Weekend Reading
The Fed has to be happy the reaction to Powell’s speech. By keeping it short and punchy he kept as much optionality as he could. He did two marginally hawkish things. First, he said “restoring price stability will likely require maintaining a restrictive policy stance for some time.” It’s conditional and subject to definitional thresholds, but he introduced a temporal constraint— ‘some time.’ Second, he acknowledged that there will be pain. Previously, he left the impression that his base case was a soft landing.
I’m not much of a poker player, but Powell is pot committed. A sharp deterioration in the data or a reacceleration of inflation will raise the stakes, and he still may fold, but for now the focus is off the player and on the next cards.
Links
Nobody Knows How Interest Rates Affect Inflation
I have doubts about the classic story of the 1970s. The Fed did move interest rates one for one. Inflation did not simply spiral out of control. For example, note in 1975, inflation did come right back down again, even though interest rates never got above inflation. The simple spiral story does not explain why 1975 was briefly successful. Each of the waves of inflation also was sparked by new shocks.
Who is right? I don't pound my fist on the table, but stability, at least in the long run, is looking more and more likely to me. That says inflation will eventually go away, after the price level has risen enough to inflate away the recent debt blowout, even if the Fed never raises rates above inflation
How Much Did Supply Constraints Boost U.S. Inflation?— “In the absence of any new energy or other shock, it is therefore possible that the ongoing easing of supply bottlenecks will cause a substantial drop in inflation in the near term.”
How Will the Pandemic and the War Shape Future Monetary Policy?
Behold, labor’s coming victory over capital
The pandemic underlined the vulnerabilities inherent in long, complex supply chains, while the conflict in Ukraine has caused political alliances to splinter more clearly into regional trading blocs. Since globalization reduced inflation, lowered interest rates and destroyed worker power, it is reasonable to think delocalization will have the opposite effects.
Zoltan’s latest—War and Industrial Policy
Why Commodity Prices Are Likely to Fall Further—I read this article because of the contrarian headline. I’m including it because it’s such a good example of begging the question. The author argues that real commodity prices will go down because real rates are on “a firm upward trend, because nominal interest rates will rise, and inflation will fall”—good to know.
Oil And Energy Stocks Start To Bottom As The Market Catches Onto The Irony Of The Demand Data
Has Everyone Forgotten the Economics of Exhaustible Resources?—Hotelling's rule and exhaustible commodity prices.
Rising Home Prices Are Mostly from Rising Rents
where rents are stable, so are price/rent ratios. Where rents haven’t risen, the Case-Shiller real price index is pretty close to a flat line, right up to today! Where prices have risen, it is because rents have risen. And when rents rise by 1%, prices always rise by much more than 1%.
Resurrection or bouncing cat carcass?
Yes, Special Elections Really Are Signaling A Better-Than-Expected Midterm For Democrats
Election forecasters rethink their ratings
This is going to be a disaster—The New Income-Driven Repayment System Could Cause Some Big Problems— “A student that plans to enroll in IDR has no reason at all to care about the prices colleges are charging. To them, $15,000 of student debt is no different from $100,000 of student debt.”
Pax Americana and the brave new green world—Proposed SEC rules will require any foreign company that does business with an American company, even outside the US, to calculate and disclose their greenhouse gas emissions.
The Rise and Fall of the American Electrical Grid
It is not clear how the grid can be fixed. The rules governing it grow more arcane by the day. Various universities, utilities, NGOs, major financial institutions, politicians, and industry interests have too much at stake to turn back now.
Quiet in the Atlantic: Will we go 0-for-August? —“From 1950 onward, the only two years with no named Atlantic storm in August are 1961 and 1997. What’s interesting is that 1961 turned out to be a very back-loaded year, with three Cat 4s and two Cat 5s after September 1, so no reason to let our guard down on 2022 quite yet.”
Need for US Ethics Reform Is Far from History: Kushner-MBS Deal Reflects Broken System
MBS’s statements leave little doubt: the investment is due to the relationship Kushner cultivated with MBS when Kushner served as a senior White House advisor to President Trump a role he used to shelter the Kingdom from criticism and sanction.
Maybe, or maybe MBS knew that J-Kush had unlocked the secret to everlasting life?
International
China’s Overextended Real Estate Sector Is a Systemic Problem
My best guess is that because of the Chinese Communist Party’s upcoming National Congress, Chinese regulators will prioritize stability over all other things. Any additional outbreaks within the financial system will quickly be absorbed by local government borrowing and the bigger banks. Once the pandemic lockdowns end, the regulators may even unleash a series of “bazooka-like” policies to try to reverse [investor?] sentiments, kick-start rising property prices, and boost confidence among creditors and depositors.
The Balance Sheet Constraints on China’s Economic Stimulus
The era of fiscal tradeoffs in China has begun. If the economic situation gets bad enough, China may once again be forced to engage in large-scale stimulus. However, another huge run-up in debt would likely put unsustainable financial pressure on many local governments. The central government can no longer spare its own balance sheet if it wants to both stimulate the economy and keep local governments solvent.
The Misrepresentation of Aleksandr Dugin as an Ongoing Theme in the West
Liberalism won the battle for modernity in 1945 and 1989. What exists today as globalism is the final stage of liberalism after a millennium-long march, beginning with medieval nominalism, advancing through colonialism and modern capitalism, and currently accelerating into digital post-humanism.
Demystifying Vladimir Putin—“Putin’s authoritarianism falls in a middle ground between Russia’s tsarist and Soviet inheritance, more heavy-handed than the former but less totalitarian than the latter.”
Massing Ukraine forces for a breakthrough offensive would be to step into a classic Tukhachevsky trap—I think we can all relate to that.
Pure, unadulterated cringe music video celebrating Russia, skip to 3:42 and watch to the end for the best part.
Fire and blackouts shut Zaporizhzhia down; then, ignoring safety experts, its operator turned it back on—I don’t get this, the Russians control the plant, but the Ukrainians decide whether or not to keep it operating? If it’s supplying Ukraine with electricity, shouldn’t Russia want to shut it down? Fingers crossed.
Why is Joe Biden alternately ignoring and funding the ever-closer alliance between Iran and Putin?
Iran And Russia Move To Create A Global Natural Gas Cartel
Is Russia’s economy headed for 'economic oblivion', as a report from Yale says?
What If Netanyahu Wins?—Israeli elections November 1st.
Culture
The Elite Overproduction Hypothesis
Then you graduate, and nobody wants lawyers, magazines are dying, newsrooms are dying, universities aren’t hiring, and your best bet is either to roll the dice again with years of grad school or to claw your way into some corporate drone job where you’ll be filing TPS reports all day while your diploma rots in a box in your parents’ attic.
A midwit is typically described as someone with an IQ score between 85 and 115; more colloquially, it describes a person with slightly above-average ability in any domain—someone who is able to pass basic qualifications and overcome standard hurdles but who is in no way exceptional.
Is the PMC the New Ruling Class?
In this context, the madness of woke discourse begins to make a little more sense. The foundational values that social justice activists have routinely maligned in recent years as outdated, reactionary or “white supremacist” are precisely those that were championed by the emergent capitalist class in the early modern period. Individualism, meritocracy, equality before the law, the Protestant work ethic — all have come under fire as pillars of oppression, in the same way that the cult of personal fealty and the entire moral code of feudalism was challenged by the rising bourgeoisie.
Miscellaneous
Document reveals identity of donors who secretly funded Nikki Haley’s political nonprofit—whomever leaked this from the NY Attorney General’s office should get into trouble, but the biggest takeaway is that one of the world’s greatest traders, Stanley Druckenmiller, is also one of it’s worst political handicappers—Haley/Kasich 2024!
The Accelerating Threat of the Political Assassination
Socialite, Widow, Jeweller, Spy: How a GRU Agent Charmed Her Way Into NATO Circles in Italy
It’s Time To Declare a Global Debt Jubilee—what could possibly go wrong?
The Dark Side of the Orgasmic Meditation Company
2006 called, it wants it’s narrative back—The Right-Wing Christian Sect Plotting a Political Takeover
Physiognomy of Revolutions—
Unrelated BIS twitter thread—
News you can use
How to Extract and Grow Stem Cells in your Garage
Psilocybin Therapy Sharply Reduces Excessive Drinking, Small Study Shows