Where is the money coming from?

PalmTreeIt has been quite some time since I wrote about the mechanics of money, but today I am at it again. The catalyst is not, as some might expect, the recent discussions about the possibility of the US Treasury minting a trillion dollar coin, but rather a recent discussion I had with a banker about deposits on a small tropical island.

While deposit levels at banks in Australia are below upcoming regulatory minimums, leading to intense competition in the pricing of term deposits, the banker I spoke to was facing the opposite problem in the small nation of Paradise Island (not its real name).

As he told the story, despite offering rather unattractive interest rates on deposits, deposit balances had continued to grow. Worse, demand for loans was weak and so the bank was forced to keep growing balances on deposit with the island nation’s central bank. Since banks like to diversify their investments, this situation was not ideal. Ordinarily, he said, deposits would build up as exporters took in payments for their goods, but periodically these balances would be swept out again as they remitted their profits to offshore parent companies. This did not seem to be happening any more. Exactly why these deposits were growing was a mystery and, short of closing the doors of all their branches, he did not really know how to stop these balances from growing.

With years of reading Bill Mitchell under my belt, I knew that the way to think about this question was to take a macro perspective rather than thinking from the perspective of one bank.

The first thing I focused on was the balances with the central bank. A popular misconception is that banks can choose between holding deposits with the central bank or lending the money to their customers. In fact they cannot. The central bank itself only has two types of “customer”: banks and the government. You and I cannot walk into the central bank and open up an account. This means that the only thing that can happen with central bank balances is that they move around from one bank to another or to and fro between the government and banks.

Imagine for a moment that the bank arranges a $100,000 loan for me to buy a nice little shack on one of Paradise Island’s beaches. If the shack vendor banks with my bank, then our bank will see both its loans and its deposits increase by $100,000. On the other hand, if the  vendor banks elsewhere, my bank will have to transfer $100,000 to the vendor’s bank. This is done by moving money between the banks’ respective  accounts with the central bank. So, in this case, my bank has an increase in its loans of $100,000 and a decrease of $100,000 in its deposits with the central bank. But that central bank deposit has not left the system (and it has not gone to me). Rather, it has moved from one bank to another.

While there will be movements in central bank balances in this fashion from one bank to another in the normal course of business transactions, balances will tend to average out to reflect each bank’s market share. So, my banker friend is unlikely to be alone in seeing deposits with the central bank growing. Indeed, looking at the aggregate bank balances with the Paradise Island central bank, it becomes evident that there is a systematic trend.

Deposit BalancesAggregate Balances with the Central Bank

So how does this happen? The most likely explanation is that the balances are coming from the government. As the government spends money, behind the scenes there will be money moving from the government’s account at the central bank to the accounts of commercial banks. This can happen if the government is running a deficit, spending more money than it is receiving. But that is not the case here. In fact, Paradise Island has been running a surplus of late.

A bit more digging through the national accounts reveals the answer. Paradise Island receives aid from larger developed nations and the  government has been spending most, but not all of this aid. The twist is that this aid has come in the form of foreign currency, which the government then deposits with the central bank in return for local currency balances which it is then able to spend. As a result, the central bank’s foreign asset balances have also been steadily growing. The similarity of these two charts is no coincidence: the two sides of a balance sheets must balance and the growth in the central bank’s assets directly mirrors the growth in their liabilities, in the form of commercial bank deposits. This is an example of what is known as “grossing up the balance sheet”.

Foreign Assets

 Foreign Assets of the Central Bank

So the growth in bank deposit balances with the central bank has nothing to do with Paradise Islanders hoarding money or choosing not to remit their profits offshore. Instead it is the direct result of the government spending its aid money. If the local banks want to have less of their money tied up in deposits with the central bank, rather than pointlessly trying to incentivise their customers to borrow or place their deposits elsewhere, they should consider encouraging the central bank to sell some of their foreign assets, reversing the grossing up of the balance sheet.

For me the most interesting aspect of this discussion is the fact that even if you can see exactly what is going on inside your own institution, it can be difficult to understand the workings of the system as a whole.

Echo Alpha Romeo

The Mule is travelling and, while he contemplates possible posts by the sea, regular guest contributor James Glover has stepped in with an analysis of applause.

It may seem indulgent (and possibly non productive) but Friday Afternoon Physics (FAP) like Friday Afternoon Maths is one of my favourite activities. It is also the holiday season and as the owner of this blog is busy counting echidnas down south I wanted to share what is so far my favourite FAP for 2013.

The question is: why isn’t it the case that the more people are clapping in an auditorium that the volume actually decreases?

Now this may seem like a dumb question. Surely the more people clapping = more noise = louder. Right? Well except that it isn’t true. Noise cancelling headphones work by detecting the incoming noise signal and producing a signal of exactly the opposite shape. Detected sound (by our auditory system – ears + brain) is a variation in the ambient pressure. So noise cancelling headphones actually produce, on average, a slightly higher pressure as they carry energy from both the original signal and the noise cancelling signal. Your ear drums don’t care what the overall pressure is though (up to a point) just the differences. An electrical device can’t easily produce an exactly cancelling sound but it can produce a sound with the opposite signal at the same average pressure. So if a lot of people are clapping randomly then while this increases the overall pressure the differential contributions tend, on average, to cancel each other out.

This just doesn’t just seem counterintuitive but experience suggests that the clapping in a room with more people is louder than a room with less people. But it would appear mathematically to be correct. Just as the average of a sequence of random variables has a smaller average amplitude from the mean (the standard deviation) so it must be the case that the more people in a room clapping will have a higher average pressure (not detectable by our auditory system) but also a lower variation (which is what we detect as volume).

Our solution: people nearby are less likely to average out than people far away. If we divided the room into people nearby (say under 25m) and those further out it would appear that the smaller contribution from those further out is not just because they are further way but because there contribution actually evens out. It raises the overall pressure but not so much the apparent volume. In fact in the simplest models it would actually decrease the more people there were present!

My insight is this: next time you are in a concert hall with say 1000 people compare the apparent volume with say a hall with 10,000 people. It would be deafening if it scaled up with distance alone. I am not sure about this but it appears to be true.

My final piece of evidence for this is the following: modern concert halls try to reduce unnecessary echoes, but total reduction of echo is bad. They used to do this by adding partial noise absorbing materials to the roof and walls. That is a disaster. A concert hall without echoes is a soulless place. Modern concert halls add random topographical features (usually in the ceiling at eg. random heights) that produce decoherence. Decoherence means the sound waves reflected back have different phases and hence quickly (but not too quickly) are undetectable as they tend to cancel each other out. The refurbishment of Hamer Hall in Melbourne did exactly this. So the solo horn in Brahms First Piano Concerto reflects but doesn’t reverb. Something similar happens with those noise “reduction” walls you see along freeways. They don’t absorb noise but all those cockatoos and gum leaves act to randomise the noise signal from the highway and even it out – the ear doesn’t notice the increase in average pressure but enjoys the decrease in variation.

Friday Afternoon Physics is good. It doesn’t lead to Nobel (or IgNobel) prizes but occasionally leads to Back of the Beer Coaster Calculations. Just prior to our discussion of this question we also worked out that 2-3 tankers a day could supply Melbourne with fresh water from Antarctica. But that’s another post.

Editors note: the echidna count so far has been zero.

Are you mad, sir?

Even if you haven’t heard of Jon Ronson, you have probably heard of one of his books. He wrote The Men Who Stare At Goats, which has been made into a film starring George Clooney. I have just finished reading a more recent, if lesser known book by Ronson: The Psychopath Test. It is an intriguing, anecdotal exploration of the nature of madness, with a particular focus on psychopathy.

The book is loosely centred on the psychopath test of the title, better known as the Hare Psychopath Checklist in honor of its creator, Canadian psychologist Robert Hare or, more simply, PCL-R (“Psychopath Checklist – Revised”). On his journey towards a better understanding of anti-social madness, Ronson attended a training course in the use of the PCL-R led by Hare himself. Armed with this qualification, Ronson found his new ability to expertly identify psychopaths out in the wild gave him an exciting sense of power. It is a sense of power that readers such as myself can readily share: it wasn’t long before I was attempting to spot corporate psychopaths in the upper echelons of my own place of work.

Here is how the test works: through a more rigorous interview process than I have had the opportunity to perform, your potential psychopath is scored on a scale of 0 to 2 on each of the categories below.

  1. Glibness/superficial charm
  2. Grandiose sense of self-worth
  3. Pathological lying
  4. Cunning/manipulative
  5. Lack of remorse or guilt
  6. Shallow affect
  7. Callousness, lack of empathy
  8. Failure to accept responsibility for own actions
  9. Need for stimulation/proneness to boredom
  10. Parasitic lifestyle
  11. Poor behavioural control
  12. Lack of realistic long-term goals
  13. Impulsivity
  14. Irresponsibility
  15. Juvenile delinquency
  16. Early behaviour problems
  17. Revocation of conditional release
  18. Promiscuous sexual behaviour
  19. Many short-term (marital) relationships
  20. Criminal versatility

Roughly speaking, a score of 30 or more suggests you have a psychopath on your hands. Reading Ronson’s book, I got the impression that there are currently few treatment options for a psychopath and those that veer towards criminality rather than high-flying success in the corporate world tend to be locked up for a very long time.

Over a sherry at a recently opened Spanish bar in Sydney, with the help of a colleague, I attempted an analysis of the executive at my firm I considered to be the best prospect for a high score on the PCL-R. Sadly, we only managed to chalk up 20 points. Apparently not a psychopath after all and, while that score is still reasonably high, I have to further concede that there may have been some overly-enthusiastic interpretations of the checklist involved in the assessment.

My own attempt at psychopath diagnosis brought me to sympathise further with Ronson, who found that the thrill of power was, after a while, replaced by doubt. Perhaps things are actually a bit more complicated after all. Even an interview with Al Dunlap, initially a slam-dunk candidate for the label of corporate psychopath, particularly given his extensive collection of statues of animals of prey (psychopaths apparently tend to see the world in terms of predators and prey), left Ronson uncertain of the appropriateness of the label of madness.

The lesson then is that I should use my new-found knowledge of PCL-R with care. As should you. Even so, I will not delete the list from this post as a precaution. After all, you could easily find it on Wikipedia; such is the power and the peril of the internet.

Mixed prediction results: Cup 0, RBA 1

With Green Moon winning the Melbourne Cup, Fiorente in second place and Jakkalberry in third, none of the Mule’s tips even rated a place. That leaves a tipping record of one for three, and I am sure it will only get worse if I keep up this “analysis” in years to come. Fortunately, many of my readers are kind enough only to remember my success in tipping Shocking back in 2009.

The Stubborn Mule RBA poll fared somewhat better. The poll results were close, with 55% expecting no change in the cash rate and 45% looking for a 0.25% cut. As it turned out, Reserve Bank kept rates on hold, preferring to wait to see the effect of their October cut:

Further effects of actions already taken to ease monetary policy can be expected over time. The Board will continue to monitor those effects, together with information about the various other factors affecting the outlook for growth and inflation. At today’s meeting, with prices data slightly higher than expected and recent information on the world economy slightly more positive, the Board judged that the stance of monetary policy was appropriate for the time being.

By my count, this makes four correct predictions of the RBA decision from the last four Stubborn Mule polls. The moral of the story: ignore anything you read here about horses, but there might be something useful to learn about interest rates.

Mule bites horse

The Melbourne Cup is almost here again, which means that it is time for the Mule to perform some utterly bogus analysis with which to predict a winner. So here goes.

Once again, I will look to past winners as a guide. Picking on those characteristics readily available from a Google search, I have focused on handicap weight, sex and age. Starting with handicap weight, here is a chart of the distribution of weights broken down by decade.

Cup 2012 by Decade

In the early years, handicaps were typically much lower, but things have changed in recent years. On this basis, I will focus on handicap weights from 1980 onwards.

Cup 2012 Weight

The peak of this distribution is around 54kg, so this is where I will focus my attention. There are four horses in the 2012 field which are to carry 54kg: Cavalryman, Mount Athos, Sanagas and Ethopia. To narrow this list, we turn to sex and age. The chart below suggests favouring a gelding between 4 and 6 years old or a horse (stallion) around 4 or 5 years old, perhaps even 6.

Cup 2012 Sex and Age

Cavalryman and Sanagas are both 7 year old stallions: too old, although Sanagas is trained by Bart Cummings who has 12 wins under his belt. Mount Athos is a 6 year old gelding, while Ethiopia is a 4 year old gelding, either side of the 5 year peak in the distribution. Since 6 year old geldings have a slight edge, my tips are as follows:

First Choice: Mount Athos

Second Choice: Ethiopia.

Honorable Mention: Sanagas

I should point out that, despite tipping Shocking in 2009, the Mule’s track record has been terrible. You have been warned!

UPDATE: it has been pointed out that Ethopia is in fact to carry 53.5kg not 54kg. While that may not seem much of a difference, there are another nine horses carrying that weight. While one school of thought would be to scratch Ethopia from the tip list, I would prefer to think that being the only one of the ten in that weight category to slip though, it must be lucky! On that highly scientific basis, Ethiopia stays.

Now Tuesday is not just about horses, there is also a Reserve Bank meeting. So, while contemplating a flutter based on spurious tips, you can also vote in a poll on whether there will be any change in the cash rate.

Once you have voted, you will be able to see the poll results.

John Graunt and the Birth of Medical Statistics

Dr John Carmody of the Department of Physiology at the University of Sydney, recently appeared on the ABC Radio National program, Occams Razor, speaking about John Graunt, a man many years ahead of his time. For those of you preferring the written to the auditory format, he has kindly provided his talk as a guest post for the Mule.

We become blind to what is familiar.

So dependent is modern medicine on accurate measurement that patients and doctors alike accept the fact without surprise or question, perhaps believing that it is inevitable. Yet the importance of numbers of any sort in medicine, let alone precise ones, is a concept that is little over 350 years old. In physiology, the most basic of medical sciences, this dates only from 1628 when William Harvey published his great book on the circulation, a discovery which he formulated and proved through numerical argument.

Then in London, in 1662, 350 years ago this year, John Graunt published a booklet which we can now understand was the beginning of medical statistics, of epidemiology, of medical demography. In the manner of those times he gave it the formidable title of Natural and political observations, mentioned in a following Index, and made upon the Bills of Mortality, to which he added the supplementary description, “With reference to the Government, Religion, Trade, Growth, Air, Diseases and the several changes of the said City”. His work was, therefore, far wider than establishing a new medical discipline. He was arguing for the necessary interaction of medicine, good government and sensible policy—indeed, perhaps for the discipline of quantitative economics, as well. We can realize how original Graunt’s work was when we remember that the only previous English census was the compilation of the “Domesday Book” in 1086 and that the first official census was not taken until 1801.

Graunt’s genius was to recognize—as none of his contemporaries had done—the immense importance of what we would now call a “database” which had existed in London for about 60 years. These were the so-called “Bills of Mortality” which the administrative clerks of the Church of England parishes in London had been obliged to keep scrupulously since James I became king in 1603. In fact, when James granted a charter to the Company of Parish Clerks in 1611, he legally obliged the members to be far more diligent in their recording than before his accession to the throne. These Bills recorded the christenings and the burials, parish by parish, each week. As well, the burials were accompanied by what Graunt called the “diseases and casualties” which brought about those deaths. He drew on the records of about 97 parishes within the city walls and 16 outside them and in a typical year he would have to deal with 20,000-25,000 burials and supposed causes of death.

He was very concerned with the reliability of those diagnoses which were rarely professionally reported. As he wrote, “When anyone dies, then, either by tolling, or ringing of a Bell, or by bespeaking of a Grave of the Sexton, the same is known to the Searchers corresponding with the said Sexton. The Searchers hereupon (who are ancient matrons, sworn to their office), repair to the place where the dead Corps lies, and by view of the same, and by other enquiries, they examine by what disease or casualty the corps died. Hereupon, they make their report to the Parish-Clerk.” Graunt keenly recognized the flaws in such a system and acknowledged that “I have heard some candid physicians complain of the darkness, which they themselves were in hereupon”. He also saw the possibility of corruption, the temptation, as he put it, for “the old-women searchers after the mist of a cup of ale and the bribe of a two-groat fee” to report, say, “Consumption” instead of the more shaming “infection of the spermatick parts”. In fact, he was convinced that syphilis, or the “French pox” was substantially under-reported.

Nevertheless, he decided that the incidence of such problems probably had changed little over the period which he was examining, so errors of those kinds were likely to be fairly consistent. “The ignorance of the Searchers is no impediment to the keeping of sufficient and usefull Accompts”. However, he saw other potential flaws in his data. Whereas corpses had to be disposed of for obvious reasons of health and amenity, and therefore burials provided a pretty reliable index of deaths, christenings did not reliably count births. This was because Catholics and Puritans, in particular, were reluctant to have their offspring baptized into a faith which they opposed. Furthermore, from 1649, when Charles I was executed, until 1660, when his son was restored to the Throne, the government of England was dominated by the Puritans, so many people were more confident to flout Anglican authority. Graunt was therefore obliged to make some corrections to his figures. Then, in attempting to make comparisons of births, deaths and diseases between London and the country, he had to deal with population disparities and calculate per capita rates in the absence of any census information. Another source of error, which was especially nettlesome during outbreaks of plague, was under-reporting of that disease—either because the affected households simply threw bodies into the streets, or because the “Searchers” were unwilling to inspect the bodies closely for fear of contracting the disease themselves. This meant, as Graunt recognized, that plague deaths were under-reported and the counts attributed to other causes were inflated.

Not content with simply aggregating and analyzing his data, Graunt drew up a synoptic list of 106 points in what he called his “Index”, several of which were recommendations for social and health policy.

He asserted, for example, that it would be “better to maintain all Beggars at the publick charge, though earning nothing, then to let them beg about the streets; and that employing them without discretion, may do more harm, than good”. He also found that “not one in two thousand are murthered in London”—a statistical finding which could be considered the birth of serious criminology. Even more importantly, he found that “the Rickets is a new disease, both as to name, and thing”. That diagnosis, he realized, did not appear at all in the Bills until 1634 and even then there were only 14 cases in that year; but by 1658 there were 476 cases. He seriously considered the possibility that previously it had been misdiagnosed but used his data to disprove that hypothesis. This is a remarkable reflection of the approach of William Harvey who had also used numbers to falsify arguments against his concept of the circulation of the blood.

Three years later, at the end of 1665, Graunt published, London’s dreadful visitation, or, A collection of all the Bills of Mortality for this present year, in which he applied the same analytical techniques to the demographic consequences of the “Great Plague of London”. Even today it is amazing and chilling reading: week by week, parish by parish, it documents the relentless surge of that awful disease from its first real appearance in May when 28 cases were recorded. Thereafter, the fatalities increased horrifyingly: about 340 in June; 4400 in July; 13,000 in August; 32,300 in September; 13,300 in October; 4,100 in November and 1,060 in December—a recorded total for that year of 68,600 deaths. And remember: in his earlier book, Graunt had decided that plague was, in such circumstances, seriously under-reported.

Its effects can be put into perspective by this contrast. For example, in the week from 29 August to 5 September, the Bills of Mortality reported 6,988 deaths from plague out of 8,252 burials recorded in the London parishes for that week, and in those 7 days a mere 167 christenings were recorded. Altogether, there were 9,967 christenings in that year and 97,306 burials—an almost 10-fold difference compared with the more usual disparity of less than two-fold and, according to Graunt’s estimates, those burials represented more than 22% of the population of London.

This catastrophic effect on the population of the capital could hardly be replenished by the usual birthrate because even in the first part of 1665 the christenings had been only 57% of the number of burials. In his earlier book, though, Graunt had found that there was substantial nett loss of population from the country to London. The result was that by 1675 the population of the capital was back to pre-plague levels.

In 1663, between the publication of Graunt’s extraordinary books, he had been elected as a Fellow of the Royal Society of London, though this seems not to have been an entirely straightforward matter. By profession, this genius was a haberdasher, whereas, according to the first history of the Royal Society, its membership was comprised principally of “gentlemen, free, and unconfin’d”. That self-congratulatory but diplomatic history which Thomas Sprat published in 1667, only 6 years after King Charles II had joined the society, says of Graunt’s election, “it is the recommendation which the King himself was pleased to make” adding that “his Majesty gave this particular charge to His Society, that if they found any more such Tradesmen, they should be sure to admit them all, without any more ado”. Those last words suggest to me that the “Gentlemen” of the Society required a little Royal “persuasion” which, the King seemed to be hinting, he did not wish to exert a second time.

Graunt was moderately active in the affairs of the Royal Society for a few years, but in the late 1660s he fell onto hard financial times, principally, I think, on account of his conversion to Catholicism. Certainly, this required him to relinquish his military commission as a Major and doubtless had adverse effects on his professional activities. He was eventually bankrupted and died in 1674.

His fading fame was not the only thing which then disappeared. So did some important records of the Worshipful Company of Parish Clerks. In his History of London, William Maitland noted, in 1739, that he had access to the Bills of Mortality only from 1664, stating that the Company “were of the opinion that the same was lent to Graunt…..but by some accident never returned”. He was neither the first nor the last scholar to forget to return borrowed materials to their owners. Nevertheless, the world of medicine remains forever in his debt. Graunt taught doctors that, for all of the importance of their focus on each individual patient, they must also shift their attention to understand what is happening to the whole population and to do so with the aid of the best possible statistics. The world is also in debt to King James, not only for the Bible which he commissioned, but for his insistence that the Parish Clerks should keep those good statistics. It is an unusual example of a beneficial combination of science and religion.

Space Oddity

Just when I was reflecting that a post on the Mule was long overdue and I really should get on to writing something, guest poster James Glover has come to the rescue to share his reflections in a guest post on space jumping.

You may have seen media reports of “Fearless” Felix Baumgartner, an Austrian, who takes BASE jumping to a whole new level (literally). He ascended to a height of 40km over the US in a helium balloon and then free-jumped back to Earth, eventually landing safely and breaking several long held records in the process. What I found curious when I looked at the photos though was how far away from the Earth he looked. You might disagree, after all 40km is a long way up. Curiously it is just under the standard distance for a marathon (42km). Humans though have a curious mental process aberration –  vertical heights appear much more significant than horizontal ones. That’s why we get scared at the top of a 20m building but think nothing of that as a horizontal distance. If I said a man had just run 40km you’d think him a marathon runner and not having just completed a singular feat of human daring, unless you were actually at Marathon on Greece in 490BC when the first “marathon” supposedly took place.

In fact given the Earth has a radius of 6,400km, 40km represents less than 1% of that. If the Earth were a globe 30cm across (I hear that such things exist!) then his jump would be from a height of 1mm. From that height the Earth is still pretty up close and in your face. By comparison the International Space Station or ISS has an average height of 360km and that is considered to be only in “near Earth orbit”. That vision you see of astronauts floating around the ISS in zero-g isn’t because they are outside the Earth’s gravitational field. At 360km gravity is 90% what is in on the Earth’s surface. They float because the orbital velocity of the ISS, about 7.7kms-1, needed to stop it falling, means they are in free fall – albeit on a trajectory that means they don’t head straight down.

I have been on a bit of an Earth geometry kick lately so I applied some trigonometry to this problem. Firstly I worked out that at 40km the angle the Earth subtends to a viewer is 167 degrees, compared to 180 degrees at the surface. By contrast at the moon (distance from Earth approximately 380,000km) the angular width of the earth is 2 degrees. In fact you can also show that the distance Fearless Felix could see on the Earth’s surface from (his) horizon to horizon is 1,400km or about the distance from Adelaide to Sydney. From the top of the Sydney Tower (height 260m) the horizon is about 58km away or approximately the distance to Penrith. This also explained why when in Tokyo you can see about 80% of Mt Fuji (height 3776m), from the ground, even though it is 104km away and hence well over the standard horizon. Actually I tried to see it from the top of Roppongi Tower (height 238m) and from there you can potentially see 96% of Mt Fuji. Unfortunately I got there at midday and to see it you have to get there before the smog thickens, by about 11am.

So what of the picture of the jump by Fearless Felix? Well using the same geometric principles and applying some advanced beer coasterology I think the picture is a fake. Fake in the sense that they have used a special lens to deliberately increase the apparent curvature of the Earth to make it look like he was jumping from deeeeep spaaaaace! It is the astronomical equivalent of photo shopping on a few curves to a model to improve her wow factor (though I understand, in practice, the opposite usually occurs).

Felix Jump

To see why consider the image of FF himself. Assuming he was about 2m tall I would estimate that the apparent diameter of the Earth in the photo would be about 5ff (a new astronomical unit I invented). It is possible to show that for that to be a true image the picture must have been taken at a distance of 56cm from Felix. Judging by the craft next to him my guess is it was taken at least 4m away. (If in the picture Earth was only 3ff wide it would need to have been taken at a distance of 34cm)

For that to be a true image, from 4m away, geometry shows, he would have to be not 40km but 500km above the Earth. At that height the Earth would subtend an angle of about 135 degrees which also seems to fit the picture as the human field of vision is about 120 degrees. In fact if the impression they are trying to give with the photo is that he could just see the whole image of the Earth floating in space before him, in his normal field of vision, then he would need to be at least 1,000km above the Earth, not a ground hugging 40km.

My suspicions were confirmed when I saw some vision on the tv news that night shown as FF descended. Whenever the camera pointed to the horizon it was almost flat but when it pointed straight down suddenly the Earth appeared as a ball. It is the camera lens rather than some advanced photo shopping to blame. While this does not detract from the fearlessness of Felix’s jump it is a sad indictment that the organisers of the jump felt the need to up the wow factor so as to make it seem more impressive. I guess they never learned their lesson from when NASA faked the moon landings.

What is Tony talking about?

I first experimented with word clouds several years ago and used them to visualise the speeches of Kevin Rudd and Malcolm Turnbull. I have now learned from the Fell Stats blog (via R-Bloggers) that there is an R package for generating word clouds.  The package makes use of tm, a text mining package for R, which I have been meaning to look into for some time. So, it seemed only appropriate to explore the speeches of Tony Abbott.

This word cloud shows the 150 most-used words in Tony’s speeches over the last 18 years. Perhaps disappointingly, since my efforts to strip punctuation also stripped apostrophes, “cant” actually only shows the frequency of the word “can’t”.

Pretty though the word cloud is, a little more can be gleaned from the word usage patterns through time. The correlation in recent years between “carbon” and “tax”, is clearly due to Abbott’s attacks on Labor’s imposition of a price on carbon. His stint as health minister is also evident. I did expect to see more of an impact from his “stop the boats” campaign (here the count for “boat” includes “boats”).

Abbott word count through time

Admittedly, there are no particularly deep insights here, but it was a fun way to learn about the tm and wordcloud packages.

UPDATE: In response to the comment from Dan, I have added a chart showing word frequency rather than count. This accounts for distortions arising from the larger number of Abbott speeches in recent years.

Abbot Word (freq)

 Abbott word frequency through time

For those who are interested, I have uploaded the (python) code for downloading the speeches and the (R) code for generating the charts to github.

Empire Games

Many readers have been expecting me to post a follow-up to my Olympic analysis of four years ago. I was in fact expecting it myself and even started collecting data, but somehow it has not happened. Fortunately, regular contributor (and some time beer coaster calculator), James Glover has stepped into the void.

It’s at about this time every four years that the same old boring analysis of Olympic Medals [not for everyone! Ed.] is brought out showing Olympic medals per capita, per GDP, per dollar spent etc. While this is all very useful, this particular Olympics it has failed to show Australia “punching above its weight” and is thus, in reality, the dominant sporting nation not just on the planet, but in the whole of history as well. The Fairfax press has tried to prove this thesis, but there is a spoiler. However you cut it we came out of the top half dozen nations. Personally I don’t think coming 10th in the gold medal count is really that bad. At least we beat the Kiwis right? Hmmm, that gets me thinking…

Actually it also occurs to me that were we just to reach out across the Ditch and extend a filial hand to our beloved New Zealand cousins, combined our trans-Tasman teams and competed under an ANZAC flag we would have finished an even more respectable 5th just behind Russia.

So this got me thinking. How would other groups of nations, alliances or indeed, past empires, have fared in the Games of the XXXth Olympiad? I can’t guarantee my geography is precise (and it is not up for discussion) but here is my best take on it. For these purposes I have not included the US in the British Empire because frankly it was their choice to leave without seeking permission.

In the interests of fairness I have allocated only part of the tally in some cases to take into account that (i) the Romans did not conquer Scotland or Ireland (so 50% of Team GB), and (ii) Quebec is not part of the Anglosphere (so they only get 75% of Canada’s tally – this on advice of a non-Quebecois Canadian). Feel free to continue this game – Axis vs Allies, the French Empire of Bonaparte vs British Empire at the same time. Endless fun now our cold winter days are no longer warmed by the Olympic flame. Interesting to see that in terms of Empires the British come behind the Mongolian Empire and the Roman Empire wins on weighted medals (3,2,1) if not on gold medals alone.

In any event the result proves the strongest alliance of all time is NATO – both the strongest military alliance and, if they wished, the strongest sporting one. Maybe money doesn’t buy you medals but it would seem that missiles do!

Empire/Alliance Gold Silver Bronze Total Weighted % Total
NATO 138 129 139 406 811 45%
EU 95 96 103  294 580  32%
Anglosphere 98 73.75 79 249.5 520 29%
Roman Empire 68 79  72.5 219.5 435 24%
Mongolian Empire 75 54 64 193 397 22%
British Empire 58 58 71 186 361  20%
Soviet Union 45 41 67 153 284 16%
ANZAC 14 18 17 48 95 5.3%

Trust

HandshakeDuring the week I attended a farewell function for a retiring colleague. The turnout was impressive, a sign of deep respect earned over a career at the bank spanning more than forty years. In the speeches, a recurring theme was trust.

The primary business of a bank is lending money, which exposes the bank to credit risk, the risk that a borrower will be unable to repay the loan. On more than one occasion, our retiring colleague had turned down a loan based on prior bad experiences with the prospective borrower. Why would you lend money to someone who has lied in the past? Learning from past betrayals of trust proved time and again to be a wise risk management strategy.

In Trust: The Social Virtues and The Creation of Prosperity, Francis Fukuyama argues that trust has played a crucial role in the development of capitalism. While some point to the role of the rule of law for enforcing contracts in enabling business, Fukuyama emphasises that legal recourse only serves as a last resort. More important is the simple confidence of a handshake: the confidence that those you do business with will live up to their end of the bargain. Those societies which developed mechanisms for extending trust beyond small networks of families and friends were rewarded with greater economic success.

If trust is important for business, it is particularly so for banking. But, scanning the financial headlines over the last few months shows a banking system apparently intent on destroying society’s trust in banks and bankers.

Serious Fraud Office investigating the rigging of LIBOR rates

Barclays is just the first bank to be fined for allowing traders to manipulate the LIBOR interest rate benchmark. The scandal cost chief executive Bob Diamond his job and this story will be back in the headlines as the findings extend to other banks and civil cases unfold.

HSBC accused of providing a conduit for “drug kingpins and rogue nations” 

Before a US Senate hearing, HSBC’s head of compliance faced charges that the bank had acted as knowing banker to Mexican drug cartels. He acknowledged that “there have been some significant areas of failure” and resigned his position there and then.

Standard Chartered alleged to have “schemed” with Iran to launder money

The BBC article in the link above is coy in its language. The New York Department of Financial Services is a little less so. Page 5 of their report quotes a Standard Chartered executive as saying, “You f—ing Americans. Who are you to tell us, the rest of the world, that we‟re not going to deal with Iranians?”

The front page of the Economist epitomises where this has led.

Banksters

The worldwide reputation of bankers is at its lowest point, in my lifetime at least. The result will be new and more stringent regulation and more intrusive oversight of banks by regulators. This outcome will be well-deserved as banks have proved themselves unworthy of the trust of their communities. However, it is also likely to keep borrowing costs and transaction fees high as banks struggle to deliver shareholder returns while covering the costs of new regulatory requirements. So, it will not just be banks bearing the cost of their misdeeds.

Trust is hard to earn and, once lost, harder to recover. Every bank around the world should be thinking very hard right now about how to restore trust in banks.