if you are failing to produce something of value. Since essentially 1/5 of your capital disappears each year, if you aren’t doing something that will generate real profits quickly, you are sunk. You can’t paper over problems with more borrowing because the cost of that borrowing is so high. Additionally, in such an environment, the payoffs for investment need to be large Read More ›

Golden Gate Bridge in San Francisco

What’s Going on at Silicon Valley Bank?

The bank's failure is making a lot of people nervous about their money

Many people awoke this morning to news of a bank that suddenly collapsed – Silicon Valley Bank, or SVB. While information is still developing, I thought I would provide some background information on what is known so far. SVB is the go-to bank for Silicon Valley startups. Over the last few years, the tech bubble has been growing and growing and growing, focused especially around Silicon Valley. That meant a lot of banking was happening, and it was happening with SVB. That is where the various companies put their deposits.  How does a bank make money? By lending out deposits. In 2021, at the height of the tech bubble (and, not coincidentally, at a historically low-interest rate environment). The bank did what most banks do Read More ›

The economic crisis of 2020 with the red arrows indicating the economic recession in 2020.

Inflation Is the Least of Our Worries!

Yet some fear that the inflation dragon is about to roar

The Federal Reserve (the Fed) can throw the economy into a recession whenever it feels that it is in our best interests to be unemployed — typically because the Fed is convinced that an unruly inflation needs to be tamed by the discipline of unemployment. For example, in 1979, as the rate of inflation peaked above 13 percent, the Fed moved to make borrowing prohibitively expensive. When Fed Chair Paul Volcker was asked if the Fed’s policies would cause a recession, he replied, “Yes, and the sooner the better.” Interest rates reached 18 percent on home mortgages and were even higher for most other bank loans. Households and businesses cut back on their borrowing and spending and the unemployment rate Read More ›