J-Hole Week is Upon us, with Powell on Friday. In case you were wondering what Powell said there last year, check here.
Last week ended with stocks higher as retail sales, jobless claims, consumer confidence all were better than expected. Some optimism on progress on a middle east cease fire doesn't hurt either. Gold at record highs, might be a sign of a loss of confidence in the instituions that support or fiat currencies, or it might just be speculators feeding on speculators.
There are some narratives out there which are centered around how high rates are causing business uncertainty and harming the economy. That might be correct at some level, but to me it misses the bigger point that it is inflation that causes the most harm to business and interest rates rising has just been an attempt to quell the ultimate uncertainty which is inflation. Don't take my word for it, you can take Irving Fisher's as we discussed back here:
"Business is always injured by uncertainty. Uncertainty paralyzes effort, and uncertainty in the purchasing power of the dollar is the worst of all business uncertainties."
Speaking of Fisher, as I wrote back at the September 2023 FOMC meeting, Fisher believed tackling inflation as shared responsibility between the Federal Government and it's independent central bank. As it relates to deficits, he noted that “when a government cannot make both ends meet, it pays its bills by manufacturing the money needed” and further that “The government has an added responsibility when its own debts are involved. To borrow billions of dollars and then to depreciate the dollar is not even fair gambling. It is stacking the cards.”
Elon Musk apparently is a fan of the Fiscal Theory of the Price Level. If you want a refresher, this post from February on this blog isn't too bad. Feel free to search this blog for "Cochrane" and "FTPL"
On the week ahead:
Today: Waller, Leading Indicators, DNC starts
Tue: Bostic
Wed: Payroll benchmark revisions, FOMC Minutes
Thur: Jobless claims, S&P PMI's, Home Sales, J-Hole agenda released
Fri: New home sales and Powell at J-Hole
XTOD: For anyone who's interested, the macroeconomic theory Elon is espousing here is called the Fiscal Theory of the Price Level, or FTPL. It has been promoted by top economists Chris Sims, John Cochrane, and Michael Woodford, but remains a minority view.
XTOD: And if you want the FTPL history of US inflation, this is just fantastic: https://aeaweb.org/articles?id=10.1257/jep.36.4.125
XTOD: .@AtlantaFed ’s sticky price CPI (slow-to-change consumer prices) rose 3.2% on an annualized basis in July, following a 2.6% increase in June. Graph and track the index in FRED: https://ow.ly/VOaG50SZJQa
XTOD: My firm uses a model to forecast interest rates. She's terrible.
XTOD: Wow, @crampell pulls no punches in her appraisal of this proposal: https://washingtonpost.com/opinions/2024/08/15/kamala-harris-price-gouging-groceries/
"It’s hard to exaggerate how bad this policy is. It is, in all but name, a sweeping set of government-enforced price controls across every industry, not only food. Supply and demand would no longer determine prices or profit levels. Some far-off Washington bureaucrats would. The FTC would be able to tell, say, a Kroger in Ohio the acceptable price it can charge for milk. At best this would lead to shortages, black markets and hoarding, among other distortions seen previous times countries tried to limit price growth by fiat... At worst, it might accidentally raise prices."
XTOD: The return of economic idiocy is staggering and terrifying. Many things are debatable even if I or others may strongly differ. Tax rates are debatable. Transfer programs are debatable. Regulation is debatable (all within reason). But the return of politically driven idiocy that is not debatable, that history and theory have both proven destructive, is terrifying. Almost all economists of the left and right (not the extreme left and extreme right) would agree (though we haven’t heard the former economist Paul Krugman or any of his backup singers, the Krugtones, courageously speak truth to their own party about rent control of this latest asininity on price controls).
The current top 3.
1) Rent control — has destroyed whatever it has touched, and for clear obvious reasons. The left wants it everywhere and are finally poised to get it.
2) The “blame corporations” utter nonsense on inflation, and the plan to whip inflation now through price controls, is beyond ridicule. From Diocletian to Nixon, from theory to fact, it’s insane. The left is all in on it.
3) Tariffs and trade wars out of the past destroying a ton of prosperity for both us and our trading partners all to claim to have saved some jobs (generally in the industries we don’t really want, they always say “we don’t need cheap crap from overseas in exchange for American jobs” but we don’t want those jobs making “cheap crap” either — also involving “national security” here is almost always just a lie (almost)). This one is mainly from the right but Biden didn’t repeal Trump’s idiocy here and added his own, so the left has no real high ground and is poised to make it worse just not “as much worse” as Trump if they win.
We have a democratic candidate who is economically illiterate and just a far left hack, and a republican candidate who thinks lying about his crowd size is more important than articulating anything cogent.
It is very very bad.
Good morning.
XTOD: “It’s time you realized that you have something in you more powerful and miraculous than the things that affect you and make you dance like a puppet.” ― Marcus Aurelius, Meditations
https://x.com/Noahpinion/status/1824534607079063833
https://x.com/ProfJAParker/status/1824632282700775608
https://x.com/stlouisfed/status/1824934282969616570
https://x.com/EddyElfenbein/status/1824118461385056557
https://x.com/DavidBeckworth/status/1824226355934015698
https://x.com/CliffordAsness/status/1824425879084089618
https://x.com/Mythos_Man/status/1824933936277123491
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