The National History Museum in London’s annual Wildlife Photographer of the Year contest.
Markets/Econ
Dollar debt in FX swaps and forwards: huge, missing and growing
Just how large is the missing dollar debt from FX swaps/forwards and currency swaps? At end-June 2022, dealer banks had $52 trillion in outstanding dollar positions with customers. Non-banks had dollar obligations of half of this amount, $26 trillion. This sum has been growing strongly, from $17 trillion in 2016.
The New Geopolitics of Global Finance
Asia and the oil exporters are running massive current account surpluses, but they aren’t accumulating $ reserves.
…private financial intermediaries somewhere around the world will need to absorb Treasury bonds. Just as financial intermediaries globally had to absorb U.S. “subprime” (household) risk prior to the global crisis, now they have to absorb U.S. interest rate risk.***
It is the only way everything adds up.
And the reality of a world where the big surpluses are in countries that don’t really want to be holding all that many dollars openly has opened up new opportunities for smaller financially troubled states to seek rescue financing from less traditional sources. Russia (through its state banks) has helped fund Turkey’s external deficit; the Saudis and the other Gulf monarchies are providing far more (net) financing to Egypt than the IMF; and Pakistan and the IMF are counting on China and Saudi Arabia not to pull funds out of the State Bank of Pakistan.
Also from Brad Setser—China's Balance of Payments Data Does Not Add Up
Put simply, China’s external numbers just aren’t lining up. And they don’t really add up either. Often, the reported balance of payments is slightly at odds with the underlying source data.
1. China’s reported goods trade surplus doesn’t line up with … China’s reported goods trade surplus.
2. China’s foreign exchange reserve growth on the balance sheet of the People’s Bank of China (PBOC) doesn’t match China’s reported foreign exchange reserves in the balance of payments data.
3. The foreign exchange settlement data doesn’t match the state banking data.
4. The income balance has been running contrary to changes in both global interest rates and developments in the Chinese economy.
The $200b difference between the value of exports in the customs data and the balance of payments data is probably Chinese capital flight via over-invoicing. The rest of it is inscrutable to me, but likely involves some mix of belt and road shenanigans and internal Chinese politics.
The Fed staff update on Friday for Chair Powell went probably something like, “We don’t ‘trust’ the 0.6% monthly change in November. Underlying wage growth is likely lower, though the coming reports could prove us wrong.”
Preferred Habitats And Timing In the World’s Safe Asset
U.S. private investors hold a long-duration Treasury portfolio that delivers high average annual returns with high volatility, while foreigners have shorter-duration lower-volatility portfolios. Further, when taking into account the timing and magnitude of purchases, the actual returns earned by foreigners are higher. We also find that while foreign governments have inelastic demand, private U.S. and foreign investors, behind the bulk of Treasury purchases over the past decade, have elastic demand, increasing purchases of Treasuries and the duration of their Treasury portfolios when non-U.S. sovereign yields are low or decrease relative to Treasury yields.
What Happens in China Does Not Stay in China
There are two main takeaways from this comparison. First, we find qualitative similar effects from U.S. monetary policy easing and credit stimulus policies in China. The broad dollar depreciates and we find positive and significant spillovers to the global financial cycle as global domestic credit rises notably. Second, the effects of a policy-induced Chinese credit expansion of 1% of GDP on global credit are about half the size of a 25 basis points reduction in the federal funds rate.
Do financial markets consider European common debt a safe asset?
Worryingly, the evidence presented here also suggests that financial markets remain skeptical about the level of commitment to European integration. If markets believed the joint and several liability blindly, the rating should be at least as good as the best issuer.
Reassessing the role of supply and demand on housing bubble prices
If you want to help poor people, let the market build housing for rich people.
A Major Speed Bump In The Midst Of A Structural Oil Bull Market—Oil bulls trying to cope with the price action.
Zoltan’s latest—
The cap of $60 per barrel for Russian oil equals the price of a gram of gold (at current market prices). Let’s imagine this set up as a peg. The G7, led by the U.S., effectively pegs the U.S. dollar to Urals at $60 per barrel. In turn, Russia pegs Urals to gold at the same price (a gram of gold for a barrel of Urals). The U.S. dollar effectively gets “revalued” versus Russian oil: “a barrel for less”. The Western side is looking for a bargain, effectively forcing a price on the “+” in OPEC+.
But if the West is looking for a bargain, Russia can give one the West can’t refuse: “a gram for more”. If Russia countered the price peg of $60 with offering two barrels of oil at the peg for a gram of gold, gold prices double.
Russia won’t produce more oil, but would ensure that there is enough demand that production doesn’t get shut. And it would also ensure that more oil goes to Europe than to the U.S. through India. And most important, gold going from $1,800 to close to $3,600 would increase the value of Russia’s gold reserves and its gold output at home and in a range of countries in Africa. Crazy? Yes. Improbable? No. This was a year of unthinkable macro scenarios and the return of statecraft as the dominant force driving monetary and fiscal decisions.
How FTX used Hong Kong cash-for-crypto shop to turbocharge growth and Blockchain evidence suggests Genesis Block was a front for Alameda Research
Genesis Block had a unique business model: It exchanged bags of cash for cryptocurrency.
“At the time, Genesis Block was drawing a crowd with its unusual business model: in a world dominated by the web, it was exchanging crypto for physical cash. “People were literally lining up around the corner with bags of cash at Genesis Block,” a former employee said. “Sometimes they shut the door saying they were out of bitcoin.””
Genesis Block also had an innovative approach to banking:
“According to Yang, Genesis Block had a “network” of 50 to 100 linked bank accounts, which people familiar with the company said would have been attractive for Alameda as it offered an “on and off ramp” to hard currency. “[We] have a whole network of what we call satellite bank accounts in our control . . . It’s a very grey area, I’m not going to lie. It could sound shady to some people,” Yang said on the podcast.”
Foreign
The US, Russia, and Iran have all half-heartedly tried to talk Erdogan out of it, but all appeared certain to in the end appease him and give him a de facto greenlight because of Erdogan’s continual leveraging of Turkey’s pivotal geopolitical importance, constantly playing the US and Russia off of each other.
Neither Biden nor Putin are willing to push Erdogan too much, especially now that they are at war with each other just on the other side of the Black Sea in Ukraine.
Erdogan is a cunning beast and senses the weakness and opportunity.
The tragic end result will likely be that if Erdogan goes through with the further ground incursion, the US will once again throw its Kurdish proxies to the Turkish wolves and all of northern Syria will then be ethnically cleansed of Kurds as a result.
"Turbo-America" is Beginning to Resonate
How a Chain-Smoking Marathon Runner Sparked a Furor in China
The Central Bank of Nigeria Just Gave a Whole New Meaning to the Term “Financial Repression”
What Pedro Castillo’s Failed Coup Attempt Means For Peru
“He had breakfast as a president, lunch as a dictator, dinner as a detainee.”
Culture
Tackling inequality from the demand side
Staunching flows of wealth that the rich “entrepreneurially” invent, then assiduously protect, is like fixing a leaky roof by putting your hands on the cracks. You run out of hands pretty fast. We should think a lot more in terms of suppressing inequality from the demand side. What would it take for the very rich not to want to get richer?
If aggressive antitrust enforcement or higher corporate tax rates promote higher productivity and growth, then I am all for them. But as feckless as our VC and investment banks are, giving more authority to the government won’t be an improvement. Here’s an example of how well the government achieves benign ends— They brought their sick baby to the hospital. Three days later, the state took their kids away.
The Dream of Scalable Democracy
If all politics were really local, voter turnout would be highest in local elections. But the opposite is the case. The majority of Americans don’t vote in midterm elections, but a majority do vote when the presidency is on the line.
If all politics were local, then people would have greater incentive—or at least find it easier—to cast an informed vote. One would only need knowledge of oneself and one’s own community, because that would be exactly what each election would be about.
ChatGPT is a bullshit generator. But it can still be amazingly useful
Large Language Models (LLMs) are trained to produce plausible text, not true statements. ChatGPT is shockingly good at sounding convincing on any conceivable topic. But OpenAI is clear that there is no source of truth during training. That means that using ChatGPT in its current form would be a bad idea for applications like education or answering health questions. Even though the bot often gives excellent answers, sometimes it fails badly. And it’s always convincing, so it’s hard to tell the difference.
Also—The AI Revolution Has Begun—A more laudatory take on ChatGPT.
Posilutely, AI will be the next bubble.
Musk is becoming a true Caesar—Swarmism vs Caesarism
The Biden administration is fond of talking about “democracy” versus “autocracy”, but it might be more accurate to talk about swarmism and Caesarism. Swarmism is a kind of post-democratic democracy: a mutant form of liberal proceduralism, characterised by collective decision-making in which no one is ever individually accountable. Instead, consequential decisions are as far as possible pushed out to supposedly neutral procedures or even machines. When NGO officials whom you can’t vote out of your political ecosystem talk about “our democracy”, they’re talking about swarmism.
Navy to Accept Recruits with Lowest Test Scores as Recruiting Goal Grows
Kind of related—The world’s creepiest recruitment ad for the U.S. Army's 4th Psychological Operations Group.
Science
Advancing Antivenom. You might not be happy with your station in life, but at least you aren’t a horse that is dosed with snake venom so that it’s blood can be harvested for antivenom.
Production of synthetic antivenom could drive down the price even further. In 2020 a team of Dutch scientists used stem cells to grow artificial snake venom glands capable of producing crude venom. Scaled up, this makes it possible to entirely eliminate the dangerous and expensive snake-milking process, significantly reducing the costs of antivenom production. In 2018, a team of Spanish and South American scientists produced venom antibodies in gene-modified plants, which similarly would remove host animals from the production process.
Monthly Archaeology Round-Up: November
The mysteries surrounding the Battle of Teutoburg Forest in 9 AD, when Arminius ambushed the Roman armies, have slowly been unveiled in recent decades. Now we can add to the list a method for determining exactly which legion was where.
Know Your GABA-A Receptor Subunits
Do Women Really Select For Intelligence?
If sexual selection had been a factor in the rise of intelligence across human evolution, we would expect it to be more prominent in the last century in industrialized societies where individuals, particularly women, have more unrestricted sexual freedom and their choices are less subject to family dynamics and societal coercion. However, the decreasing genetic intelligence trend suggests something is amiss. What’s particularly interesting is that the same is not true for height. Selection for height was not present in the 19th century, but appeared later in the 20th century (Thompson et al., 2022).
History
Diamond and Dybvig and the Panic of 1907—Arguing that governmental bank regulation, not the lack of a central bank, caused the Panic of 1907.
Building Fast and Slow Part III: Design of the World Trade Center
The commission raised Yamasaki’s profile even further, and he appeared on the cover of Time in January of 1963 (the 11th architect to make the cover). Unfortunately, being awarded the project seems to have been disastrous for him personally. A year prior to his being selected as the architect he had divorced his wife of 20 years as “not his intellectual equal,” and over the course of the project he entered two more marriages (both of which ended quickly). He began to drink heavily, and was hospitalized following a seizure, falling in love with one of his nurses (who he later moved in with), and becoming addicted to morphine. He went on to remarry his first wife in 1969.
Judas Goats: Agriculture’s Bizarre, Drug-Addicted Masters of Deceit Once Ruled the Killing Floor
In one of the most bizarre spectacles in agriculture history, nicotine-addicted Judas goats once led sheep to slaughter down livestock’s version of the green mile. The aptly named Judas goats, rewarded with a single cigarette for every herd of sheep deceitfully escorted to the killing floor, were once key players in meatpacking plants.