Econ/Markets
Fear and loathing in the QT age.
When central banks were able to suppress interest rates well below the trend rate of nominal GDP growth, these magnified debt burdens were supportable. Now, with rising wages signalling a self-reinforcing inflationary cycle, our range of options has narrowed to a choice between high inflation, a debt default crisis or exceptionally painful fiscal austerity.
Latest Financial Stability Report from the Fed.
How High Will Interest Rates Go?
markets are less worried about an immediate return to the ZIRP era of the 2010s and are pricing in increasingly high long-term interest rates. However, they still don’t yet see anything that would fully break us out of our historically low global rate environment—yields on the Austrian 100-year bond may have increased 1.5% over the last year but still remain just below 2.4%. Interest rate uncertainty, though, remains extremely high—unfortunately, nobody seems to know just how high interest rates can go.
In summary, contra-Larry Summers, etc., if inflation recedes without being paired with recessionary conditions, we should definitely not look a gift horse in the mouth, and we should thank Jerome Powell and the Fed. And, if that happens, maybe, just maybe, the positive effects of such good nominal economic management will leave long term interest rates higher as a result, and the temptation to misattribute low rates to overstimulation will be neutered a bit.
Will slower wage growth dampen inflation?
The labor market perspective suggests that underlying inflation is tracking at about a 4.5 percent rate—with little hope that productivity or factors like margin compression will improve on the historical relationships on which this estimate is based.
Given the magnitude of the issues, it is unlikely that we see inflation much below 3.5 percent in 2023.
A desirable policy of bringing inflation down through gradualism would balance the costs of inflation and unemployment. It would impose a modest amount of pain on the labor market, but not too much. But the Fed has not imposed any pain at all. Indeed it hasn’t even returned to labor market back down to the boom conditions of late 2019. There’s been no balancing of costs. And there’s been no significant reduction in inflation at all. Despite what you read in the press, there’s been no tight money policy in 2022.
Why aren't wages rising in a tight labor market?
…the Fed has to decide what to do about the current inflation — whether to keep raising rates, or to back off for fear of a recession. If inflation consistently reduces real wages, that biases things toward the “keep hiking rates” side of the debate. It means that a short spell of higher unemployment that brings inflation back to low levels might be the best way to raise real wages in the medium term.
Yesha Yadav on Treasury Market Turmoil and Potential Solutions for Reform—Declining liquidity in the Treasury market poses a massive risk to the financial system, and urgent reform may be needed to avoid a looming crisis.
We're all supply siders now -- Summers and Poilievre.
Larry is starting to sound like a Reagan Republican!
How long can Japan’s central bank defy global market forces?
Mansoor Mohi-uddin, chief economist at Bank of Singapore, says the closest analogy to understand the potential consequences would be the Swiss National Bank’s abrupt removal of the ceiling on the Swiss franc in 2015, which led to a large jump in the currency and left European equity markets reeling.
Related: buying 10Y forward USD/JPY at 97.42, gets you short JPY 10Y rates at -23 bps (vs. +69bps to pay 10Y swaps) if you hedge the US rate leg.
A Big and Embarrassing Challenge to DSGE Models.
Imagine if you were trying to predict the motion of the planets but you accidentally substituted the mass of Jupiter for Venus and discovered that your model predicted better than the one fed the correct data. I have nothing against these models in principle and I will be interested in what the macroeconomists have to say, as this isn’t my field, but I can’t see any reason why this should happen in a good model. Embarrassing.
Twitter Takes—Billionaire Brain Damage—‘Musk is trapped by his foolish decision-making. He has to make $1 billion a year to cover the interest on the debt that he incurred buying the website he didn’t want to buy.’; and Elon Is Fumbling Toward a Hilarious Solution to Twitter's Money Problems: Porn.
Foreign
Third hand, but interesting. Apparently state owned companies in China are starting to partially pay employees with Central Bank Digital Currency. The money must be used on consumption from domestic companies and expires in 30 days.
Leaked documents: British spies constructing secret terror army in Ukraine.
Documents obtained by The Grayzone reveal plans by a cell of British military-intelligence figures to organize and train a covert Ukrainian “partisan” army with explicit instructions to attack Russian targets in Crimea.
China’s COVID zero is going to look very different soon.
“Dynamic COVID zero,” as the Party defines it, may not necessarily go away, but it will look very different in the next four months. It already looks much different than four months ago.
It’s not likely that an Israeli-Saudi alliance, inspired as it may be, would be able to curb all of the Biden administration’s worst instincts. But it could certainly send a very strong and united message to the White House that its attempt to force Riyadh and Jerusalem into its pro-Iran “integration” scheme will fail, and that security interests, not media affirmations, will guide both Jerusalem and Riyadh moving forward. That is a complicated task requiring real vision and capabilities. Thankfully, the best man for the job is now back at the helm.
Germany’s position in America’s New World Order.
Medieval Europe’s analogue to America’s New Cold War against China and Russia was the Great Schism in 1054. Demanding unipolar control over Christendom, Leo IX excommunicated the Orthodox Church centered in Constantinople and the entire Christian population that belonged to it. A single bishopric, Rome, cut itself off from the entire Christian world of the time, including the ancient Patriarchates of Alexandria, Antioch, Constantinople and Jerusalem.
Haiti 2022 - Polycrisis Extreme.
The message from the UN is alarming and needs to be heard amongst the general din of bad news: This is not the normality of Haiti’s “ordinary” poverty or crisis. The current situation is far more dangerous and urgent. It is also unprecedented. Large numbers of people in the Western hemisphere are on the point of outright starvation.
NATO v RUSSIA via Ukraine: The Impossible War.
Conclusion: For the first time since the post war Bretton Woods accord, the US is not being viewed as a rational actor by those who should (China, India, Malaysia, SE Asia). Its actions scream of desperation and maintaining dollar reserve status. Also, Russia has not thought out its actions and seriously underestimated the West's response. The price of this miscalculation will echo down the decades. Russia has now permanently married itself to the East and will be gobbled up for its energy by China. It's passing grade in the war has not helped it. The EU is not a serious entity. It's encroaching bureaucracy, insane energy policies and embrace of globalism and mass emigration has weakened it.
The Most Vulnerable Place on the Internet.
Look at Egypt on a map of the world’s subsea internet cables and it immediately becomes clear why internet experts have been concerned about the area for years. The 16 cables in the area are concentrated through the Red Sea and touch land in Egypt, where they make a 100-mile journey across the country to reach the Mediterranean Sea. (Cable maps don’t show the exact locations of cables.)
Open Letter Against Reckless Nuclear Escalation and Use.
There's been ample interest in the probability that the Ukraine conflict escalates into a nuclear way, ranging from predictions on Metaculus, Manifold and Polymarket to estimates by David Orr, myself and others. Aside from estimating this probability, what can we do to reduce it?
US/Culture/Miscellany
Here’s Why Trump Crony Tom Barrack Was Acquitted of Spying for the UAE.
Essentially what the jury saw in that courtroom was two men—one in the twilight of his career, one at the dawn—who had been good to their friends and good to people they worked with and who, amid intensely pressurized days and nights, had been good to each other. I just find it hard to believe that doesn’t count for something if, as a juror, you are being asked to consider sending two people to jail for years because of a relationship with a sheikh you’d never heard of before the trial began.
Bad Professor: The Rise and Fall of John Donovan.
John Donovan gazed down at his belly: a bullet hole, blood. It was December 16, 2005, and John had a lot on his mind. It seemed that his entire life had been leading up to this moment: a Bay State legacy bolstered by a professorship at the Massachusetts Institute of Technology, a prodigious streak of entrepreneurship, and, more recently, the slow crumbling of his family’s dynastic ascent through Yankee upper-crust society.
The Dramatic Decline of the ‘Rothschilds of the East’.
A century ago, the Sassoons were known worldwide; news of everything from their business activities to personal affairs made it into international media. For a time, they dominated up to 70% of the trade volume of Indian opium and also dabbled in cotton, silver, textiles, banking, insurance, and real estate. They were accepted as members of the British aristocracy at a time when Jews were only beginning to be accepted within society. Yet by the second half of the 20th century, there was no business to speak of; today, hardly anyone knows their name. How did one of the 19th century’s most successful dynasties rise and fall so dramatically while dynasties like the Kadoories and the Rothschilds persisted?
On the Rule of Crime and the Ongoing Brazilianization of America.
America increasingly looks like Brazil reflected in a funhouse mirror. The figures are immediately recognizable, if somewhat distorted. Racial and political strife, economic destruction of the middle class, and collapsing rule of law among elites and law and order in the streets. All of these features are hallmarks of Brazil and America as well. “When we look upon Brazil’s dualized society today — this monstrous platypus — we are driven to conclude that Brazil has the worst elite in the world,” remarks Hochuli. He may be correct, but America is right behind.
How a Chinese American Gangster Transformed Money Laundering for Drug Cartels.
“The underground banking system in China was pretty much self-sufficient just dealing with Chinese criminal organizations and the Chinese diaspora,” said John Tobon, the Homeland Security Investigations special agent in charge in Honolulu, who has written on the topic. “And it was then when all of these restrictions came in, when the CCP members could no longer count on doing it the easy way ... that the supply of dollars became an issue.”
Li and other enterprising criminals identified a seemingly limitless source of dollars: the Latin American drug trade. To amass the cash, Li offered the cartels unheard-of money laundering deals.
“With the Colombians, it had been an 18% to 13% commission,” said Cindric, the retired DEA agent. “The Chinese are doing it for 1 to 2% on average. And the speed at which they do it is unbelievable. The Chinese absorbed the risk. You know it will get paid.”
The case that Covid originated in a lab is not yet proven, but as circumstantial evidence goes, it’s pretty good. Few people appreciate quite how compelling this case is (see the outline below) because science journalists who work for the mainstream press have, by and large, failed to present it in full to their readers. Virologists, and through them most other researchers dependent on government grants, are not so keen to accept their community’s complicity in creating a pandemic that has caused upward of 6.5 million deaths. Driven by the position of their sources and the political leanings of their proprietors, mainstream science journalists have largely ignored each new piece of evidence pointing toward the lab-leak explanation, while uncritically overplaying the virologists’ self-serving arguments for the virus’s natural origin.
The reason McConaughey reads like he’s from an alien culture is because he is. Greenlights is the perfect pairing to David Hackett Fischer’s Albion’s Seed: Four British Folkways in America as a Platonic example of the Appalachian hero. Where Hillbilly Elegy is forceful, resentful and pessimistic, Greenlights is unapologetic, glorious, optimistic. Two opposite perspectives on an Appalachian culture laced with physical violence and substance abuse.
Oat milk is killing the planet.
That loud sound from the meadow just down the lane? Daisy the cow, natural maker of milk for humans for 6000 years, laughing her hooves off at the stupidity and gullibility of humans. I’ve just told her a joke. It’s the one about alt-milk.
The Rise of Biodigital Surveillance.
But as Nick Corbishley, author of a recent book on digital IDs, points out, decisions made in the moment may carry long-term negative consequences: “If biometric data is hacked, there is no way of undoing the damage. You cannot change or cancel your iris, fingerprint, or DNA like you can change a password or cancel your credit card.” Unless we collectively decline to participate in this new social experiment, digital IDs—tied to private demographic, financial, location, movement, and biometric data—will become mechanisms for bulk data harvesting and tracking of populations around the globe. Welcome to the new abnormal.
Review of Garett Jones' 10% less democracy book.
That said, Jones is right with his general thesis. We probably have too much democracy. If voting was restricted to non-criminals, people not on welfare etc., then society would have much more sensible economic policies. Whenever it becomes possible to vote yourself to other people's money, you will get an underclass that lives this way and it will keep expanding. For the last 100 years or so, we have also had to suffer an upper class that loves socialism. Maybe we should make it so that only the middle class can vote.
Does watching pornography cause erectile dysfunction?
So, two questions: is Perry’s claim about erectile dysfunction—which she’s repeated in various other places—true? And if it is true, or even true to some extent, is the increased rate of erectile dysfunction caused by people watching too much porn? Whisper it: could the science actually justify “No Nut November”? Let’s find out.
News you can use—Attach Your Private Railcar To An Amtrak Train.
