rajan81_GRAEME JENNINGSPOOLAFP via Getty Images_jeromepowell

Economics

هل يبالغ الاحتياطي الفيدرالي في استجابته؟

Jan 24, 2023 Raghuram G. Rajan

شيكاغو ــ من الواضح أن بنك الاحتياطي الفيدرالي الأميركي عازم على خفض التضخم. لكن لا أحد يستطيع أن يجزم عن يقين إلى أي مدى سيكون لزاما عليه أن يرفع أسعار الفائدة الرسمية ــ وإلى متى سيتعين عليه الإبقاء عليها مرتفعة ــ لتحقيق هدفه. لذا، يتساءل كثيرون ما إذا كان الاحتياطي الفيدرالي ليتسبب في جلب الركود.

يتجه التضخم الآن نحو الانخفاض، ويرجع هذا جزئيا إلى حل العقبات في سلاسل التوريد، ولكن أيضا بسبب تزايد ضَـعف الطلب. وتسببت أسعار الفائدة الأعلى في تباطؤ المشتريات المنزلية، وبالتالي بناء المساكن. والتهمت أسعار السلع والخدمات المرتفعة ميزانيات الأسر وأعاقت الإنفاق الاستهلاكي. كما أدى النمو الهزيل في الصين إلى تراجع أسعار السلع الأساسية عالميا.

بيد أن الاحتياطي الفيدرالي غير راض عن الوضع الحالي. فهو يخشى أن الأجور لا يزال من الممكن أن تلحق بالتضخم ثم تدفعه إلى الارتفاع، إلى أن ينشأ بعض التباطؤ في سوق العمل الأميركية الملتهبة. آخر ما يريده الاحتياطي الفيدرالي هو أن يضغط على زر التوقيف المؤقت ليرى التضخم يرتفع مرة أخرى مع احتفال الأسواق المالية بارتفاع أسعار الأصول المالية، ليعود الطلب إلى الارتفاع. هذا من شأنه أن يجبر صناع السياسات على رفع أسعار الفائدة بدرجة أعلى ولفترة أطول. الواقع أن "الانتهاء من الأمر مرة واحدة" سيكون أفضل كثيرا للاقتصاد وسمعة الاحتياطي الفيدرالي من "القيام بالأمر على مراحل متكررة".

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0 Comments on this paragraph, 22 Comments on this article

vic lai Feb 2, 2023

In the coming years, both the US's pre-Covid near-zero-lower-bound policy interest rate and the Japan-like near-zero PCE inflation trend should not be resumed by the US Fed, because such a repeating trend in the future, ceteris paribus, will usually be accompanied once again by a secularly-stagnating real-economy and a debt-accumulation-accelerating virtual-economy year-in and year-out, since
(i) the country's virtual economy, based on unabated full (global) financialization, will continue to trump the country's real economy which fails to be invigorated by non-trivial real technological breakthrough in the foreseeable future,
(ii) the US federal government will have to become more and more indebted, to help lower or mitigate the increasingly precarious debt leverage of the US households and private corporations, and a greater and greater proportion of the resulting federal government's deficit-spending and remaining debts will have to be financed by the US Fed time and again.
And so, the US dollar will continue to be non-trivially debased by the new-money-printing Fed, hurting more and more the US Dollar's global hegemony and Bretton Woods II, and
(iii) the resulting aggravating wealth and income inequalities, as a result of the continued dominance of Capital over Labor, will lead to more and more serious populist political backlashes and bipartisan political conflicts in the country.
---
But ceteris isn't paribus.
The US’s coming re-shoring and re-industrialization strive, coupled with a more and more entrepreneurial federal government (financed suitably by the Fed’s non-inflation-causing new money-printing) which will much facilitate the sooner arrival of the 4th Industrial Revolution in the US, will once again reinvigorate the country’s real economy relative to her virtual economy.
The resulting manufacturing-based and Fordism-like fast and non-trivial rise in the average real income of the US workers will create a lower and lower average debt level incurred by the US households and private corporations, which, together with the resulting bigger and bigger government tax revenues year-in and year-out, will stabilize or even reduce the average government-deficit/GDP and remaining-federal-debt/GDP ratios in the coming years.
The Fed will then no longer have to print more and more new money to finance the federal government, the US dollar will no longer be debased continuously, the US’s global financialization can then securely continue unabated, and the current global financial status of the US as the world’s most profitable “hedge fund” can be sustained far into the future.
In short, the US can continue to lead the rest of the world both technologically and financially (and hence geopolitically) in the rest of this century.
---
- vic lai Feb 2, 2023
  
  Brazil's central bank maintains her Selic Target Rate at the highest 13.75% level for the following 3 meetings near the end of last year, which is now 2.5 times her current CPI inflation rate.
  "The board will maintain its strategy for a longer period to ensure the convergence of inflation, while won't hestitate to resume the tightening cycle if the disinflationary process does not proceed as expected."
  Will the US Fed do something similar in her coming rate-stop-hiking cycle ?
  ---
  The US historical financial data show that, while the US Fed's interest-rate-hiking cycle was (mostly) started due to the rise of the country's inflationary pressure, her interest-rate-reducing cycle started only when there's a market crash ------ not when the country's inflationary pressure started to subside.
  Which means, short of a crash in say the US's stock markets, as is currently shown by the latest behavior of Brazil's central bank, the US market led by the Wall Street may be prematurely and too-optimistically expecting the proximate arrival of the US Fed's coming rate-pivoting cycle, unless the coming behavior of Powell's Fed is once again politically dictated by the country's every-4-year Presidential election cycle.
  ---
  - vic lai Feb 4, 2023
    
    The fact that, in the good old days, the Fed's policy interest rate can proactively be manipulated up and down to any level she sees fit to affect the country's yield curve and many other interest rates, has been based implicitly on the global hegemony of the US dollar.
    The economic jargon to express the above is that, the US has been the only country on this planet that can still sit comfortably and persistently at the international-trade Impossible Trinity of
    (a) free capital flow,
    (b) flexible exchange rate, and
    (c) truly independent interest-rate (or monetary) policy.
    In other words, the US has still been able to "print" more and more new US dollars and so to keep her interest rates at any low or near-zero-bound level she sees fit, without (much) depreciating the US dollar in the global FX market, despite free capital flow into and out of the country, provided the country's domestic inflation doesn't (much) shoot up, thanks to the US dollar's global hegemony and exorbitant privileges.
    ---
    But if the US authority keeps
    (i) debasing non-trivially the US dollar, say through too-fast and significant expansion of the Fed's balance sheet by the Fed's "printing" too much new money to help finance the US Treasury's quickly-increasing deficit spending of all kinds year-in and year-out, and
    (ii) weaponizing the US dollar against her unfriendly countries, through various US-dollar-related economic sanctions and through the restriction of foreign countries to use the SWIFT system,
    then the ongoing global trend of diversification of the world's accounting, transacting, and reserving currency away from the US dollar will intensify and accelerate, forcing the Fed's policy interest rate to switch from being a controllable exogenous variable to more and more an uncontrollable endogenous variable, and so the US Fed will no longer be able to keep most of the country's interest rates perennially at any (low) level she sees fit.
    ---
    More and more competing major foreign currencies will crop up in the coming decades to fiercely compete with the US dollar all the time, forcing the US to have to give to the foreigners higher and higher interest rates before they will keep using the US dollar as their main currency for their international transactions of all kinds and their abode of future purchasing power.
    Which means, the US will find out that it will become increasingly difficult for her to keep arbitrarily debasing her own currency in the future, and persistent foreign currency competition will force the US to become more and more "honest" so far as new money printing in the country is concerned.
    ---
    - vic lai Feb 4, 2023
      
      While further technological revolutions in this century, resembling those in the 19th century in Europe, will be deflationary and so will further reduce the average production costs and hence selling prices of many merchandizes consumed by the average households in most countries in the future, another revolution has similarly been progressing but which has seemingly received much less attention from the western DM countries ------ the current slowly-evolving global-supply-chain revolution will similarly (much) lower the average inflation rates in the goods sectors of those countries.
      If really so, the Fed and many other central banks in the world are going to have much easier inflation-fighting jobs (or to have more deflation-fighting jobs) in the rest of this century, and their coming average policy interest rates can mostly be maintained at a relatively low level in the future, unless their central governments keep deficit-spending too much year-in and year-out despite their overheating domestic economies.
      ---
      In the long term, thanks to further advancement of the world's internet direct-selling channels currently most actively being propelled by China, which are bypassing the good old traditional merchandise-selling global-supply-chains channels well established by the western world in the past 4 centuries, the average inflation rates in the goods sectors of many countries under the sun will further be lowered, thereby increasing the average real income of most of the merchandize-consuming households there.
      China's such newly-developed merchandize-direct-selling channels (through the help of her say TikTok, TaoBao, and Kwai cell-phone platforms, together with her highly-convenient WeChat and Alipay apps) can send much cheaper and quality-sustained merchandizes from her country's own factories much more directly to the ultimate consumers in most countries on this planet, by circumventing the otherwise highly-profitable wholesale and retail middlemen of all kinds in the West's good old global-supply-chains networks.
      More and more Chinese world-famous brands will crop up to compete with or replace their western counterparts in the foreseeable future.
      Both the merchandizes' innovating and design jobs, and their most important and profitable global selling channels, will be more and more constructed, maintained, and controlled by China.
      China's coming global-supply-chain reformation will probably need the assistance of her own to-be-well-developed global financial network based mainly on perhaps her CBDC (which may interact more and more with many other countries' own CBDCs).
      ---
      Since the good old business models of many of the US's retailing giants (like that of Amazon and Walmart) will be much damaged, and those retailers will become much less profitable than before as a result, the current and future US administrations will be doing whatever it takes to stop or slow down the further progress of China's coming "reformation" of the ongoing global supply chains controlled mostly by the western DM countries.
      ---
      - vic lai Feb 5, 2023
        
        According to wiki,
        "Shein is a Chinese online fast fashion retailer.
        Shein, originally named ZZKKO, was founded in 2008 by Chris Xu in Nanjing, China.
        The company is known for its affordably priced apparel.
        In its early stages, Shein was considered more of a drop shipping business than a retailer.
        In its early days, the company was not involved in clothing design and manufacturing, and instead obtained its products from the wholesale clothing market in Guangzhou.
        It was not until 2012 that Shein began to acquire its own supply chain system, transforming itself into a fully integrated retailer.
        The company has established its supply chain in Guangzhou with a network of more than 3,000 suppliers.
        Based in China and shipping across 150+ countries, Shein is the world's largest fashion retailer, as of 2022.
        The company was valued at $100 billion after a funding round in April 2022.
        According to Bloomberg Businessweek and others, Shein's business model has benefitted from the China–United States trade war."
        ---
        
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      - vic lai Feb 5, 2023
        
        After Plaza Accord I enacted in 1985, the resulting massive appreciation of the Japanese yen relative to the US dollar and many other currencies had created a "beautiful" virtual-economy bubble in Japan in the late 1980s, enabling the lucky Japanese then to buy out the US (like the US's high-tech manufacturing companies, well-known downtown properties, innovative ICT enterprises, world-famous great paintings, and even art galleries and golf courses, not to mention some of the western women in Japan) and the rest of the world.
        Unfortunately, the then central banker of Japan had "mistakenly" chosen to deliberately pop the beautiful property and stock market bubbles in the country in the early 1990s, and the rest is painful Japanese economic history.
        ---
        If the current healthy wage-rising labor-market trend in the US remains in the future, the Goldilocks-like economic environment sustains, and the US's inflationary pressure keeps subsiding and doesn't deteriorate, then it's a good idea for the US Fed to learn from the Bank of Japan's past mistakes, by choosing
        (a) to maintain her current relatively-tight immigration policy,
        (b) not to sustain her higher-for-longer interest-rate and tightening QT policies for too long a period of time, and so
        (c) not to pop the ongoing "beautiful" everything-asset bubble in the country, so that
        (i) the ongoing everything-asset bubble can be sustained for a long period of time,
        (ii) the US can keep buying out the rest of the world in the foreseeable future, and
        (iii) the resulting positive wealth effect from the country's booming virtual economy can both re-invigorate most of the country's retirement schemes for the baby-booming retiring and going-to-retire populations and maintain the US's status as the world's consumers of last resort (and so help sustaining the US dollar's global hegemony).
        ---
        
        vic lai Feb 7, 2023
        
        As of Monday, Fed 6, 2023, there's still a whopping 2.07 trillion dollars of short-term fund parking at the Fed's O/N RRP account, confirming the US central bank's status as the US's (or the world's) borrower of last resort in the local (or global) short-term funding markets.
        So, the "new-money-easily-creating" Fed keeps borrowing 2 trillion dollars of non-spending "old" money every day from the market, enabling the MMFs and other eligible savers to automatically earn higher and higher interest revenues from the Fed's ongoing higher-for-longer rate-hiking cycle, when all the money sitting idly at this saving account is contributing nothing to the country's real economic activities.
        This is as ridiculous as the current situation of China's Huawei, the pioneer of our world's 5G cell-phone technology ------ this Chinese company's recently-produced cell phones have never been able to provide 5G services to their phone-users.
        ---
        There's been nothing wrong with the Fed's such borrow-of-last-resort facility per se, which has just been a symptom of the main underlying disease.
        What's actually been wrong or abnormal should have been
        (i) the US's short-term funding market itself, in which the market's excess savings can no longer be channeled to the most efficient uses say in the country's highly-innovative ICT and other technology and new-energy sectors, or rather,
        (ii) the Fed's current policy-interest-rate-setting mechanism dictated by the interest-rate-corridor, which is upper-bounded by the IOR and lower-bounded by the O/NRRP rate, in the persistent post-GFC QE-induced excess-bank-reserves financial environment up until today.
        ---
        My feeling is that the Fed should go back to the good-old pre-GFC (and pre-QE) Open Market Operation (OMO) policy-interest-rate setting mechanism, by turning the (hopefully) increasingly entrepreneurial US federal government into the country's borrower of last resort in the Fed's resumed (non-collateralized) federal funds lending-and-borrowing market, by eliminating outright
        (a) the current QE-induced too-much-banking-reserves environment once and for all, through the Fed's ongoing unabated QT cycle, and
        (b) the interest-rate-corridor just mentioned.
        ---
        
        vic lai Feb 8, 2023
        
        Regarding the Fed's dilemma of practicing higher-for-longer or pivot-starting interest-rate policy in the near future, there seems to have been a certain tug of war between the Fed and the US market represented by the Wall Street.
        Today's always-dovish US market, contrary to the relatively-hawkish Fed, mostly wants a much faster rate cut performed by the Fed in the rest of this year, because many of their highly-leveraged bond investments, relative to the stock and other more risky financial investments in their portfolios, have always been extremely sensitive to even a small change in the market's interest rate guided by the level of the Fed's up-or-down policy interest rate.
        ---
        I mean, the extremely low or close-to-zero-lower-bound interest rate economic environment in the US in the past 15 years since the GFC of 2008, caused and maintained by the Fed's 4 rounds of QEs, have much increased the average debt leverage of the Wall Street's profit-maximizing investment firms of all kinds, which as a result have become much more sensitive to the level of the policy interest rate set by the Fed than in the pre-GFC non-QE years.
        ---
        Which means, owing to the QE-induced downward-bias preference of many Wall Street investment firms regarding the level of the Fed's policy interest rate, the Fed's inflation-fighting rate-hiking cycle in the future, if any, will always be disliked and resisted by the market, thereby hampering the central bank's inflation-fighting mission, which usually takes both a rather high terminal policy interest rate and quite a long time to fully accomplish (especially if the inflation-fighting experiences of the Fed in the 1970s is any guide).
        ---
        Continued non-trivial QE policies in the US in the future
        (i) will keep flooding the US money market with excess bank reserves,
        (ii) will keep requiring the Fed to sustain the current interest rate corridor near the zero lower bound if the country's inflationary pressure is mild,
        (iii) will in turn keep encouraging or force many of the Wall Street investment firms to much increase their average debt leverage in order to be able to maximize their future returns, and so
        (iv) will much increase the chance of the arrival of a new Minsky Moment and hence an eventual breaking-out of a new financial crisis in the US.
        ---
        This provides us with one more convincing reason to suggest that the Fed should switch back to the good old OMO mechanism in the interbank money market in determining and controlling the level of the central bank's policy interest rate and hence the position of the riskless treasury yield curve in the US.
        ---
        
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vic lai Jan 31, 2023

Perhaps twenty or thirty years from now, we'll all witness a global economic world very different from today's.
---
Thanks to further development of digital computerization, most parts of most manufacturing components and final products will all be made by most advanced 3D printing techniques, automatically assembled and packaged by AI robots and fully-automated machines and assembly lines, and delivered to our homes by pilotless drones and driverless autos.
Manufacturing offshoring will no longer be needed by most importing countries like America, trade globalization is no longer the norm on this planet, and the Global Supply Chains will truly wither.
The ongoing Eurodollar market will also wither, or will be co-existing with many globally-circulating CBDCs newly issued by the dominant central banks of both the DM and the EM countries.
Bretton Woods II will be co-existing with, supplemented or replaced by, Bretton Woods III.
China, today's World Factory, will no longer be the main centre of the withering Global Supply Chains under the sun.
The populist anger of the newly-displaced manufacturing blue-collar workers in America and elsewhere then will be redirected from China back to America's Silicon Valley, which keeps helping in the development of the world's most advanced 3D printing, AI-guided full automation, and robot manufacturing technologies.
Many white-collar workers in many DM countries will also find themselves more or less redundant, given the further advancement of the world's AI technologies (like today's ChatGPT).
---
- vic lai Jan 31, 2023
  
  Today, before America's manufacturing-reshoring (or her digital re-industrialization strive) is fully completed, with or without the ongoing global pandemic, expansionary monetary and fiscal policies in America (and even the Fed's more extreme QE programs) cannot really help, when the major problem is that many American jobs have been relocated offshore.
  Because of offshore production, stimulating demand in America stimulates production in China and other net-exporting offshore sites.
  As high-productivity jobs have been offshored, American incomes, except for the super-rich, have ceased to grow (quickly), requiring them to incur more and more debts to maintain or raise further their original consumption level or living standard (say through the use of house-equity refinancing), making the American economy more and more prone to financial crises.
  ---
  Thus, in America, there is no effective way to boost consumer spending short of printing money and giving it to the population, or handing out tax rebates accommodated by monetary expansion.
  That means, the hotly-debated "deficit monetization" (which formally should mean the buying of the Treasury's newly-issued bonds by the Central Bank in the primary market) is still needed by today's America.
  The ongoing runaway inflation in the US shows vividly that debt-monetization by the Fed can be performed once in a while or even time and again, especially given the unabated vigor of US Dollar global hegemony, but every time it's done its scale can't be too big.
  ---
  - vic lai Jan 31, 2023
    
    America could reduce the federal government's budget deficit by hundreds of billions of dollars by ending its pointless and illegal wars, by closing hundreds of overseas military bases, and by cutting an overstuffed and rent-seeking military budget.
    This would require America to give up its goal of world hegemony, but now that America’s foreign creditors have seen its aggressiveness, and this aggressiveness shows signs of turning further toward China and Russia, the country's foreign creditors (like China) are unlikely to continue financing American militarism.
    In the absence of foreign "financing" of American deficits, or of sufficient foreign savings to cover annual American budget deficits in excess of one trillion dollars, the Fed would have to monetize the American government deficit by purchasing the bond issued by the federal government.
    ---
    The Fed's coming debt monetization in America will result in high rates of real-economy CPI inflation in the country ONLY IF
    (i) another non-trivial global pandemic suddenly breaks out, causing once again massive disruptions to the global supply chains, especially if it's also accompanied by a global energy and food shortage resulting from the sudden breakout of another persistent local war somewhere on this planet,
    (ii) there's no more excess productive capacities in America and the country is near full employment,
    (iii) America's virtual-economy asset markets (like her property and stock markets) are persistently suppressed by the federal government, and so virtual-economy inflation is insignificant,
    (iv) most American offshored companies now in the foreign countries have been relocated back to America so that the country's imports leakage is no longer significant,
    (v) the US Dollar loses her global hegemony.
    ---
    For the foreseeable future,
    (i) will not be likely,
    (ii) may subside over time, especially if America's immigration policies are re-invigorated,
    (iii) is not likely in corporate America, and
    (iv) and (v) will take a rather long time to fully complete,
    and so the Fed's continuous debt or deficit monetization in America in the coming years should present no serious inflationary problem for the country as a whole.
    Which means, after the current inflation genie has been put fully back into the bottle by the Fed (together with perhaps a new bout of economic recession in the country), America's current Goldilocks-like economic environment can be maintained for a rather long time in the coming years.
    ---
    - vic lai Jan 31, 2023
      
      Contrary to the claim of neoclassical economics, low (long-term) interest rate doesn't really cause high stock prices.
      ---
      The US market, represented by the Wall Street, is now widely expecting the US Fed to quickly start pivoting her higher-for-longer interest-rate policy, in the main hope that lower interest rate in the market will cause higher stock and other financial asset prices.
      But actually, both phenomena ------ low(er) interest rate and high(er) stock prices ------ are caused by a relatively lax overall credit or liquidity environment in the US's macroeconomy, especially in each of the immediate periods following each of the Fed's 4 rounds of QEs in the past 15 years since the GFC of 2008, which, according to Howard Marks, is actually an abnormally very-easy rather than a normally quite-difficult (stock) investing period.
      Like real-economy inflation, virtual-economy inflation is similarly mainly caused by too much money chasing too few available financial assets.
      ---
      Which means, without also a non-trivial relaxation of the credit or liquidity environment in the US created mainly by Powell's Fed for whatever reason in the near future, even if the central bank starts pivoting this Wednesday (February 1, 2023), there'll likely not to be a new sustainable booming stock-market or financial cycle in the country in the near future.
      ---
      - vic lai Feb 1, 2023
        
        According to a latest Chinese article in Britain's Financial Times, the US's persistent low-interest-rate environment ever since the "Clinton Prosperity" in the 1990s (which had mainly been caused by our world's another non-trivial technological revolution based on the internet technologies), especially in the past 15 years since the GFC of 2008 thanks to the Fed's 4 rounds of QEs, can also be regarded as a rather long period of slow and small real technological breakthrough or development, during which the massive savings of the country can longer be channeled effectively to the country's new real-economy investment opportunities.
        The result had been that the good-old high rate of investment returns during the technology-breakthrough period could no longer be maintained, since the next round of non-trivial technological breakthrough in the real economy is still inside the bottle, and the subsequent low rate of return in the real economy was followed by the Fed's interest-rate cutting, prompting or forcing the country's real-estate sector to act as the country's investment channel of last resort, and hence we have witnessed
        (i) the eventual popping of Japan's real-estate (and stock) bubble in the early 1990s following Japan's enactment of the Plaza Accord in 1985,
        (ii) America's GFC, caused by the popping of the country's subprime mortgage bubble in 2008, and
        (iii) the recent de-facto popping of China's decades-long real-estate bubble in many of her urban cities.
        ---
        Financially, the persistent lack of non-trivial global real technological breakthrough was also reflected by the persistent lack of investible safety financial assets (like the US's almost risk-free government treasuries) in the global economy, during the low-interest-rate and secularly-stagnating period just mentioned.
        And so, the world's clever financial markets eagerly tried to create new quasi-safety financial assets, usually through the help of the countries' low-interest-rate-boosted booming real-estate markets, to substitute for
        (i) the lack of genuine and pristine safety financial assets (like the US's government treasuries) on this planet, and
        (ii) the lack of technological investment opportunities in the world's real economies.
        ---
        Which means, to keep the Fed's policy interest rate and the US yield curve at a relatively healthy higher level (with positive real interest rate) in the coming years, our world sorely needs another non-trivial global technological breakthrough (the 4th Industrial Revolution on this planet), which in turn will have to be patiently nurtured and financed also by the hopefully increasingly entrepreneurial central governments in the world's major countries.
        ---
        If the above is not too far from the truth, it means that the
        Fed's coming pivoting cycle (if any or if realized), which is now being highly craved for by the country's virtual economy and which will return both the Fed's policy interest rate and the riskless treasury yield curve back to a much lower or even near-zero-bound level (with near-zero or negative real interest rate), simply reflects the fact that
        (a) the world's 4th-Industrial-Revolution Godot still hasn't arrived yet,
        (b) the US has mostly succeeded in suppressing the coming fast development of China's highly innovative technology companies (like Huawei).
        ---
        
        vic lai Feb 1, 2023
        
        After the dissolution of the USSR Empire in the early 1990s, many US scientists and engineers from the U.S. Department of Defense were subsequently employed by the Wall Street, some of whom ended up inventing many new quasi-safety financial assets which were highly complicated and which tried to imitate the highly-demanded but always-insufficient US government treasury securities, to try to mitigate the shortage of such safety assets always craved for by the formal and shadow banks of both the US and the rest of the world, like CDO-squared.
        But those quasi-safety financial assets were not genuine substitutes for the most pristine and almost riskless US government treasuries, and the result was the GFC of 2008-09.
        ---
        This time around, many employees in the US Silicon Valley are currently also being laid off en masse, will some of them be employed once again by the Wall Street later in this decade to then create another GFC say in the 2030s ?
        ---
        
        vic lai Feb 1, 2023
        
        According to Bob Prince, going back to the 1970s, Germany did the then inflation-fighting job only once, and it's done.
        In the early 1970s, when fighting domestic inflation, Germany put the hammer down, peaked the country's spending and bond yields, and stabilized the German currency.
        Every other country had had 3 inflation-fighting cycles : tightening, easing, tightening, easing, and then tightening once again, and they didn't peak the bond yields in the late 1970s.
        So, the tradeoff for a country's inflation-fighting job is almost always more pain now, or milder pain drawn out over time in multiple cycles.
        ---
        Today's optimistic US financial market led by the Wall Street is seemingly expecting a Germany-like single boom-bust inflation-fighting cycle for the US economy in the coming years, with only relatively mild pains.
        ---
        Will this time be different ?
        ---
        
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vic lai Jan 26, 2023

According to Peter Fisher, the inverted US risk-free treasury yield curve, instead of being a predictor of the coming recession in the country, is actually (more) a cause of the country's coming economic recession, because it's always been squeezing the country's marginal lenders.
When the yield curve gets flat or inverted, the incentive to lend decreases, many commercial banks and other lenders want to stop lending, and that slowly dries up the source of credits of the economy.
Afterall, America's "Capitalism" has now been transformed into "Creditism," and hence the country always relies on sufficient credit growth to sustain the healthy non-recessionary running of the domestic economy.
Since there's almost always a variable time lag, it's hard to predict exactly when the coming economic recession will happen.
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This time is really different, thanks to the Fed's 4 previous rounds of QE programs since the GFC of 2008.
This is because, after the higher-for-longer highest terminal rate has been reached by the tightening Fed perhaps in the first half of this year, the central bank can then use yield curve control to push up the long end of the yield curve, by selling outright longer-term government treasuries in her balance sheet back to the market in the ongoing non-stop QT cycle, which will both shrink the central bank's balance sheet and un-invert the yield curve to a certain extent.
Also, at the same time, the US Congress's coming debt-ceiling restriction can suitably be relaxed to allow the US Treasury to issue much more longer-term treasuries to the market, in order to
(i) help un-invert the yield curve, to mitigate the coming recessionary pressure of the US economy,
(ii) induce the market's excess liquidity (currently being idly held in both the commercial banks' deposit accounts and the Fed's O/N RRP account) to go to the Treasury's TGA account in the Fed's balance sheet, to help reduce the remaining inflationary pressure in the domestic economy,
(iii) finance the US federal government's large-scale human and non-human real investment projects of all kinds spread out evenly in the coming 10 years, with the aim of transforming the US into a genuine "entrepreneurial state," thereby hopefully leaving China behind in the coming Thucydides-Trap-like Marathon Race between the 2 countries.
---
In the long run, as time goes by, with the bigger and bigger re-development of the US real economy,
(a) more and more science and engineering graduate students will be serving the needs of the US's re-industrialization strive,
(b) more and more US urban and farming households can enjoy non-SpaceX 5G or 6G services,
(c) more and more carbon and non-carbon energy will be serving the increasing domestic energy needs of the country, and the surplus energies can be exported to the friendly ally countries,
(d) the US people can more quickly and conveniently commute to different parts of the country using her newly-constructed high-speed rail network,
(e) the US auto-drivers can drive along more and more newly-built safer and faster high-speed expressways,
(f) most obsolescent infrastructure facilities of the country will have been replaced, renovated, or upgraded,
(g) the economic productive potential of the US will be fully released,
(h) the GDP growth of the country will accelerate,
(i) the tax revenues of the US federal and local governments will much increase,
(j) the sustained and healthy increased income of the US households will lead to more merchandise net-imports from the other countries, sustaining the US's deficit current account year-in and year-out, enabling the US to keep acting as the world's consumers of last resort,
(k) the US federal government can keep deficit-spending en masse say to finance her global military force, through the issuance of more and more US treasuries which will keep acting as the most pristine collaterals in the Eurodollar markets, thereby sustaining US Dollar global hegemony in the rest of this century.
---
- vic lai Jan 28, 2023
  
  According to Big-Short Michael Burry's no-longer-deleted Twitter,
  "Inflation peaked. But it is not the last peak of this cycle.
  We are likely to see CPI lower, possibly negative in 2H 2023, and the US in recession by any definition.
  Fed will cut and government will stimulate.
  And we will have another inflation spike.
  It's not hard." (Jan 2, 2023)
  Also, according to him,
  "Velocity is nominal GDP/Money Supply (M2 here).
  QT + higher rates starting to push M2 down.
  Yet we are seeing a tick up in velocity, emerging from narrative obscurity.
  In 1978-79, rising velocity trumped falling money supply to drive inflation higher and higher.
  Redux would shock." (September 28, 2022)
  ---
  Recently, US M2 money supply has kept its relatively fast falling trend since February 2021, reaching the latest negative growth rate of -1.31% in December 2022, while the Velocity of M2 Money Stock kept rising throughout the 4 quarters of last year.
  If these two opposite trends persist, followed by the Fed's widely-expected rate-pivoting policies starting perhaps sometimes in the second half of this year to fight economic recession in the country (say to help cope with the Presidential election in 2024), a second round of peaking inflation may similarly emerge in the US, as in the 1940s and the 1970s, ultimately requiring Powell's Fed to re-start her monetary tightening cycle once again.
  The time span between the Fed's coming start of rate-pivoting and her following rate-tightening cycle to fight the second round of peaking inflation in the US presents another golden chance for the US stock-market investors to make a fortune in that market.
  Recently, the good performance of the US stock market has already been reflecting cleverly this new golden stock-market investment opportunity.
  ---
  Well, only the no-longer-our-friend inflation-fighting Fed can evaporate this golden money-making opportunity, if the central bank this time chooses not to pivot this year, but instead maintains her ongoing higher-for-longer rate-hiking and QT cycles for a suitably long enough time to fully put the US inflation genie fully back into the bottle once and for all, the recessionary results so created by the central bank (if any) will obviously be both economically correct but politically incorrect.
  ---
  - vic lai Jan 29, 2023
    
    The Velocity of M2 Money Stock in the US, at 1.191 in Q3 2022 (the latest available figure), is yet to recover to its normal pre-Covid level of around 1.45.
    "Typically during recessionary periods, as individuals shift from consumption to saving, the velocity of M2 money stock decreases, as seen in early 2000s and throughout the 2008 financial crisis."
    The persistent below-trend (less than 1.20) of the US's M2 Velocity ever since the breakout of the pandemic in the country in Q1 2020, should already have plunged today's US economy into a non-trivial economic recession, but today's seemingly tepid recessionary pressure in the US is instead the case, showing that the excess Covid liquidity from both the Trump and the Biden administrations has still been helping to prevent the recessionary genie from fully escaping out of the bottle.
    ---
    "M2 Money Stock includes all currency in circulation (M1 Money Stock) and also various savings vehicles like savings accounts, money market funds and CDs."
    Without the Fed's O/N RRP account, which currently is storing more than 2 trillion dollars every day there (thanks to its risk-free and higher and higher interest rate as a result of the Fed's ongoing higher-for-longer rate-hiking cycle), the US's Velocity of money circulation, and hence the country's CPI (and asset-market) inflation, would have been much higher.
    ---
    - vic lai Jan 29, 2023
      
      If the coming US CPI inflation statistics fail to drop further as widely being expected by the optimistic market, or even climb back up, then they're likely to be caused by some or all of the following.
      ---
      (i) The current runaway inflation in the US needs to be more or less completely stamped out by at least a positive Fed policy real interest rate, which is currently not yet realized in the country.
      (ii) The US's Velocity of M2 Money Stock is persistently rising back to its say more normal pre-Covid average level, even though the country's M2 money supply growth rate keeps on falling quite rapidly in recent quarters.
      (iii) the US debt-ceiling fiasco continues unabated until June this year, forcing the US Treasury to further release more and more liquidity currently stored in the Fed's TGA account into the US domestic economy in the coming 6 months.
      (iv) The market's Fed-pivot-expecting optimistic psychology keeps on supporting the country's everything-asset bubbles, especially that of the stock market, thereby sustaining the positive wealth effect on the country's relatively strong consumer spending and hence job vacancies in the foreseeable future.
      (v) The US dollar sustains its current weakening trend in the global FX markets, thereby importing more and more inflationary pressure back to the domestic US economy.
      (vi) The monetary-tightening cycles of both the ECB and the Bank of Japan will be weaker than expected in the near future (say for domestic recession consideration), thereby tempering the ongoing trend of global carry-trade unwinding, and so causing less US dollar liquidity to keep net-flowing out of the US.
      (vii) The US Fed's ongoing QT cycle doesn't persist according to schedule, and fails to achieve its maximum treasury-selling set monthly target in the coming months (say owing to the sudden breaking out of a non-trivial global credit event somewhere on this planet).
      (viii) The US starts switching from depleting the country's oil reserves (to help fight domestic inflation) back to replenishing it (say for the country's military safety), thereby keeping bidding up the global oil prices in this year.
      ---
      - vic lai Jan 29, 2023
        
        In the good old days, Fordism prevailed in the US, during which a virtuous cycle of mass production and mass consumption had been reinforcing each other, leading to persistently high income growth of the workers working in the manufacturing industries of the country.
        The manufacturing sea-tide of the country went on to lift all boats along with it, and hence kept bidding up commensurately the average wages of the US workers working in the country's service sectors as well.
        ---
        But US's manufacturing off-shoring and hence de-industrialization in response to the world's globalization strive on steroids in the past decades had ended up killing Fordism in the country.
        US economic growth therefore faltered.
        When this happened, the solution of Alan Greenspan, the Federal Reserve Chairman at that time, was to substitute an expansion of consumer debts for the missing growth in consumer income.
        Greenspan's lead was followed by the subsequent Chairs of the Federal Reserve.
        The problem with his solution was that the growth of consumer debts was limited by consumer income.
        When the debt couldn't be serviced, it couldn't grow.
        Moreover, debt service drained income into interest and fee charges, further reducing consumer purchasing power.
        ---
        As a result of the US Fed's low-interest-rate financial repression, many listed US corporations were buying back their own stocks, or paying handsome dividends to their shareholders, instead of real investing, thanks to the persistently very-low-borrowing-cost environment of the US domestic economy.
        ---
        Also, the US federal government's interest expenses, as a result of her quickly growing fiscal deficits and debts year-in and year-out, particularly in the years following the breakout of the pandemic in the country, are growing bigger and bigger when the country's low-interest-rate environment is disappearing.
        ---
        As a result, past Capitalism in the US has mostly been replaced by today's Creditism, which requires the US Fed to keep her policy interest rate mostly at a low-enough level, so that the more and more indebted US can keep acting as the world's consumers of last resort.
        Hence the US market's current widespread urge for the Fed's coming pivoting interest-rate policies, which may disturb the Fed's full completion of her current inflation-fighting job.
        ---
        
        vic lai Jan 30, 2023
        
        In the past, given the disappearance of Fordism, many US consumers increased their spending through their increased incurrence of consumer debts financed mainly by the country's commercial banks, real-estate-lenders and other lending entities in the country, so that their past high living standard could be maintained.
        After the breaking out of the global pandemic in early 2020, the Fed's latest round of unlimited QE, aiming to fight economic depression at that time, has ended up also financing the US consumers' spending, but without requiring them to incur additional debts themselves, thanks to the federal government’s lavish stimulus checks given to them.
        ---
        But there's no free lunch, since the US consumers' non-debt-incurring spending spree this time around (which has also released the inflation genie out of the bottle) has been possible (and hence their past living standard can be maintained) only when their otherwise additionally incurred debts have mostly been transferred to today's more-and-more-indebted US federal government, which in turn has to be financed in the coming years either by
        (i) higher and higher taxes imposed on the US consumers,
        (ii) lower and lower government expenditures spent on them,
        (iii) higher and higher inflation tax on the US consumers, if the Fed keeps monetizing the federal government's deficit spending en masse, even if there’ll be no more disruptions of the global supply chains and any war-induced global energy shortage.
        ---
        If option (iii) is mainly chosen by the US authority in the future, the coming continuous debasing of the US dollar, coupled with the US's weaponization of her US dollar against her enemy countries, will keep on hurting non-trivially the US dollar's global hegemony and hence Pax Americana, and will invite other competing foreign currencies to try hard to dethrone the US dollar in the rest of this century.
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