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Economics

المستقبل يحمل لنا المزيد من تعقيدات التضخم

Feb 9, 2023 Mohamed A. El-Erian

كمبريدج ــ بعد ما يقرب من العامين منذ بدأت نوبة التضخم الحالية، بدأ مفهوم "التضخم العابر" يعود مع انحسار صدمات العرض المرتبطة بجائحة مرض فيروس كورونا. يأتي هذا في وقت حيث بات من المهم للغاية الحفاظ على عقل منفتح بشأن مسار التضخم، بما في ذلك عن طريق تجنب الإفراط في استخدام السرد المفرط التبسيط حول التضخم العابر والذي يهدد بالتعتيم على القضايا الحقيقية التي تواجه الاقتصاد الأميركي.

"العابر" فكرة مطمئنة توحي بظاهرة قصيرة الأمد وقابلة للانقلاب في الاتجاه المعاكس. من الأهمية بمكان هنا أن ندرك أن هذا المفهوم يفترض عدم الاحتياج إلى تعديل السلوكيات. فإذا كان هلع التضخم حالة مؤقتة لا أكثر، فإن أفضل طريقة للتعامل معه هي ببساطة الانتظار إلى أن ينتهي (أو إذا استخدمنا مصطلح السياسة والسوق، "النظر من خلاله"). لهذا السبب، يُـعَـد هذا السرد خطيرا بشكل خاص. فمن خلال تشجيع الرضا عن الذات والتراخي، قد يؤدي إلى تفاقم مشكلة خطيرة بالفعل وقد يجعل حلها أشد صعوبة.

كانت الاستجابة الأولية من جانب بنك الاحتياطي الفيدرالي الأميركي لارتفاع التضخم مثالا واضحا على ذلك. في عام 2021، سارع البنك المركزي الأقوى والأشد نفوذا في العالم إلى وصف التضخم الأعلى بأنه عابر مؤقت. وضاعف جهوده على هذا النهج حتى بعد أن أثبتت البيانات عدم صحته، رافضا التحول عن موقفه لفترة طويلة للغاية.

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0 Comments on this paragraph, 26 Comments on this article

Theodore D'Afflisio Mar 27, 2023

Of course this raises the entire question of why 2%, which after all is a target, not some divinely ordained number? It may represent the Fed's best guess at a rate which allowed growth without the problem of inflation but that is no reason to assume that inflation at 3-4% could not serve the same end and given changes in the American economy since the 2% target was set, perhaps a higher rate of inflation will be necessary to accommodate necessary changes consistent with the need for growth. You indicate that this is the most likely outcome (the 50% weight) but don't offer any arguments or data to show that inflation in the 3-4% range would have a deleterious effect on the economy.
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vic lai Feb 22, 2023

According to the Federal Reserve Bank of Atlanta, US's core CPI Inflation (excluding food and energy) can be separated into 2 parts : core flexible CPI 12-month (total relative importance is 30%) and core sticky CPI 12-month (total relative importance is 70%).
Core flexible CPI index consists of items (like food, apparel, car and truck rental) whose prices are always variable (with an average of 4.3 months), while core sticky CPI index comprises of items (like milk powder, communication fee, residence rent, medical care services, education services) whose prices are relatively hard to change (with an average of 6.5 years).
The former is sensitive to external changes but the latter isn't.
---
In Jan 23, core flexible CPI 12-month is only 0.1%, which has been dropping persistently from its recent highest point of 20% near the beginning of 2022, but the core sticky CPI 12-month has recently been rising continuously from around 2.5% near Jul 21 to 6.6% in Jan 23, and is now showing no sign of abating yet.
---
Which means, the US Fed's current rate-hiking cycle (and her accompanying QT cycle) has so far only succeeded in doing the easy part of her ongoing inflation-fighting job (suppressing the flexible-inflation parts), but has not been very effective in subduing the hard-to-control difficult part of the same job (lowering non-trivially the sticky-inflation parts).
Maybe that's the main reason why the US's CPI YoY inflation rate has kept falling rather quickly and smoothly from 9.1% in June 22 to 6.5% in Dec 22, but it further dropped only slightly to 6.4% in Jan 23.
---
Which also means, ceteris paribus, the Fed's ongoing rate-hiking cycle may be (much) longer, and the eventual terminal rate reached may be (much) higher, than has widely been expected by the optimistic market recently, if the central bank really aims to return the country's CPI inflation rate back to the good old 2% target level, and if those flexible prices suddenly come back up (with a vengeance) for whatever reasons.
This is particularly true if the country's wage-price spiral becomes more and more established and embedded in the US's domestic economy in the coming post-pandemic period.
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- vic lai Feb 22, 2023
  
  So, the above means that, while it's relatively been easy for the Fed to lower the US's (flexible) inflation rate from 9% to 6%, a similar drop of (sticky) inflation rate from 6% to 3% or 2% is a (much) more difficult or (much) more time-consuming mission for the Fed to fully accomplish in the near future, and the latter may require today's Fed to maintain or strengthen her current hawkish stance for a rather long period of time, which in turn may end up causing many US enterprises to go under and many US workers to be laid off in the process (a hard landing).
  ---
  The US stock market's recent (perhaps) bear-rally since last October's low has been reflecting the US market's general expectation of the country's continuous inflation-tapering, and the market has mostly been assuming quite optimistically that both the inflation rate will keep falling orderly in the near future and the economic plane will have a soft (or even no) landing.
  So, there is no reason for being pessimistic.
  Well, the US's recent stronger-than-expected economic data don't necessarily mean the country's Godot-like economic recession won't eventually arrive, and the continuous drop in the inflation rate in the past 6 months also doesn't necessarily mean the coming inflation rates will keep its ongoing orderly falling pace.
  ---
  - vic lai Feb 23, 2023
    
    In the good old days, and currently as well, the Fed has mostly prioritized its inflation mandate over its unemployment mandate, making the 2% inflation target her dominating mandate, and so necessarily reducing the unemployment mandate to an ancillary role.
    So, whenever the country's inflation rate has (massively) shot up to a level that has much deviated from her 2% set target, the Fed will start her rather long rate-hiking cycle to try hard to raise the unemployment rate or lower the employment rate, reduce the wage growth of many US workers, and kill the inflation-maintaining wage-price spiral, so that the 2% inflation target can eventually be safely restored, but doing so will usually end up manufacturing an avoidable economic recession or hard-landing in the country.
    Problem is, constant relatively-low real wage growth in the country, at a rate more and more below the worker's productivity growth ever since the early 1980s, will keep on widening the inequality between Capital and Labor, encourage the rise of precarious political populism, much increasing the ruling administration's inflation-prone new-money-printing-financed vote-begging deficit-spending, and so sustaining the undesirable secular-stagnating low-growth economic environment in the country.
    The US consumers, as the world's unique consumers of last resort, will have to incur ever more and more debts than before in the long run to sustain or further improve their original living standard, thereby inviting the eventual arrival of another highly-destabilizing Minsky moment in the country.
    ---
    The current economic disease in the US, characterized by
    (i) refusing-to-further-retreat real-economy inflation, and
    (ii) heated labor market and relatively fast nominal wage growth,
    should be cured by changing the Fed's relative importance of her 2 mandates in the coming decades, through the central bank's re-prioritizing the unemployment mandate over her inflation mandate ---- the inflation mandate as the new servant should mostly be serving the unemployment mandate which should become the new master, rather than the other way around.
    The US's coming unemployment rate should be persistently kept at a relatively low level even though this means the country as a whole will have to suffer (temporarily) a yearly inflation level (say 4% to 5%) higher than her better-upward-revised new inflation mandate (say 3.5%).
    If so, the Fed's coming interest-rate (and QT) policy will not become too-tight, and the chance of the country's falling into a new recessionary trap will be much reduced.
    ---
    A higher average inflation rate in the US in the coming decades will mean a faster and faster debasement of the US dollar in the rest of this century, resembling the latter part of the western Roman Empire two millennia ago, but this will not (much) affect the persistent global hegemony of the US dollar, given
    (a) our quickly growing world economy which keeps needing more and more US dollars,
    (b) TINA,
    (c) the continued technological and military global lead of the US,
    (d) the US's most sophisticated domestic and global money- and capital-market infrastructure that can hardly be replaced by newly emerging ones, especially in our current generation,
    (e) the country's concentration of the group of best human talents in the world,
    (f) ......
    ---
    https://www.epi.org/policy/
    ---
    - vic lai Feb 23, 2023
      
      (f) the US's persistent healthy and young demographics, especially relative to many other DM countries,
      ......
      ---
      The tightness of the US's current labor market can be seen by comparing the increase in real wages with the increase in labor productivity.
      In tight labor markets, workers are able to negotiate increases in their real wages in excess of increases in productivity.
      In this case, the share of labor income in total income
      would be increasing.
      For example, nominal wage inflation of 2.5 % implies that even with a productivity growth rate as low as 0.5 %, the wage share will remain constant and the inflation rate will be at its 2 % target.
      In 2017, for example, the average growth rate of productivity in the US was 1.6 %.
      Given that in the same year the overall inflation rate was 2 %, nominal wages would have had to increase by 3.6 % for the wage share to remain constant.
      For the country's wage share to keep healthily increasing in the coming years, nominal wages would have to grow at an average rate higher than the sum of the inflation rate (which should be close to the inflation rate targeted by the Fed) and the average productivity growth rate.
      ---
      To ensure the US consumers can safely remain as the world's consumers of last resort without requiring them to incur ever more and more debts, the US workers will have to have a much higher average nominal-wage growth rate in the coming decades.
      Suppose such a "wage-share-remaining-constant" average nominal-wage growth rate of the US workers is to be 6.5% every year in the coming decades, then the average productivity growth rate will have to be
      (a) as much as 4.5% if the country's average inflation rate is close to the Fed's unchanged inflation target of 2%.
      (b) only 2.5% if the country's average inflation rate is close to the Fed's updated new inflation target of say 4%.
      ---
      Scenario (a) above requires the US federal government to become much more entrepreneurial in the coming years than she is today, to help solidly materialize the 4th Industrial Revolution in the country in the near future, which is not easy.
      (The US's ongoing re-industrializing or re-shoring trend may further increase the country's coming average labor productivity, since manufacturing jobs are more labor-productive than service jobs in general.)
      Scenario (b) will enable today's Fed to more easily finish her current inflation-fighting job, perhaps without plunging the US economic plane into a hard-landing.
      ---
      - vic lai Feb 23, 2023
        
        The Fed's latest February FOMC Minutes just released seems to be disclosing, for the first time since the start of the current rate-hiking cycle, that the market valuation of the US's housing and stock markets has been too high.
        The central bank is perhaps indirectly giving a more serious warning to the market represented by the Wall Street that her required higher-for-longer rate-hiking cycle will more likely further take away more punchbowls from the happy parties in the country, and may even end up popping the bubbles there, leading eventually to a hard-landing of the US economic plane sometime in the future.
        ---
        Well, even in the years before the Fed's enactment of the latest 4th round of unlimited QE in order to avoid a post-pandemic depression, the country's everything-asset bubble had already become well entrenched, let alone today, whether you are willing to admit it or not.
        If the Fed really needs a much more stringent and prolonged contractionary monetary policy to return the US's inflation rate back to the 2% target, the chance is quite high that a coming hard economic landing is unavoidable in the country.
        ---
        It seems that the Fed currently has had no intention of changing her good old 2% inflation target, and so, like what's happening in Romeo and Juliet, or in the Westworld (US TV series), these violent delights have violent ends.
        ---
        
        vic lai Feb 24, 2023
        
        According to Wiki, "The Iron Curtain was the political boundary dividing Europe into two separate areas from the end of World War II in 1945 until the end of the Cold War in 1991.
        The term symbolizes the efforts by the Soviet Union (USSR) to block itself and its satellite states from open contact with the West, its allies and neutral states.
        On the east side of the Iron Curtain were the countries that were connected to or influenced by the Soviet Union, while on the west side were the countries that were NATO members, or connected to or influenced by the United States; or nominally neutral."
        ---
        Today, it seems that a new iron curtain has recently been set up by the US, which is the technological (and international-trade) boundary dividing our world into two separate areas, one centered on the US and the other on China.
        Today's China will find it harder and harder (or simply impossible) to sell her own innovative technological (ICT, software, 5G/6G services, cell-phone apps, AI, ...) products in the western markets, while today's US, gradually losing China's super-big domestic markets, will encounter the new problem of losing economies of mass-scale production of many of her similar innovative technological products, much increasing the average cost of production of those products, and so much lowering or even eliminating the profits of eventually selling those products to the ex-China global markets.
        With the new iron curtain in force, less innovative products will appear before our eyes in the coming decades as a result.
        ---
        Given fewer innovative products coming out of both the US and China in the future than without the technological iron curtain, global productivity will increase at a lower rate than otherwise.
        Which means, the global deflationary or disinflationary pressure coming from unabated technological advancement in the coming decades may be less than that prevailing in the similarly innovative 19th century, making the future economies of many countries in our world (that of the US included) more inflation-prone than most people expect.
        ---
        
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vic lai Feb 14, 2023

Concerning the US's real economy, in the macroeconomic equation AD (aggregate demand) = C (private consumption expenditure) + I (private investment expenditure) + G (government expenditure) + (X - M) ( net foreign expenditure), G, government expenditure, should more correctly be expressed as C(public) + I(public).
Why ?
---
Well, what else can G be ?
Imagine the delivery of free face masks to every household in a certain state of the US shortly after the breakout of the Covid pandemic there.
Those face masks are produced by a certain domestic producer in that state and he is fully subsidized by the state in which he is now residing.
So, in this simple face-mask project, the state government's total face-mask expenditure, G, can be separated into 2 parts :
(i) I(public), which, through the state government's full subsidies given to the domestic producer, becomes I(private), the investment of the domestic private face-mask producer himself, in the form of the setting up of his manufacturing plant, the buying and installation of machines, the buying of raw materials, the employment of workers, the payment of rents and utilities, etc.
(ii) C(public), which replaces C(private) here, because the finished face masks are first "bought" by the state government from the private producer, and then given freely to the city households in that state.
---
So, more correctly or less misleadingly, AD (or GDP) = C(private) + C(public) + I(private) + I(public) + (X - M).
Contrary to the (interest-rate) crowding-out myth in neoliberal mainstream economics, I(public) adds to or crowds in --- not crowds out --- I(private), both of them work together to help create and sustain a quickly growing, innovative, prosperous, and healthy domestic economy, unless
(i) the domestic economy is near full capacity (full employment), AND
(ii) the increased G is financed by the country's commercial banks and/or the country's central bank with the "printing" of new monies, rather than by the domestic direct-finance money and capital markets (without the "printing" of new monies, leading to "quantity crowding-out"),
which, when the two is combined together, will lead to the problem of rising or runaway real-economy CPI inflation.
(The ongoing domestic real-economy runaway CPI inflation in the US has been aggravated by both the Covid pandemic and the Ukraine War, which is an exception rather than the rule.)
---
Which means, in the future, whenever the non-inflationary US domestic economy is working below full capacity, the US Fed can always suitably "monetize" some of the US Treasury's increased anti-cyclical deficit-spending through her good old MMT-related new-money-printing QE program, in order to stimulate the US domestic economy, without either propping up the country's real-economy CPI inflation or depreciating the US dollar in the global FX markets (given the unabated global hegemony of the US dollar).
---
I mean, C, I, G, X and M, like deficit and debt, are all simply money, expressed in US dollar in the US, and they are given different names just for macroeconomic classification and explanation purposes.
Afterall, as was said by Juliet, what's in a name ?
If, in today's post-industrializing and highly-financialized US, private real (technological and infrastructural) investments in the real economy have always been relatively lacking, especially when compared with quickly-chasing China (simply think the ongoing 5G and the coming 6G technologies, and high-speed rail), the US's public sector has to become more and more entrepreneurial in the coming decades, to make sure the US will forever remain the sustained leading runner in the coming global Marathon technological race with all the other competing foreign countries.
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- vic lai Feb 14, 2023
  
  According to Dominique Dwor-Frecaut, the Fed may have to raise the fed funds rate to as high as 7% or 8% to be successful in putting the US's inflation genie fully back into the bottle.
  According to her, if you look at every Fed's tightening cycle since the 1960s, it started when the gap between the Taylor rule and the actual fed funds rate was big, and it ended when the gap narrowed to almost zero.
  Now her Taylor-rule fed-funds-rate estimate is around 8% (or 7%), which is still much higher than the latest terminal rate set by the behind-the-curve and fast-catching-up Fed (which is currently 4.50 to 4.75%).
  ---
  If the Fed's interest-rate corridor shoots up non-trivially once again in the rest of this year, less money will come out of the Fed's ON/RRP account and go to the market, and/or more money in the market will go back into the ON/RRP account to earn much higher riskless interest revenues there, which will much decrease the liquidity in the US or global financial markets, and which may in turn taper the current optimistic "bear rally" of the US stock and housing markets.
  ---
  But the Fed's resulting unabated higher-for-longer rate-hiking cycle may also revive the going-to-the-US global carry trades, luring say Japan's newly-printed QE money to go back to the US, bidding up the US dollar index and helping sustaining the current bear rally of the US stock market.
  Both the resulting re-appreciation of the US dollar, together with the sustained release of strategic oil reserves to the market by the US authority, will help taper the following CPI inflation rate in the US.
  On the other hand, the increasing interest revenues earned by the US's money market mutual funds through the Fed's ON/RRP account will further improve the balance sheets of those MMF investors.
  The resulting bidding up of the whole inverted yield curve of the US will exact the real recessionary toll on the coming US economy, will also much increase the yearly fiscal interest expense of the US federal government, and may eventually materialize a credit or liquidity event somewhere on this planet.
  ---
  - vic lai Feb 16, 2023
    
    If the Fed's highest terminal rate reached in her ongoing higher-for-longer rate-hiking cycle is really as high as 8%, and persists for quite some time in the following quarters to be able to return the domestic inflation rate in the US fully back to the 2% target level, thereby propping up non-trivially once again the US's whole treasury yield curve (together with the market's risk-premium-adjusted spectrum of short- and long-term interest rates) to a much higher position than today's, then the US's commercial banking system as a whole, according to the latest analyses of BestEvidence on Youtube, will probably go broke (if it hasn't already yet).
    (https://www.youtube.com/watch?v=5m75wFQiQ4c)
    ---
    This is because the US banks bought the vast majority of US treasuries when interest rates were near zero, and if rates are much higher in the future, the banks' unrealized losses on those security-grade investments will become much higher accordingly (not to mention the mortgage-backed securities, other derivatives, and even bitcoins bought by them in the past), which, when all combined together and marked to market, will, together with their quickly-rising non-performing loans, easily wipe out all the total equity capital of the US's banking system as a whole, requiring the US monetary authority to bail many of them out in the future.
    ---
    To rescue the coming under-water banks in the country, if any, the US monetary authority
    (i) can use the tax money from the US's taxpayers,
    (ii) can use the Fed's new-money-printing QEs, which will aggravate the inflationary pressure in the country, or
    (iii) can allow (some of) the failing US major banks (if any) to create their own new capital out of thin air, by the banks' creating new loans to lend to say some big domestic or foreign investment institutions, thereby financing them to buy back their newly-issued capital-replenishing shares in the stock market, like what Britain's Barclays Bank had done in 2008.
    ---
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  - vic lai Feb 15, 2023
    
    The macroeconomic situations in the West in the past decades seem to have confirmed the economic lesson that has to be (re-)learnt by today's western DM countries ------ a country's central bank isn't a good institutional or financial arrangement.
    In those years the central banks in the West have non-trivially sacrificed the long-term benefits of their countries' real economies and have ended up over-benefiting the country's virtual economy represented and led by the country's commercial and investment banks.
    Hence the current rising political populism in the West prompted by the growing inequality between Capital and Labor there.
    ---
    Imitating the main jobs of China's PBOC (China's central bank, together with that of her China Development Bank and her major policy commercial banks), the US monetary authority should seriously start considering turning the US Fed, the country's "central bank," into a new national bank, which will keep supporting the federal government's all-important industrial policies of all kinds in the rest of this century, by suitably financing the federal government's deficit-spending year-in and year-out, in order to boost the supply side of the country's macroeconomy, rather than constantly manipulating and affecting the demand side.
    If doing so, the country's subsequent healthy and Goldilocks-like high economic growth, with low unemployment and low inflation year-in and year-out, resulting from such a crucial change in the future role of the non-independent US Fed (which may become a part of the US Treasury), will automatically guarantee the realization of the 2 mandates set by the current "independent" Fed.
    ---
    Afterall, the US's highly-financialized direct-finance virtual economy, represented by the country's money, capital and housing markets, seems to have failed to serve the needs required by the fast and healthy economic development of the country's real economy.
    The role of the master and the servant seems to have interchanged in the US in the past neoliberal economic decades ------- the master (the real economy) has always been serving the servant (the highly-financialized virtual economy) instead, rather than the other way around.
    ---
    - vic lai Feb 16, 2023
      
      A closer look at the US's January inflation figures this year allows one to make the conclusion that the US's current Goldilocks-like non-recessionary or no-landing economic performance has mainly been relying on the country's heated labor market.
      Since, for various reasons discussed before, it's relatively been easy for an average worker in today's US to find a new job, many US households are now not worrying about their future income streams, and so they have been quite courageous to keep spending, some or most of which has recently been financed by their unabated willingness and ability of borrowing from the US financial markets (recently, the unsecuritized borrowing of the US people has significantly propped up).
      ---
      And all the above despite the Fed's ongoing more-hawkish-than-the-market-prefers rate-hiking contractionary monetary cycle.
      Problem is, the above "best-case scenario" can't persist for long if, for whatever reasons, the US's coming labor market persistently cools down in the future, so that the growth rate of the workers' wages can't keep rising non-trivially any more.
      ---
      In other words, it's not that the Fed's rate-hiking policies have been ineffective in more quickly and convincingly exorcising the country's inflation specter, but rather that the US's household sector has newly replaced the US's federal government after the pandemic-breakout as the country's borrower of last resort that's been supporting the country's strong consumer spending, stronger-than-expected earnings of many US companies, and hence a resisting-to-retreat heated labor market in the country.
      ---
      Which also means, today's re-opening-up China aside, a large part of our coming global economy will still have to rely precariously on the US to act as the world's almost-unique consumers of last resort, which in turn has to be persistently financed by the more-and-more-debt-incurring US consumers.
      That's why the monetarily-sovereign US federal government will have to boldly and suitably deficit-spend more and more year-in and year-out in the future (suitably financed by the Fed in a MMT-related manner), to prevent the balance sheets of the non-monetarily-sovereign US consumers from deteriorating too quickly, and so to much reduce the chance of the eventual breaking-out of a financial crisis and hence a prolonged economic recession caused mainly by an unsustainable debt-accumulating cycle of the US households.
      ---
      - vic lai Feb 16, 2023
        
        If the above analysis is not far from the truth, today's US Fed will have to do more, to
        (i) sustain her ongoing higher-for-longer rate-hiking cycle for a period of time (much) longer than commonly expected by the optimistic US market, and
        (ii) reach a terminal policy interest rate (much) higher than is currently predicted by the Wall Street,
        and so the country's whole (inverted) yield curve will be further bid up to a higher position, so that the US consumers' future demand for consumption loans can be sufficiently suppressed by (much) higher (positive) real interest rates.
        ---
        If the US Fed can't, or don't want to, do any of the above, the US federal government will have to take over the US consumers to act as the country's new borrower-of-last-resort (through the lifting of the current debt ceiling by the Congress), thereby sustaining the country's high credit growth and hence eliminating or deferring the eventual arrival of the country's Godot-like economic recession (or economic crisis).
        ---
        
        vic lai Feb 17, 2023
        
        The US's unabated manufacturing offshoring in the past 4 globalization-on-steroids decades had killed Fordism in the US, requiring many of today's US consumers to have to rely more and more on unsustainable borrowing and debt accumulation to
        (i) maintain (or further improve) their past high living standard, and
        (ii) sustain the country's current virtuous economic cycle of "high wage growth, strong consumption spending, good company earnings, strong labor market, high wage growth" described upstairs.
        ---
        (A) In the short run, the unsustainable virtuous cycle just mentioned can be (much) mitigated by a more and more indebted monetarily-sovereign US federal government partly financed by the US Fed in a MMT-related manner, without forcing the US dollar to (much) depreciate relative to most other foreign major currencies thanks mainly to unabated global hegemony of the US dollar in the foreseeable future.
        But such persistent debasing of the US dollar, together with the US's weaponization of the US dollar, will keep inviting other major foreign currencies to try hard to dethrone the US dollar if not in our present generation then more probably in the next generation, thereby much hurting the children or grand-children of the US's current generation.
        Furthermore, such a healthier or less-precarious average balance sheet of the US households comes at the high price of both the persistent deterioration of the balance sheet of the US federal government and the continuous debasing of the US dollar, making it more or less just an overall zero-sum economic game (if not already a negative-sum game).
        ---
        (B) In the long run, US's genuine (trade-)deglobalization and hence manufacturing reshoring can recover at least part of the good old Fordism in the country, making the above virtuous economic cycle much less consumer-debt-accumulating, much less economic-crisis-prone, and much more sustainable than before.
        This should be supplemented by an increasingly entrepreneurial US federal government in the coming decades, the resulting technological and other breakthrough of which (like the world's 4th Industrial Revolution) will keep increasing the overall productivity of the US workers in the coming decades, which in turn can
        (i) sustain the above virtuous cycle without requiring many of the US consumers to precariously incur ever more and more debts over time,
        (ii) safely sustain the present role of the US as the world's unique and reliable consumers of last resort far into the future,
        (iii) increase the future tax revenues of the US federal and state governments, thereby much diminishing or even eliminating their yearly fiscal deficits and total remaining debts over time, and so stopping the persistent debasing of the US dollar and safely guarding the global hegemony of the US dollar,
        (iv) maintain persistently a non-inflationary or even a deflationary macroeconomic environment in the country (as during most of the 19th century),
        and so, all combined, ultimately turning the above zero-sum economic game into a persistent overall positive-sum game.
        ---
        
        vic lai Feb 18, 2023
        
        According to Richard Duncan, in the US there are good government debts and bad government debts.
        Good government debts, like that used to promote research and development, and other long-term unprofitable but necessary basic research say for the eventual arrival of the 4th Industrial Revolution on this planet in this century, is good for the US economy and her coming generations as a whole.
        Bad government debts, like the deficit-spending US federal government's latest pandemic stimulus checks, and that which ends up aggravating the country's bubbling stock and housing markets, is inflation-prone, distorts the efficient allocation of scarce real and financial resources in the country, and so is bad for the US society as a whole.
        ---
        Similarly, there are good new-money-printing by the US Fed and bad new-money-printing by the Fed, both in the form of MMT-related new-money-printing QEs.
        The Fed's good new-money-printing is financing the US's good government debts (or good deficit-spending), while the central bank's bad new-money-printing is financing the US's bad government debts.
        ---
        And the same for the US's commercial-bank lending.
        Good bank lending is financing the promising IPOs of the country, the financial needs of the country's non-zombie good companies, and the country's suitable household financial needs, while the bad bank lending is financing say the country's crisis-prone bubbling stock and housing markets.
        ---
        Note that, considering also the US's short-termism vote-begging political election system, what's been bad economically quite frequently becomes good politics.
        So, at the end of the day, when everything is being considered, and when all relevant constraints are all taken into account, from the viewpoint of political economy (a name more correct than the name of economics, which can be summarized by constrained maximization), everything is good, everything we witness is efficient, nothing is bad, and nothing is inefficient.
        Yes, it's good (or bad) from your own point of view only, but it's simultaneously bad (or good) from mine.
        As in the last days of the Animal Farm, we can't really tell apart which is which.
        ---
        
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        vic lai Feb 17, 2023
        
        Besides the US consumers' recent increasingly debt-financed consumption spending following the running-out of their past much-increased savings, the current "no-landing" US domestic economy is also being caused and sustained by the US companies' overall high demand for labor (except for the country's ICT sector), perhaps resulting from the post-pandemic changed behavior of many of those US companies ------- worker-inventory accumulation.
        ---
        Given the various reasons mentioned before, the supply of labor in the US has become relatively scarce in the recent post-pandemic period following the re-opening up of the country, and so to play safe, many US companies, finding relatively few job applicants at their doorsteps, have decided to hire and keep more new workers in their companies than in the pre-pandemic years, thereby supporting the strong US labor market as we observe it today.
        ---
        If, starting from say the second half of this year or early next year, the country's increasingly debt-financed consumption expenditure can no longer be maintained at a high enough level, then many US companies may have to start consuming their currently accumulated worker inventory, and so both lowering the temperature of the country's heated labor market and tempting the inflation-fighting US Fed to start considering rate-pivoting.
        ---
        
        vic lai Feb 22, 2023
        
        According to Voltaire, a long dispute means that both sides are wrong.
        The recent long "dispute" between the relatively dovish US market and the relatively hawkish US Fed regarding the central bank's coming up-or-down interest-rate cycle means therefore that both sides are wrong.
        ---
        (i) The recent US M2 Money Supply YoY growth rate has been dropping from the its recent highest figure of 26.73% in Fed 21 (2 years ago) all the way to -1.31% in Dec 22 (the latest available figure), leading to Steve Hanke's latest claim that the US's CPI inflation may even drop to zero at the end of this year (if the quantity-theory-of-money explanation of rising CPI inflation still holds), which is contradicting the Fed's ongoing more hawkish monetary stance.
        (ii) Many economic statistics recently announced in the US are showing the country's ongoing trend of longer-than-expected heated labor market, fast wage growth, and no-landing-like flying economic plane, which has been sustaining the country's unabated inflationary pressure and hence is at odds with the optimistic market's popular Fed-fast-pivoting stance.
        ---
        Well, in a debate, if one side is wrong, then the other debating side must symmetrically and tautologically be correct.
        So, we can also say that a long debate means that both sides are correct.
        The Fed is correct because she, among many other things, is being supported by the latest US economic statistics, and the US market is also correct because, for one thing, the growth rate of the country's M2 money supply has recently been dropping rather quickly, and consistently .
        ---
        Anyway, if the relatively big drop in the Dow this Tuesday persists into the near future, it seems to show that the Fed is temporarily re-winning this heated debate.
        Who is the ultimate winner in this long debate remains to be seen.
        ---
        
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vic lai Feb 10, 2023

To my knowledge, a vitally important and sorely-needed countrywide macroeconomic "experiment" needs to be "deliberately" performed by the US Fed sometime in the coming years, both when the global Covid pandemic has fully subsided in most places on this planet, and when there's no more non-trivial local war going on under the sun.
---
If, during that future period of time, the smoothly-running global supply chains are no longer disrupted, and global energy prices go back to "normalcy," we can much more convincingly test the hypothesis that non-trivial MMT-like suitably-controlled "new-money-printing" by the US Fed will not cause significant (demand-pull) CPI inflation in the domestic US economy, given the country's imports leakages of all kinds to the foreign countries through her deficit trade account, and given the normal diversion of new money flows from the country's real economy into the country's virtual economy, given the persistent vigor of the unchallenged global hegemony of the US dollar in the foreseeable future.
---
The US-Fed-cum-US-Treasury Axis, with the cooperation of the US Congress, should work together and perform such a crucial MMT-like new-money-printing experiment to finance the US federal government's much increased deficit spending year-in and year-out in the future fiscal years, say either
(a) to give once again stimulus checks or tax rebates en masse to both the US households and the US corporations, or
(b) to help the US's coming transformation into the world's entrepreneurial state of last resort, in order to fully subdue China both technologically and economically before the middle of this century.
---
My guess is that, so long as the global hegemony of the US dollar remains unchallenged by any quickly rising foreign currencies in the rest of our generation (ie, the US dollar won't depreciate massively in the coming years even given the US Fed's persistent and suitably-controlled new-money-printing, and the prices of the US's highly-demanded government treasuries remain firm most of the time), the above hypothesis will be confirmed and will not be rejected, and hence, either
(i) the US can safely keep suitably monetizing the federal government's deficit-spending in the future without causing much inflationary pressure in the domestic US economy, or
(ii) there will once again be some non-trivial inflationary pressure cropping up in the domestic US economy, but no (or only a mild) economic recession will occur, and a jobful Goldilocks-like economic environment in the country, like that observed in today's US, will pursue,
and so the future government-deficit-financed entrepreneurial US state, despite her federal government's persistently rising remaining debts, can still safely and successfully sustain Pax Americana on this planet far into the future.
---
- vic lai Feb 11, 2023
  
  Point (a) upstairs can very quickly, but not sustainably, improve the real income and net wealth and hence the balance sheets of many US households and US private corporations.
  Point (b) upstairs cannot quickly, but can sustainably, improve the real income and wealth of many US households and US private corporations, and one happy byproduct of doing so is that the US will be able to act as the world's unique consumers of last resort in the coming decades without requiring the US households to precariously incur ever more and more debts in the future.
  Both require the monetarily-sovereign US federal government to incur more and more debts of her own year-in and year-out (according to the Sectoral Balance Equation, at least in the initial years), the size and pace of which should suitably be controlled and so should not be too big and fast.
  ---
  During the years before the GFC of 2007-09, it took a relatively long time for Greenspan Fed's rate-hiking cycle to be completed and its adverse effects to be fully felt by the affected US domestic economy.
  This time should not be different, and it may take another year or so for the Fed's latest fast and acute rate-hiking cycle to fully and adversely affect the coming US domestic economy.
  Right now, the seemingly persistent resilience of today's US domestic economy, reflected by the fact that the US has still been waiting for the eventual full arrival of the Godot-like economic recession in the country, is reflecting another fact that the recent unhealthy balance sheets of the US private sector has mostly been transferred to the country's public sector, thanks to the MMT-like experiment performed by the Fed-cum-US-Treasury shortly after the breakout of the global pandemic in early 2020, but the US, and the US alone, among most of the DM countries, has still been able to sit comfortably at the international-trade Impossible Trinity corner of free capital flow, flexible exchange rate (without massive depreciation of the US dollar), and the Fed's independent interest-rate policy, thanks mainly to today's unabated global hegemony of the US dollar.
  ---
  So, more and more well-controlled and suitably-sized MMT-like experiments should continue to be boldly performed by more and more entrepreneurial US in the coming decades, so long as Bretton Woods II is not yet much weakened or even replaced by Bretton Woods III, to help propel the US's coming economic development further to a much higher globally-dominant level.
  If so, as reflected by the ongoing ChatGPT AI frenzy originated solely in the US alone, China and other fiercely-competing countries will be left far behind in the coming global Marathon technological and economic race.
  ---
  - vic lai Feb 11, 2023
    
    According to a Taiwan economist, the past 3 economic recessions in the US, in the years 1990-91, 2001, and 2007-09, had all been preceded each by a period of inverted riskless treasury yield curve, measured either by (10-year yield minus 2-year yield) or (10-year yield minus 3-month yield), which had lasted for almost the same period of time as that of the following recessions.
    ---
    (a) From May 30, 1989 to December 29, 1989 : inverted yields lasted for around 7 months.
    From July 2, 1990 to February 28, 1991 : recession lasted for around 8 months.
    (b) From August 2, 2000 to April 4, 2001 : inverted yields lasted for around 8 months.
    From March 1, 2001 to November 1, 2001 : recession lasted for around 8 months.
    (c) From July 26, 2006 to March 7, 2008 : inverted yields lasted for about 19 months.
    From December 3, 2007 to May 29, 2009 : recession lasted for around 18 months.
    ---
    Will this time be different ?
    Starting from December 13, 2022, both the above yields had been persistently inverting, up until today, which have lasted for only around 2 months.
    Which means, we may have to wait for at least a few more months this time around before the Godot-like economic recession (if any) will convincingly arrive on the US stage.
    ---
    Note that, if the past is any guide, while the Fed's rate-hiking cycle was usually prompted by a cropping up of CPI inflation in the domestic US economy, the central bank's rate-reducing cycle was not symmetrically caused by the start of tapering of the country's inflation rate.
    The Fed was forced to start pivoting following her rate-hiking cycle mainly because an economic crisis had suddenly occurred in the country.
    ---
    The Fed's usual interest-rate-manipulating sequence in the past seems to be as follows:
    (i) The Fed's rate-hiking cycle had led to the occurrence of inverted yields,
    (ii) the Fed was forced to start pivoting due to the propping up of a financial crisis prompted by a non-trivial credit- or liquidity-event manufactured in turn by the persistent inverted yields,
    (iii) rate-lowering by the Fed evaporated the inverted yields,
    (iv) though the inverted yields had eventually disappeared, the resulting problems in the country's financial sector or virtual economy had become so serious that an economic recession became unavoidable and so pursued for a length of time as long as that of the previous inverted yields (with a difference of at most 1 month).
    ---
    - vic lai Feb 13, 2023
      
      Step (i) in the above interest-rate-manipulating sequence can further be separated into 2 parts.
      ---
      (ia) Initially, the Fed's rate-hiking cycle will cause an inverted yield curve in the country, since the central bank can only control the short-end but not the long end of the yield curve.
      Before the inverted yield curve develops before our eyes, suppose the 10-year riskless treasury yield is 4% per year, then the country's 30-year new-house mortgage loan rate will be set at say 6%.
      When the inversion has happened, the 10-year yield drops initially to say 3.5%, and so the 30-year new mortgage rate will also drop to say 5.5%, which is lower than before.
      According to the law of demand, the country's demand for new mortgage lending will increase, instead of dropping, even given the Fed's ongoing rate-hiking cycle.
      That's why, as is said by Goldman Sachs, the propping up of an inverted yield curve in the country doesn't really matter, because the resultant boost in the country's housing and other asset markets just described will delay the eventual arrival of the Godot-like economic recession in the US.
      ---
      (ib) Problem is, the Fed will keep sticking to her inflation-fighting gun.
      Afterall, inflation-fighting is one of the 2 set mandates of the country's central bank.
      So, in order to push the country's inflation genie fully back into the bottle, and to avoid making another mistake this time around (think the Fed's claim of transitory inflation in the recent past), today's Fed will more probably sustain her ongoing higher-for-longer rate-hiking cycle for a period of time (much) longer than is currently being anticipated by the optimistic market.
      The result will be that the whole inverted yield curve will further be pushed up to an eventual high-enough level such that the country's inflation genie is finally put back fully into the bottle.
      ---
      The recently-seen recovery in the US's housing (and in other asset markets, like the stock markets) we all witness today means that the US is currently transitioning from stage (ia) to stage (ib) just mentioned.
      ---
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    - vic lai Feb 12, 2023
      
      According to a Chinese economist, the so-called MMT-related "deficit monetization," prevalent especially in the past 3 years in the US following the breakout of the global pandemic there in early 2020, and which has mainly been responsible for causing the US's ongoing still-unabated runaway inflation, should more appropriately be renamed "deficit capitalization."
      Afterall,
      (i) the US's newly-incurred government deficit each year must always be in the form of money, or in US dollars, recorded in real time throughout all the related accounting ledgers of the country.
      Saying "deficit monetization" is like saying "money money," which reminds me of one of ABBA's famous songs ("Money, Money, Money"),
      (ii) the US should continue to be a highly innovative and productive "capitalist" country on this planet, rather than a consumer-debt-accumulating "creditist" or "debtist" country under the sun.
      ---
      (A) If we keep using the term "deficit monetization" in the future, the future US federal government may tend to choose option (a) upstairs, which will potentially keep increasing the demand-pull inflationary pressure in the US.
      (B) If we switch to use instead the more appropriate new term "deficit capitalization," the chance will be much bigger that the US may soon turn into a highly globally-competitive entrepreneurial state, financed mainly by the deficit-incurring US federal government and an accommodating US Fed year-in and year-out, in a MMT-related non-inflationary manner, thereby helping to sustain the global hegemony of the US dollar, and Pax Americana for that matter, perhaps throughout the rest of this century.
      ---
      - vic lai Feb 12, 2023
        
        In the coming years, given the likely new trend in the US that
        (i) more and more real investments in the US will mostly be in the form of intellectual-right-creating innovative ICT and other technology sectors which will require not much new capital to finance or refinance, rather than in the form of capital-intensive heavy-industry-like real investments of the good old industrializing days,
        (ii) most US companies no longer real-invest much in new products or services in their respective fields, and keep borrowing low-interest-cost money both to buy back their own shares and to distribute lavish dividends to their shareholders, and
        (iii) the US federal government will become more and more entrepreneurial in the coming decades if option (b) upstairs is mainly chosen by the US authority, instead of option (a) upstairs,
        the US Fed's good-old interest-rate manipulating policy will mostly lose its main capital-allocation function in the post-industrializing domestic economy in the future.
        ---
        If the US's CPI inflation rate drops back to normalcy and remains persistently at a subdued level in the future, the Fed's coming interest rate policy will become very simple indeed ------ keeping the (real) policy interest rate and hence the country's riskless treasury yield curve persistently at a relatively low level commensurate with the country's relatively low CPI inflation rate then, to mainly facilitate the low-cost borrowing of the US Treasury either from the country's private financial markets (like the country's commercial banks and other net-savings institutions) or from the Fed (like the central bank's MMT-related non-inflationary new-money-printing QEs).
        ---
        Which means, the Fed's monetary policy will in the future be mainly determined by the US Treasury's (hopefully more and more entrepreneurial) fiscal policy, and so, as once suggested by Milton Friedman, the functions of the US central bank can be folded into the US Treasury outright, by rendering the US Fed a bureau in the US Department of the Treasury.
        ---
        If really so, the so-called independence of the US Fed will be no more, which is no big deal really.
        Afterall, the Fed's past full "independence" from the US government seems to have failed to make the US the undisputed leading-runner in the Marathon technological and economic race with quickly-chasing China.
        ---
        
        vic lai Feb 13, 2023
        
        If, as shown by the following article, more and more of the US's companies in the country's private sector have become less and less "entrepreneurial" over time, and have had less and less animal spirits as a result, then the country's public sector, led by the US federal government, will have to take the lead in the future and should become more and more entrepreneurial than before, in order to maintain the US's all-important technological and hence most other leads against her competing countries in the rest of this century.
        ---
        "The US needs to rediscover the meaning of investment" by Oren Cass.
        https://www.ft.com/content/080aa554-f440-4243-8e0e-b22b502253d2
        ---
        
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        vic lai Feb 13, 2023
        
        According to wiki, "supply-side economics" is a macroeconomic theory that postulates economic growth can be most effectively fostered by lowering taxes, decreasing regulation, and allowing free trade.
        According to supply-side economics, consumers will benefit from greater supplies of goods and services at lower prices, and employment will increase. Supply-side fiscal policies are designed to increase aggregate supply, as opposed to aggregate demand, thereby expanding output and employment while lowering prices.
        Such policies are of several general varieties:
        (A) Investments in human capital, such as education, healthcare, and encouraging the transfer of technologies and business processes, to improve productivity (output per worker). Encouraging globalized free trade via containerization is a major recent example.
        (B) Tax reduction, to provide incentives to work, invest and take risks. Lowering income tax rates and eliminating or lowering tariffs are examples of such policies.
        (C) Investments in new capital equipment and research and development (R&D), to further improve productivity. Allowing businesses to depreciate capital equipment more rapidly (e.g., over one year as opposed to 10) gives them an immediate financial incentive to invest in such equipment.
        (D) Reduction in government regulations, to encourage business formation and expansion."
        ---
        
        vic lai Feb 13, 2023
        
        My feeling is that supply-side economics should first be introduced and widely propagated today, in the aftermath of the recent global pandemic, rather than anachronistically and prematurely near the start of President Reagan’s 8-year-long administration in the US around 40 years ago, since it seems that this new economic paradigm had eventually ended up benefiting China the most, rather than the US herself, in the past 4 globalization-on-steroids decades.
        ---
        The Fed's coming inflation-fighting jobs will be made much easier if this “new” paradigm becomes the economic norm in the US in the coming decades, since much increased aggregate supply in the US will be more and more commensurate with the country’s much increased aggregate demand caused mainly by the hopefully increasingly entrepreneurial US state in the coming decades.
        ---
        Note that the ongoing trend of (trade-)deglobalization has de facto been “de-China-rization,” equipped with the US's unspoken geopolitical aim of evicting China almost fully out of the current global supply chains in the coming decades.
        Persistent global hegemony of the US dollar in the future still requires the US to sustain her ongoing role as the world's unique consumers of last resort, by hopefully succeeding in migrating most of China's current parts of the global supply chains to other US-friendly EM countries (like India) in the coming years.
        ---
        In short, the US's ongoing so-called "(trade-)deglobalization" strive has mainly been "deChina-rization" in disguise, and so shouldn't be taken too seriously by us.
        Which means, the US’s ongoing “finance-globalization” won’t show much sign of abating in the foreseeable future.
        This is not to deny the fact that some sophisticated manufacturing industries will keep migrating to the US from her friendly DM (and EM) countries say before the middle of this century.
        ---
        
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