Benjamin Graham Plan for Today Wrapping up Money Your papers Your careers Lecture 12 Money Exchange Rates and Interest Rates Benjamin Graham Interest Rates and the Money Supply ID: 583463
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Money, Papers, & CareersBenjamin GrahamSlide2
Plan for Today
Wrapping up Money
Your papers
Your careers
Lecture 12: Money, Exchange Rates, and Interest Rates Benjamin GrahamSlide3
Interest Rates and the Money Supply
If interest rates are low, people borrow more
Money comes out of banks (MB) and becomes cash in people’s hands (M0)
Velocity of money increases
If interest rates are high, people saveMoney goes out of people’s hands (M0) and into banks (MB)Velocity of money slows
Lecture 12: Money, Exchange Rates, and Interest Rates Benjamin GrahamSlide4
Inflation and the Economy (key points)
Low real interest rates stimulate the economy (i.e. cause growth).
Firms borrow money and buy factories, etc
Low interest rates cause inflationThey increase the money supply
However, governments in debt may want inflation for its own sakeFederal Reserve is politically independent
Dual mandate: Keep inflation low and unemployment low
These two things are tradeoffs
Lecture 12: Money, Exchange Rates, and Interest Rates Benjamin GrahamSlide5
The big bad Fed
Politicians are too willing to trade inflation later for growth and low unemployment now
So we don’t want them in control
But the Fed is undemocratic and super powerfulSo Ron Paul is freaked out about that
And they make a good scapegoat
Lecture 12: Money, Exchange Rates, and Interest Rates Benjamin GrahamSlide6
The Volcker Disinflation
Lecture 12: Money, Exchange Rates, and Interest Rates Benjamin GrahamSlide7
Good Money and Bad
A story about bimetalism
Dollars were initially exchangeable for either silver or gold
ratio of 15:1When gold became less valuable in 1849 (gold rush), all the silver coins were melted down and shipped overseas.
Later in the 1870s-1890s, as the economy boomed, the supply of gold expanded too slowly, causing deflation
Lecture 12: Money, Exchange Rates, and Interest Rates Benjamin GrahamSlide8
Iran Step by Step
Step 1: People begin to worry about the Rial
Step 2: People exchange their Rials for dollars
Step 3: Value of Rial falls, value of dollar risesStep 4: Government exchanges a bunch of dollars for rials, restoring the value of Rials
Step 5: The government is worried it will run out of dollarsStep 6: The government passes a law -- no more selling Rials or goods for dollars at below the official exchange rate
Step 7: Gresham’s law: Dollars vanish (under mattresses)
Step 8: If I have Rials, I can’t change them into dollars to import goods. So a shortage of imported goods.
Step 9: Eventually devaluation of the Rial
Lecture 12: Money, Exchange Rates, and Interest Rates Benjamin GrahamSlide9
What happens with devaluation?
Devaluation by another name is inflation
Prices go up suddenly
Food riotsMajor economic problems
Lecture 12: Money, Exchange Rates, and Interest Rates Benjamin GrahamSlide10
What should you do?
You are a well informed economist, and you know the Thai government has only a small foreign currency reserve, but the economy is otherwise very healthy. However, your buddy tells you that an opposition politician is about to go on a talk show and announce that he believes that the government is totally out of reserves and that the currency is about to lose a lot of its value. You think a lot of people will believe him. What should you do?
A. Stay calm and do nothing
B. Bet against the foolish crowd. Put all your assets in Thai Baht.
C. Sell all your Baht. Currency is going down!
Lecture 12: Money, Exchange Rates, and Interest Rates Benjamin GrahamSlide11
Now your papers
Who is brave enough to share their thesis statement?Slide12
Outline
General
intelligence vs. specific skills
Relationships as assetsComplement or Substitute for Computational Power?Finding your way
Notes on grad schoolSlide13
Specific skills vs. high general intelligence
High general intelligence fields: Consulting, investment banking, law
High GPA from an elite university is key here
Specific skill fields: Medicine, statistics, computer scienceLSAT vs. MCATSlide14
Valuable Skills
Are scarce:
Difficult or unpleasant to acquire (or have bad reputations)
Require unique specific talentAre new
Are increasing in demandHow to get them?Classes
Internships
Extra-curricularsSlide15
Certifying your intelligence
Major selection
What majors best signal high general intelligence?
Fellowships and awards matter here.Slide16
Skills you need in general intelligence fields
Two skills
Writing and public speaking
Seize opportunities for public speakingWriting is time-consuming to teach
Don’t pass up someone willing to work with youSlide17
Relationships
Peer relationships
Now and later
Relationships with professors
Office hours are pure goldResearch assistantships Internships
Extra-curricularsSlide18
Finding your way
Active research
Find people who have the job you want (linkedin, career services)
Look at their resumeInformational interviewSlide19
Should I go to grad school?
Mediocre grad schools often cost almost as much as elite institutions
So get into a good one
Invest in good test scoresGet letters of recommendation before you graduate
Don’t take on debt for a masters that doesn’t directly qualify you for a specific jobPh.Ds are free and you can quit after two years with a masters...Slide20
Group Assignment
Pick a job might want when you’re 35.
Specific skill or general intelligence?
What skills/certifications are most critical?How would you get them?
What relationships are most critical?How would you get them?What is the career ladder? List the graduate degrees and prior experience that is necessary to land that job.
Where did you learn what you know about this job?
What else do you need to know about this job and where will you learn it?