Cullen Roche writes about macroeconomics, monetary policy, money mechanics, and investing, often disputing hyperinflation forecasts.
Commenters cite it to argue that quantitative easing is not necessarily inflationary, and to rebut hyperinflation claims, including on ShadowStats and Greece.
If you believe Shadowstats' figures, the US economy has been in a recession since 1988.[1] Even more hilariously, the price for a subscription to Shadowstats hasn't increased in the last 8 years of 'hyperinflation'.[2]
I wish people would realize they're a complete joke.
Some other fun quotes from the brain trust behind Shadowstats;
> (Feb 22, 2012) Gold to $8,890, Silver to $517 says John Williams of Shadowstats
When this prediction was made, Gold was at $1,775/ounce and Silver was at $34/ounce. 2.5 years later, Gold is down to $1,286 and Sliver is at $19.50. While Williams was very, very long, the price declined between 30% and 40%.
> (Oct 24, 2012) Economist John Williams says the latest round of “open-ended” QE has set the table for a global “dollar sell-off” and “hyperinflation” no later than 2014. Williams says, “There’s no way the consumer can fuel the economic recovery, and there is no way we’re going to see one in the near future.” Williams predicts, “The Treasury is going to have funding problems, and that means the deficit gets a lot worse.” [4]
The dollar is up 15% since then, inflation is still nonexistent, and the 2014 deficit is over $500 billion smaller than the 2012 one.
You'd be much better off taking financial advice from the Dogecoin guys.
[1] - http://www.washingtonpost.com/blogs/wonkblog/wp/2014/07/17/the-intellectual-cesspool-of-the-inflation-truthers/
[2] - http://pragcap.com/update-theres-still-deflation-in-hyperinflation-forecasts
[3] -…
I lean towards Cullen Roche's take:
> 1) ESG investing is more active investing that will increase the probability of lower future returns. […] I won’t regurgitate Larry Swedroe and Cliff Asness’s excellent work on this subject so I’ll just a [leave link here] and [here in case] you want to see the financial cost of this investing strategy. The short version is, these strategies underperform in theory and in reality, as expected.
> 2) The secondary market is a bad place to enact change. The intelligent defense of ESG is “by reducing the demand for a stock we can increase its cost of capital and impact its operating performance.” This is true to some degree, but I think this is dramatically overstated. For instance, the firms in the S&P 500 are all large established firms that have more than enough capital to finance their operations. They aren’t using the secondary equity markets to fund their operations. In fact, most firms have so much capital that they’ve been net buyers of stock in the last 50 years. So, this puts the cart before the horse. The better way to think of public companies is to think of them like horse betting. We can bet on the horses, but secondary market purchases are just private exchanges, not cash issuance to firms. As a result, betting on the horses doesn’t change the outcome of the race. Similarly, our secondary market purchases and sales have a far smaller impact on the firm’s operations than we might think.¹
> 3) ESG investing puts more money in…
I am aware of Simon Kuznets.
> As a counterpoint to your one example re: money supply and inflation, I would present the following: https://en.wikipedia.org/wiki/Hyperinflation#Notable_hyperinflationary_periods
People like to point out money supply/printing and inflation (cause of), but often fail to ask what caused the money printing in the first place:
* https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1799102
People don't 'run the printers' for funsies: there are usually extraneous reasons why it happens (including a good portion of what the US (and most other countries) recently experienced).
> Now think about that – did 6 different governments [including Weimar Germany], all within a 4 year time period [in the 1920s], and all bordering each other and/or in the same post WWI region and intellectual/political climate (with the seeds of the some of the farthest right and farthest left regimes in all of history within them that would lead to WWII just ~18 years later)—
> Did all of a sudden this little world region and precise time period and intellectual milieu decide to just start spending like crazy? At the same time? While the rest of the world did not?
> Or did they share the same underlying, and preceding, set of problems discussed above?
* https://clintballinger.com/2021/01/12/the-myth-of-hyperinflation/
* https://clintballinger.com/2019/05/24/the-autocorrelation-of-hyperinflation-about-7-events-not-58/
Further, in modern financial systems money is…
You are very much right in thinking this.
I lived through collapse and dissolution of one state, civil war, disintegration, and (belated) birth of a new state, with its own currency. The monetary aspect (hyperinflation in the old, change of currency in the new) is only a small part of that. You are correct - in that scenario, there are other things to tend to, more urgent.
I also witnessed that gold did not replace the collapsing currency. Other, non-collapsing currencies took on that role.
USD is safe and sound for as long US is safe and sound. The fiat currency is creation of the state. In collapse, I'd say causality goes 99% state->fiat. Only a small (2nd or 3rd order) effect in the opposite direction.
For the parent - "Hyperinflation – It’s More Than Just a Monetary Phenomenon" by pragcap.com
https://www.pragcap.com/hyperinflation-its-more-than-just-a-monetary-phenomenon/
reads right for me. Even general inflation (= increase in P/y) does not necessarily follow from the exchange equation (M V = P y) and money growth (M). There are other possibilities too, examples discussed in https://www.forbes.com/sites/johntharvey/2011/05/14/money-growth-does-not-cause-inflation/.
To end on a more upbeat note: I also witnessed the hyperinflation tamed, the economy booming, without seemingly much effort and in short period of time. Looking back, I think the most important part is the right diagnosis: where is it coming from. Otherwise the cures end up worsening the disease.
From the article: "Interest rates, already one of the fastest rising costs in the federal budget, will rise as the political crisis builds, because foreign borrowers will demand an additional risk premium."
Wrong. Interest rates will rise if the Federal Reserve raises interest rates. They will not if it does not. The Fed controls 100% of overnight rates and virtually all of the rest of the yield curve[1]: "as we went out on the curve the correlations remained very tight (FFR at 100%, 3 month at 97%, 1 year at 96%, 5 year at 91%, 10 year at 86%, 30 year at 87%). Even at the longest duration there is an 87% correlation between the movements of the Fed Funds Rate and the 30 year bond. In other words, the bond market is the Fed’s whipping boy. Not the other way around."
What the Fed does not control is the US dollar's foreign exchange rate. So it's entirely possible that debt ceiling worries will cause a weaker dollar. Paradoxically though, they might cause a stronger dollar since the government not issuing debt actually constrains the dollar supply. Sovereign finances are deeply weird, and global reserve currencies are too.
[1] https://www.pragcap.com/i-want-to-come-back-as-the-federal-reserve-you-can-intimidate-everybody/
This is a terrible article by somebody who obviously has no clue about the function of the treasury market and how it is managed in cooperation of the Fed and the Treasury.
The best status quo descriptions of how this market works tend to come from the Modern Monetary Theory school in economics. For a popular explanation, see e.g. http://pragcap.com/understand-the-modern-monetary-system/understanding-modern-monetary-system and certain chapters of this: http://www.neweconomicperspectives.org/p/modern-money-primer.html
As an additional benefit, the writing of the MMT people is enjoyably concrete and solid. When I read other sources on financial markets, I always feel as if the authors were describing some weird ununderstandable magic to me. Something that is not and should not be understood. MMT provides a refreshing alternative to that which seems to match up very well with all sorts of technical descriptions you can pick up from the Fed and Treasury itself.