Markets/Econ
Is the $12tn private market the ‘next shoe to drop’?
But Jefferies does highlight Bain’s finding that valuation expansion accounted for over half of private equity’s returns in recent years. That kind of dumb beta uplift is trickier now.
However, the subsequent slump in public markets and the (cough) remarkable resilience of private marks mean that most investors are probably at or well above their allocations. The global average is now 24 per cent, which is astonishing.
The US Treasury’s Office of Financial Research — set up in the wake of 2008 expressly to scour the financial world for systemic risks — has published a new paper titled Fragility in Safe Asset Markets revisiting the episode.
Fiscal Dominance: How Worried Should We Be?
The first consolidation helped retire World War II debt. Two consolidations occurred during the 1980s and 1990s when debt was about 40 percent of GDP, but interest payments consumed more than 20 percent of federal spending. Debt service is rising sharply now, from a low of 5.9 percent in the second quarter of 2020 to the latest figure, 13.8 percent in the fourth quarter of 2022. Over the same period, debt’s value has fallen from 106 percent to 84 percent through a combination of a lower price for the government bond portfolio and higher nominal GDP. Absent fiscal tightening, interest can be expected to continue its rapid rise, but if Congress behaves true to form, it may still be years before it undertakes consolidation.
A flawed but useful economic model for a bleak age—Edward Chancellor review of Cochrane’s Fiscal Theory of the Price Level.
From this perspective, past inflations should be viewed as episodes of debt default. At the turn of the 4th century BC, Dionysius of Syracuse became the first ruler to debase the coinage in order to reduce his debts. In the modern age, over-indebted governments usually turn to the printing press. After World War One, hyperinflation broke out in several European countries with impossibly large debts whose ability to raise taxes was impaired by civil unrest. The root cause of Germany’s monetary disaster was not the actions of the Reichsbank, says Cochrane, but the insolvency of the Weimar government.
Cochrane’s model may prove useful for the post-pandemic age. First, it emphasises that controlling inflation requires monetary and fiscal coordination. Central banks can temporarily reduce inflationary pressures but governments must do the heavy lifting. Second, Cochrane argues there’s no need for central bankers to raise interest rates above the prevailing rate of inflation in order to get prices under control. Given the International Monetary Fund’s latest warning that further rate hikes could trigger a global banking crisis, monetary policymakers will be looking for any excuse to go easy.
The Pitfalls of Dollar Hegemony—Comparison of Alan Blinder’s A Monetary and Fiscal History of the United States, 1961-2021 and Perry Mehrling’s Money and Empire.
So, while both books are about the same subject – monetary policy and history – they are like ships passing in the night. The question, then, is what might be learned from reading them together. If Mehrling’s book is a love letter to Kindleberger, Blinder’s book could be called a love letter to Kindleberger’s MIT colleagues – that is, to Blinder’s teachers and the architects of post-war American Keynesianism. These men, Blinder contends, basically got it right.
Nelson: And the Fed's description of what its plan is, it doesn't fill me with confidence. So their plan is that as the balance sheet shrinks, money market conditions will tighten. That will lift money market rates up above the Overnight RRP Facility and therefore the Overnight RRP Facility will shrink. That will in turn create reserve balances, expanding reserve balances, allowing QT to continue until again money market conditions get tight and then they're at the end of QT, they'll have to stop because reserves are no longer ample. I mean, that plan requires that those two types of tightness come in that order. It's quite a delicate thing. So they want markets to not be tight, they want them to be loose, but they want them to be tight enough to shrink the Overnight RRP Facility. I don't see any particular reason to believe that they won't run out of ample reserves before they achieve the level of tightness needed to get people to move out of the Overnight RRP Facility, which is why I think that they should return the spread to where it was before and simply move the IORB rate up to the top of the range and the overnight RRP rate to the bottom of the range just as it was for most of its operations and provide a push to push that Overnight RRP Facility down. And partly because like you, I'd like the Fed to be as small as possible and I'd like therefore for QT to continue for as long as possible. And if the Overnight RRP Facility doesn't shrink, then they maybe only have eight, nine months to go of QT. Whereas if it does, they have another couple of several years of QT that they can do.
Recession warning from US vacancies
My take: There are only two things you need to know about inflation today: 1) without the Owners' Equivalent Rent component (which makes up about one-third of the CPI), the CPI would have declined at a -1.6% annualized rate in March, and 2) OER inflation has peaked and will almost surely decline significantly in coming months. In short, our national inflation nightmare is over. If the economists at the Fed can't understand this, they should be fired. There is absolutely no reason the Fed needs to raise rates further, and every reason they should begin cutting rates—beginning with the May 3rd FOMC meeting if not sooner.
Deposit Betas: Up, Up, and Away?
Deposit rates continue to lag the fed funds rate, but the pass-through of policy rates is quickly approaching levels not seen since the early 2000s. The rapid rise in rates has resulted in a fall in overall deposit balances, a tightening of funding ratios, and an increase in non-deposit borrowing. Banks have been managing the deposit runoff using more attractive time-deposit rates and other borrowings. Given the increase in fed funds rates since 2022:Q4 and the wide gap between deposit rates and the fed funds rate, we expect that deposits will continue to shift into higher rate categories that are more responsive to monetary policy.
NGDP TARGETING AND FOMC DISCUSSIONS
Bernanke is really an inflation targeting freak! Note than in 1982 or 1992, no one said that by targeting NGDP the Fed “had suddenly decided it was willing to tolerate higher inflation, possibly for many years”. And just two months after this discussion, in January 2012, the Fed made the 2% target official policy!
Notice that in 1992, Greenspan said: “I’m basically arguing that we are really in a sense using [unintelligible] a nominal GDP goal…” and Jordan had argued “What struck me was that it looked as if we were on a de facto nominal GNP target.”
That said, I think it is worthwhile to check if Greenspan´s and Jordan´s words were meaningful. The panel below pictures what went on in the NGDP, inflation and unemployment fronts from then to the end of his tenure.
Foreign
Bad Trade—Michael Pettis
The point is that as long as countries can improve their international competitiveness by directly or indirectly suppressing wages and reducing domestic demand, and as long as they can externalize the resulting cost by exporting savings abroad, the incentive for countries to increase their international competitiveness ends up depressing global wages and global demand. This is especially a problem for countries like the U.S., whose deep, flexible, open and well-governed capital markets mean that they must automatically absorb these excess savings, in which case the American savings must decline to accommodate the flood of foreign savings. This decline must occur either in the form of higher unemployment, higher household debt, or higher fiscal deficits.
Either Washington should pioneer new trade agreements that directly restrict the ability of countries to run large and persistent surpluses, much as John Maynard Keynes proposed during the Bretton Woods conference, or it should unilaterally refuse to continue playing its role of absorber of last resort of global excess savings and instead force its own trade and capital flows into balance.
Tautology Alert—Ukraine’s Best Chance—A Successful Offensive Could End the War With Russia
The Ukrainian army is now preparing for a spring offensive. Based on the lessons of the past 13 months (which I’ve explored over two trips to wartime Ukraine, including to places near the frontlines), a Ukrainian path to victory is entirely plausible—though not as complete a victory as Kyiv and its supporters want. As the war continues, the United States in particular, given its pivotal role in arming Ukraine, will face increasingly hard decisions about costs, sustainability, and risks. That makes it especially important to consider more limited definitions of victory. A less-than-perfect outcome can still amount to a remarkable achievement—and it is within Ukraine’s reach.
Farmer protests sweep across Eastern Europe
Across Europe’s East in recent weeks, farmers have been protesting over Ukrainian grain flooding local markets and undercutting prices. Thousands of farmers in Romania, Bulgaria, Hungary and Poland formed long convoys of tractors, blocking border crossings with farm vehicles that has resulted in the resignation of at least one leading minister.
Of Course NPR and the BBC are State Media
In China, coordinating all these “opposition” parties and “civil society” institutions is known as “united front work.” Ideological directives distributed just within the Party system can thus seamlessly set the agenda for the whole national state. The PRC therefore cannot be described only as a “state”; it is a “party-state.”
I would argue that at this point the United States, Canada, and Britain can also be effectively described as party-states. This structure isn’t as obvious only because it hasn’t (yet) been formalized.
A single informal, oligarchic party dominates all of these countries. Transcending formal political party affiliations, this Party consists of the same class of managerial elites, united by their possession of essentially identical ideological education, core philosophical beliefs, cultural norms, material interests, and incentives. This is the Party of managerial technocracy, and every member – regardless of whether they occupy a formal government position or not – possesses a shared interest in seeing the further expansion of managerial control, of democratic power being progressively elevated out of the hands of the unwashed public and redistributed to a technocratic “expert” class (themselves).
US/Culture
The Problem of Abundance: The solution to our nation’s great depression isn’t more stuff. It’s adventure.
We are the children of abundance yet we loathe where we come from and who we are, and would happily abolish the habits that got us here, ostracize the persons who embody those habits, and smash the institutions that support them. José Ortega y Gasset, that wise Spanish thinker, called this mindset “radical ingratitude.”
The absence of a real existential threat inspires self-flagellation, but there’s a larger context we should attend to. The inexorable advance of militant alienation and ingratitude seems likely to flip the polarities of American culture away from traditional goals like economic growth to something far darker and more conflictive.
America’s Censorship Regime Goes on Trial
Just last month, in what is likely to become a decision of historical significance, the Missouri judge denied the government’s motion to dismiss. In doing so, Judge Doughty recognized that federal government officials’ relentless pressure campaign to suppress the speech of Americans on social media that inconvenience the administration’s political agenda cannot be reconciled with the First Amendment. In the judge’s words, the “significant encouragement and coercion” exhibited by federal officials such as Flaherty “convert[ed] the otherwise private conduct of censorship on social media platforms into state action.”
It’s a lie, it’s a fabrication. This first surfaced with Bellingcat. Bellingcat is a front for British intelligence. That’s where the story first surfaced. Washington Post then picks it up and the Guardian then picks it up, on the same day. So this is a coordinated media strategy, this is a disinformation campaign. The documents are real. I’m not saying the documents are fabrications. But this cover story has been manufactured to explain how these documents came to be produced.
It just falls apart, it simply falls apart based on one document in that mix, which is listed as CIA Operations Center Report, Top Secret. I worked in the CIA Operations Center. I helped prepare those reports. That’s an internal CIA document. No one on a US military base anywhere in the world will have access to this kind of document.
Rationist No. 7: That extreme wealth concentration destroyed the Roman Republic
The main reason for the Republic’s failure is in retrospect clear: uncontrollable political factions arising from grotesque wealth concentration and extreme household insecurity. America’s founders understood the social consequences arising from these factors. The Romans themselves also came to realise that it was these effects which destroyed their republic in the end. As Dr. Lintott determined in his study of violence in republican Rome:
Roman writers after the collapse of the Republic were … united in believing that the operative factor throughout was a moral failure arising from the increase of wealth: this had led the governing class to seek riches and power without scruple, while at the same time economic inequality had made the lower classes desperate and ready for any crime against the state.
AGAINST CYBORG THEOCRACY—Review of Mary Harrington’s book Feminism Against Progress.
Harrington’s youth was formed by something we all recognize, but to which she gives one of the pithy names that fill her book — “Progress Theology,” the idea that mankind is progressing, through the adoption of principles of emancipation and egalitarianism, to an Omega Point of perfection. In pursuit of this goal, reality must and will be bent to our desires. The acolytes of Progress Theology believe that given utopia is just over the horizon, nothing can matter more than fueling the engine that will carry us to utopia — by forcing “the equal right to self-realization.” That is, every man and woman must live in a state of total autonomic individualism, the rejection of all bonds not continuously chosen. Then, and only then, we are assured, will mankind be happy.
What to do? Certainly not more of the same. “Trying to squeeze a few more drops of freedom from the rotting carcass of the industrial era is not going to help us abolish human nature.” (Sometimes, reading this book, one wishes for a conversation between Harrington and Ted Kaczynski.) Rather, we need to learn to live with who we are, who we always have been, and always will be. We need to base our flourishing on reality. “You’ve been lied to, [but] another life is possible.” Thus, we need reactionary feminism.
The Working Class Isn’t Down with the Green Transition
Critically, in terms of costs Americans would be willing to absorb to fight climate change, the survey finds that just 38 percent of Americans would be willing to pay even $1 extra on their monthly household energy expenses to combat climate change. That’s the lowest figure since AP-NORC started asking this question in 2016. It’s down 14 points since 2021 and an amazing 19 points since its high point in 2018.
NUTRITION SCIENCE’S MOST PREPOSTEROUS RESULT—Studies show a mysterious health benefit to ice cream. Scientists don’t want to talk about it.
The absurdity of “nutrition science.” Folks run statistics on garbage observational data and conclude whatever it was they already thought.
Could the idea that ice cream is metabolically protective be true? It would be pretty bonkers. Still, there are at least a few points in its favor. For one, ice cream’s glycemic index, a measure of how rapidly a food boosts blood sugar, is lower than that of brown rice. “There’s this perception that ice cream is unhealthy, but it’s got fat, it’s got protein, it’s got vitamins. It’s better for you than bread,” Mozaffarian said. “Given how horrible the American diet is, it’s very possible that if somebody eats ice cream and eats less starch … it could actually protect against diabetes.”
On balance of evidence then, we probably have to accept that there is a hormesis pattern for alcohol and health.
I suggest considering alcohol consumption as a longevity research topic the next time you argue about effective altruism. It would be very funny if health conscious autists were told to drink more by their doctors in order to live longer. One could get hi-tech about it with automated dispensers attached to the body (alcohol IV drop) that keeps the person at the right level of drunkenness.