@marvinjbarth
's strategic vision to navigate uncertainty: a unique perspective differentiated by ~30yrs of high-level policy and cross-market experience.
China's "economic" model is not just increasingly incompatible with with Western market economies, it is a drag on Western & even global welfare.
Bifurcation of the global economy is coming. Are you ready?
@Ritholtz
@FrankLuntz
“Normal” pollsters have an increasingly tough job getting unbiased samples - hence growing polling errors - because only high-trust “weird” people respond, according to one of the best political data scientists,
@davidshor
. But what kinda weirdo wants to be in a focus group?!
@FedericoHuneeus
It's pretty straightforward: Poland's starting point for manufacturing & other productive technologies was much lower to start with, so it just needs to import capital & provide a supportive environment to learn by doing. As seen below, US per capita income is still 2.5x greater
@biancoresearch
with a very nice thread on the increasing group-think a the Fed & its associated costs. Well worth the read. This is a topic I’ve thought a lot about, and have some further thoughts upon.
🧵1/x
On Friday, December 15
New York President John Williams
“We aren’t really talking about rate cuts right now,” New York Fed President John Williams said on CNBC on Friday. “We’re very focused on the question in front of us, which as Chair Powell said…is, have you gotten monetary
@Brad_Setser
State capitalism is extremely efficient at building things its leaders demand; less so what markets demand. Integrating a (very) large state capitalist system into a free-trade, market based system without restriction (i.e. quotas, not price-based restrictions) is problematic.
@k_sonin
The Soviets may have devolved to gangsterism by the end but had a myth to preserve: the superiority & inevitability of Marxism.
Putin has no such myth to uphold, just a gangster-state hierarchy. Hence why he must hug his Luca Brasi as tightly as Vito Corleone would.
@andresintheory
That’s a theory that some folks have. It isn’t internally consistent and it doesn’t hold empirically, but you’re welcome to your beliefs.
@EpsilonTheory
Thank you for posting.
"If you are conservative, you will read this and say, duh, it’s always been this way. But it hasn’t."
I was a commercial salmon fisherman in Alaska 1989-'92 & everyone listened to NPR. Sure people already thought it was detached, but not like now.
@andresintheory
So then you're saying that a primary deficit of 4% of GDP in a country with real interest rates higher than its potential growth rate & net debt equal to ~100% of GDP is sustainable?
Because a fixed supply of base money worked so well in 1929…
There’s a lot to complain about current central banking, but this is one is based in willful ignorance.
Economic depressions were commonplace on the gold standard, but we haven’t had a single one since leaving it.
The Bank for International Settlements, which works with central banks and their governments, platforms a historian to say that it’s good to let banks and governments create “more and more money”.
Makes sense.
It's easy to see
@Brad_Setser
's excellent work as tilting at windmills, but it is important for three reasons:
1. His work is unimpeachably correct.
2. We have to root against the windmill when the knight errant is so just.
3. Trade the China cycle at your own risk if ignored.
@Brad_Setser
is one of the smartest, most thoughtful people I know on international economics (you should follow him if you don’t already). But I disagree with him (strongly) on both the economics & underlying problem in China’s case. 🧵1/19
I sometimes wonder why a formerly great civilization like Europe no longer leads the word in rocketry, space & battery technology, artificial intelligence, & payment systems.
Then I see things like this & do the Homer Simpson “D’oh!”
With great audience comes greater responsibility
#DSA
As there is a risk of amplification of potentially harmful content in 🇪🇺 in connection with events with major audience around the world, I sent this letter to
@elonmusk
📧⤵️
@TaviCosta
@DoombergT
So if there’s so little demand for US government liabilities, why are the riskiest ones - the longest maturity notes and bonds - the most expensive (ie the yield curve slopes downwards)? That doesn’t happen in the debt of countries that have lost the faith of their creditors.
11/19
@MichaelXPettis
, also a great follow, has it correct: the issue with China is not the structure of its debt, but the structure of its economy that is set up to force excess household savings that are then channeled through state banks to fund massive industrial subsidies.
@biancoresearch
@biancorepvt
The best solution to Paul Krugman’s ever-present inanity is to ignore him. He gave up Economics 30 years ago and has been a polemicist ever since. Don’t react. Ignore.
@EpsilonTheory
Exactly so. Neither prices nor wages are Granger causally prior (appropriate terminology) to the other. Both are decisions made on expectations that are jointly formed, hence why both exhibit the same trend (i.e. are "cointegrated" to use another term Clive Granger originated).
13/19 The entire purpose of China’s economic model of consumption suppression & state direction of excess savings is to fund its industrial policy to build the necessary industrial & technological capacity to challenge the West & replace its post-War order w/its own.
12/19 The great mistake most people, especially policymakers, economists & markets - &
@MichaelXPettis
- make is viewing Chinese policy as *economic* policy.
It isn’t!
It’s entirely about geopolitical & domestic security of the CCP.
@ojblanchard1
I answered this question nearly a decade ago in my 22-country study of the foundations of Western populist movements, its causes, consequences and future, "The Politics of Rage", a synopsis of which you can read below. DM me and I'll send you a copy.
Nice spot by
@Faenerator
. Couldn’t put this better. The West can no longer afford to cling to its Utopian ideals when it faces an existential threat to its order. The best we can achieve is an inner fortress of free trade & “rules-based order”.
Global bifurcation is coming.
New “The Grant Williams Podcast” has dropped with none other than yours truly. Good reminder to go subscribe to
@ttmygh
if you don’t already. (Then go subscribe to
@ThematicMarkets
if you don’t already.)
Thanks, Grant, it was a lot of fun & we covered so much ground!
@Noahpinion
Remarkable yet not even close to the number of Nobel Laureates, mostly first generation, who grew up in Brooklyn in the first half of the last century.
@ThinkFinance999
@Brad_Setser
If my cost of capital is dictated by the state, & my wages are semi-controlled by the state, what exactly are those "profits"? Would they exist in a market based system where those companies had to compete for capital or workers?
14/19 By distracting ourselves w/ how it structures its debts, whether it plays by the rules, or reports its data correctly, we are playing into their con that CCP China is a market economy that has any desire to support or be part of the “rules-based” Western order. They don't.
@jameslavish
"high, structural inflation" does *not* solve the problem,
@jameslavish
, it just provides temporary amelioration. Debt sustainability is based on *real* not nominal interest rates, & raising inflation doesn't change anything as nominal interest rates will rise with inflation.
Until starting a business forced me, I wasn’t on social media.
@darioperkins
shows why: online privacy is not about hiding “bad” things you’ve done, it’s about not letting companies pick you off on pricing because their big data know your demand curve better than you.
I'm convinced the big companies are now using digital tech to screw us. Online insurance, broadband, TV... its impossible to get a price discount anymore. And if you threaten to cancel, they just say "go ahead" 🤣
The astonishing thing to me
@JamesKanag
was that voters were given no real choice this election: 3 flavors of elite-favoring center: the liars that pretended they represented the disenfranchised in the last 2 elections (Tories); the center-left elites with no vision (Labour), the
Astonishing, unprecedented sandcastle politics. More in Common were one of the best pollsters at the election. Conservatives might cheer this - but we may be at the start of a genuine multiparty system like the continent - but without the voting mechanisms to deal with it.
Hard to tell if this is
@ernietedeschi
's rampant partisanship or too-narrow view of economic relationships, but both can be true. Mr. Tedeschi focuses solely on Phillips curve effects, i.e. deficit spending's effects on resource demand through an output-gap framework.🧵1/9
The Fed's preferred measure of inflation, PCE, was 2.5% in July, close to their 2% target.
It's the change in the deficit, not the deficit itself, that affects inflation. The deficit is relatively stable so isn't having a big effect.
Tax cuts have helped drive higher deficits.
Ex post edit: damned autocorrect turned “Laubach-Williams” into “Laibach-Williams”. Apologies to the late Thomas Laubach, who ironically, before GFC made it convenient to say otherwise, wrote a fantastic paper showing that Fed balance sheet changes have no significant effects.
Contrarian view: this is exactly backwards. Israel’s aggressive persecution of its war against a multitude of surrounding enemies results from its sense that Pax Americana already is over & it no longer can rely on the US to protect it from annihilation.
👇👇👇
@CChivvis
gets it.
"America's failure to restrain its partner will be viewed by historians as a key cause in this mounting crisis. God forbid we should end up in a similar situation in Ukraine."
@Brad_Setser
Sure it is
@Brad_Setser
. Same mechanism that
@michaelxpettis
identified as creating those deficits in the US, UK & India. If those countries embargoed Chinese goods, China’s savings-investment imbalance would be forced on someone else, just at a different price.
@stevehouf
You’re being a bit pedantic, no? I don’t see a claim of statistical significance from either the WSJ graphic or
@porterstansb
. More importantly the 150-year Shiller return series does show a significant value/return effect& lots of single-name panel analyses show the same.
Janan Ganesh once again winning the prize among stiff competition
@FT
Op-Ed writers for applying elite conventional wisdom to misdiagnose problems long obvious to everyone.
19/19 “Debt reality versus perceptions” (paid): My detailed framework for analyzing whole-economy (“HoldCo”) debt sustainability & analysis of both the national & government debt sustainability of 57 economies:
🎯& part of a grand strategy of Western adversaries: every missile spent in Ukraine, Israel or Red Sea is one less to defend the rest of Europe, Taiwan, the Philippines, etc & China's 25y purposeful hollowing out of Western industry means those missiles can't be quickly replaced.
The brutal calculus that the world needs to wake up to is that this war to “weaken” Russia has produced a Russian Army that is larger than it was prewar (per senior American officers) while stripping many NATO members of a majority (in some cases all) of their heavy weaponry.
@jonatanpallesen
@eyeslasho
I'm a bit surprised that neither you,
@jonatanpallesen
, nor
@cremieuxrecueil
show much skepticism re: this survey given your understanding of the Central Limit Theorem & consistent evidence of survey bias in sampling populist-leaning & other low-trust groups.🤷♂️
@BobEUnlimited
@BobEUnlimited
: diffusion indices like PMIs measure the breadth of change, not magnitude. So IP tells you how much is being produced, while PMI tells you how many producers are participating. Think of PMI like the number of stocks above their 52wma and IP as the S&P index value.
4/19 There is a 2nd reason to look at national debts on a consolidated basis: all debts, public & private need to be paid from the same revenue stream: GDP. Both local & central govt debt rely on (senior) tax claims on the profits of firms & wages of households, which sum to GDP.
I had such a great conversation with Grant. He truly is the king of financial podcasting. Unbelievably, we went nearly an hour and a half and didn't finish! Highly recommend The Grant Williams Podcast to any and all, but start with this episode! You won't regret it.
1/ The latest premium edition of The Grant Williams Podcast is now live for all subscribers at ! Join me for a fascinating conversation Marvin Barth (
@ThematicMarkets
), founder of Thematic Markets.
@michael_wiebe
@BrianCAlbrecht
Thank you, and I do appreciate your work. But maybe you could do casual X readers (& your follows) a favour by stating the original paper result & how it changes? Sure I could read it myself, but part of why I read X is to sort what is even worth reading given limited time!
Heaven help us if they do. If the answer is anything other than “irrelevant” or “not something we thing about”, then the trade is clear as a bell: sell US duration with both hands.
9/19 That said, as
@Brad_Setser
has amply documented, China is a net creditor & (growing) net saver who owns its own debt. Thus it doesn't face any acute default risk since the CCP is never going to make a margin call on itself (sorry
@Jkylebass
).
@biancoresearch
Intrigued by your assessment that v2.0 will be worse for their credibility. Why?
I have same fear, but my reason is that even if, as in ‘22, they course correct when confronted w/evidence that infln is more persistent, they appear to have abandoned FAIT, 3y after initiation.
👏👏👏
@darioperkins
!
We don't need more people like me - Econ PhDs - at central banks; we need to pair them w/more people w/real world knowledge & savvy to challenge their thinking.
Fed transcripts show Gov. Susan Bias saw the US housing crisis; Bernanke, Yellen, et alia didn't.
both the Deputy for Monetary Policy and the Deputy for Markets will now be career Treasury civil servants. The UK needs LESS of that sort of thinking, not more. The 2010s were a total shambles for the UK economy and nobody seems to be asking why...
#soundmoney
whatever
2/x 1st important note is the difference in selection process for Fed Board Governors & Bank Presidents.
Governors, including the Chair, serve 14 year terms & have permanent FOMC voting rights. They are nominated by the President & confirmed by the Senate. The Chair must be…
@FedericoHuneeus
Not to minimize Poland's accomplishment. That seemingly simple "provide a supportive environment" seems to be very hard for most countries to get right.
“Treasury profits are owed to the Fed”?
Amusing when people urge others to read something that they themselves clearly have never read.
The Fed has (& is) making plenty of errors, but if you’re an American citizen, stop blaming the Fed for the debt & look in the mirror.
@LynAldenContact
Read the Fed. Res. Act of 1913. Fed profits are owed to the treasury dept. and treasury profits are owed to the Fed. Both parties are incentivized to run a deficit.
8/19 Hence it simply makes no economic sense to say “China’s central govt is low debt” when its “sub” debt at SOEs, local governments, banks, private companies, & households is staggering. China has a massive debt problem, full stop.
3/19 Few govts will allow systemic defaults in their private sector, especially banks as they perform a critical economic function. Hence, these are effectively “off-balance sheet” or “subordinated” debt of the central govt. This is especially true of provincial/local govt debt.
The Fed still struggles to understand that its current policy rates are not restrictive, but the ECB is beginning to see what
@ThematicMarkets
readers have known for years: r* is much higher.
BTW
@Isabel_Schnabel
: it started rising well before Covid & is much higher in the US.
In my speech “R(ising) star?” at the
#ECBwatchers
’ conference, I ask whether the recent measurable rise in real interest rates is a sign that rates will remain higher, or whether they are likely to return to the lows seen in the pre-pandemic era. 1/20
It’s not remarkable, it’s just a policy error & the market reacted accordingly by raising term premia.
Interest rates are determined by supply & demand for savings & the Fed - if it does its job correctly - only accommodates that. If it tries to fight fundamentals we all lose.
Remarkable price action in US rates after a surprise 50 bps cut from the Fed. 2-year Treasury yield is now above where it was before the cut. That in turn is powering the Dollar stronger against the Euro and the Yen. This makes no sense and is a total fade. The Fed is dovish...
@BobEUnlimited
Is there a reason you ignore 1995 or even 1985? I’ve noticed you’ve discounted those mid-cycle slowdowns before, yet each shares strong corollaries w/ now: capex booms, & fiscal concerns in ‘85/tech boom ‘95. Is there a reason they don’t count for you?
@JonHaidt
&
@glukianoff
: Looking at timing of the break in trend among 18-29 year olds, how does this fit with your research showing differential effects of social media on young women vs men at roughly the same breakpoint?
@jburnmurdoch
@_alice_evans
2/19 On the economics, all national debt, even private debt, is best seen as either subordinated debt of the central government or the “subsidiary” debt of the government “Holding Company,” making it contingent liabilities of the central government.
Finally got to listen to
@ttmygh
's great The End Game interview of our mutual friend
@AitkenAdvisors
on the BoJ. James makes an underappreciated point about how rich Japan is on net, something I wrote a decade ago in a piece, amazingly, called "エンドゲーム (Endogēmu)".🧵1/4
1/ The latest premium edition of The End Game is now available to all subscribers at ! Join
@fleckcap
and me for another fantastic discussion with James Aitken (
@AitkenAdvisors
) – The Lord of the Dark Matter himself!
6/x Think about those two governance/appointment structures: which do you think should act more independent of the Chairman? The ones appointed to 14y non-repeating terms? Or the ones reappointed every 5y w/approval of a Board led by the Chairman? Obviously the former.
Global entropy & accelerating geopolitical disorder, lessons for "blue sea" trade from Black Sea & Red Sea disruptions, China-US rapprochement, & opportunities to hedge escalating risks. All & more on Macro Sunday w/
@MikkelRosenvold
&
@AndreasSteno
:
5/19 Just as in the case of HoldCo/Sub debts, local/private debts are not pari passu (of equal seniority w/o an explicit guarantee of the central govt), because the legal entity separation allows for the central govt to restructure them independent of its own (“senior”) debt.
24/x Those 11 “experts” have morphed into 1 group-thinking mass that have steadily lowered their estimate of appropriate rates since 2012 as real rates have done the opposite (& US trend growth has risen🙈)!
But there is hope: some presidents clearly believe their lying eyes…
8/x Two factors are at play in my long experience at & w/the Fed.
I. Unique institutional powers of the Chairman.
II. (More importantly, especially lately) elite group think.
11/x …to do the research that ultimately proved him right (against both the staff & other FOMC members - Larry Meyer in particular, who graciously concedes this point) that the US economy was riding an unnoticed productivity boom (as it is again now).
7/19 Nowhere is this *more* true than in China, better seen as “CCP, Inc.”, as nothing in China is independent of CCP rule: all levels of govt, state-owned enterprises (SOEs), & even private companies that are required by law to have CCP cadres to align the company w/the state.
So, another month, another CPI release that demonstrates the underestimated power of
#BeingIsBelieving
.
I've been saying all year: Inflation's final mile will be more difficult & that 1y1y rates are too low. Higher for longer.
Ready to subscribe to
@ThematicMarkets
yet?
The success of AfD in Germany, Meloni in Italy, RN & NPF in France, etc, all result from the multi-decade Theme of the
#PoliticsOfRage
, not from inflation, tight budgets, or weak growth. I wrote about its roots, causes, future, & implications nearly a decade ago, in my original
The US election looms large amid a crowded 2024 election schedule. But who wins likely is less important for markets than the domestic reaction to it.
Amid accelerating geopolitical disorder, the risks of US internal disorder are increasing, with severe implications for markets.
10/19 But my main policy difference w/
@Brad_Setser
is that pushing China to fund its industrial policy via the central govt rather than local governments & state banks is an irrelevant distraction from the real problem: the scale & mechanism of Chinese industrial policy.
@MichaelAArouet
Then you’re asking the wrong question. That chart reflects social problems: gunshots wounds, suicides, overdoses, & premature birth to teens, not “healthcare”. Like-for-like disease survival rates in the US are tops.
The US healthcare problem is its cost, fraud & inefficiency.
@PolemicTMM
I think it is much simpler than that, PP. Somehow, while we weren’t looking, it became elite conventional wisdom that all assets & income belong to the government’s unless it is “expended” to let us keep it. The Truss Terrible was to “spend” money on returning to its earners.
Well put
@BobEUnlimited
: the Fed’s focus should not be on the composition of employment any more than on climate change. Those are jobs for elected representatives to address via law & fiscal policy. But the Fed ignores the Political Economy of the issue at its own peril.
@Econ_Parker
If you are making policy for the macro economy, why does it matter where the person was born?
Should the Fed consider jobs for the native born population as more important than that of the foreign population? How long should a person have been here to be on equal footing?
But you’re an economist, not a political data scientist, you retort.
True, but unlike most data scientists, I identified the 2016 & 2020 polling errors a priori & called both elections correctly as a narrow Trump win & a narrow loss, respectively.
Maybe I just got lucky!🤷♂️
NEW RESEARCH!
Is the Harris surge real & durable?
In both 2016 & 2020 sampling bias skewed polls in ways that caught political pundits & markets off guard.
Are there telltale signs of the same problem this time?
Check out
@ThematicMarkets
to find out:
@GoingJGalt
@BobEUnlimited
@Brad_Setser
@GoingJGalt
light sweet crude commands a much higher price for a reason: you can refine it in any refinery; heavy sour can only be refined in specific refineries. So this chart actually makes a stronger case for the US energy advantage.
Whatever your politics, this is a great moment that really shows
@POTUS
Biden's deep-seated likability and humanity. It would be nice to have more of this.
I'll just go consult the elders on that one:
"Genius is 1% inspiration, 99% perspiration." - Thomas Edison
"Luck is what happens when preparation meets opportunity." - Seneca the Younger
"I find that the harder I work, the more luck I seem to have." - Thomas Jefferson
Then again, our prehistoric ancestors presumably worked very hard.
And they never improved. Things never got better.
Effort isn’t what matters. It never was.
Knowledge-creation is what matters.
1/2: Here you are: almost certainly not O&G/shale-boom driven. The capex boom I've referred to is the historically large and stable share of GDP since ~2012, but the share of capex that was mining, exploration, shafts & wells peaked in 2012 and has fallen since.
My thanks as well to
@mauldinecon
for the great opportunity to have an important discussion w/
@karimhijazi
, Erik Bethel & Renè Aninao on the threat environment, needed adjustments & what that means for capex, investment opportunities, & markets.
17/19 “Global entropy: Enter the dragons” (free): My (long) framework analysis of why the world order is on the precipice of a potentially chaotic
#ComplexityCascade
(tipping point) & why the global economy is headed towards complete bifurcation:
17/x Embarrassingly, I remember holding that view, as a young PhD sitting in the Board room sniggering w/fellow PhDs about community banker Gov. Bies’ “silly” questions, & fawning over our rock-star Gov Ben Bernanke.
@PolemicTMM
@horton_official
@DrSimEvans
@kiranstacey
Actually, when you consider that the marginal replacement production is likely LNG from somewhere w/ easier flaring regs, the greater thermal forcing of methane vs CO2 (which is less/unit of energy for NatGas vs other hydrocarbons) the policy also likely is ecologically damaging.
I’m glad to see them look out the window, to check in w/ the “real economy” so to speak, rather than relying solely on the models that have so misled them - maybe they’ll finally ditch L-W’s r*🙏 - but gosh, isn’t this pretty obvious from the last two quarters of GDP growth?🤔
15/x Until the early 2000s it was common to have Governors who were “non-experts” but had been successful business people & bankers, *as well as* economists. Importantly, the latter weren’t all academics: many were professional forecasters (eg Greenspan) or industry economists.
No,
@erikbryn
, but it didn’t start a couple of years ago, it started in 2012, accelerated in 2016, & skyrocketed post Covid as the automated
#Localization
technology driving it was proven by trade wars, then Covid. See this chart of capex as a share of GDP & its 10y average.
@Noahpinion
’s overt partisanship always conflates his economics. But putting aside his rancorous politics, his “evidence” & analysis illustrate a common misunderstanding of the economics of immigration that many elites/anti-poplists more innocently make.🧵1/24
Reporters treating mass deportation as an actual "affordable housing policy" just because Republicans said it was one are just complete credulous morons
China is more fragile than understood; a thread (1/19).
Among my most controversial post-Covid calls, reaffirmed in my latest research, is that China faces less risk than feared of an economic ”crisis”, but more CCP regime risk than is acknowledged.
This isn’t the first study of this sort that I’ve seen & it begs a really important question: Why then do Trump voters by a more than 50pt margin worry more about the deficit & inflation than Harris voters? (Chart of R vs D below was handy, but similar to by candidate)🧵1/8
Republican Donald Trump’s economic proposals would allegedly increase federal deficits by almost five times more over the next decade than those of Democratic nominee Vice President Kamala Harris, per two reports by the Penn Wharton Budget Model.
19/x Since the early 2000s, however, Governors are increasingly chosen to be “experts”. Someone easily confirmed on Capitol Hill so as not to embarrass the President. But these experts all were trained on the same models at the same schools & often have little knowledge of…
23/x For most of the last decade, this model told them “neutral” real rates were 0.5% (or less). Add 2% inflation to that and where should the long-run Fed funds rate be? 2.5%. Lo & behold! Where have 11 FOMC members pinned their estimates since 2019? 2.375-2.5% (chart)!
@EpsilonTheory
Right there with you. Similarly befuddled by people’s unwillingness to accept that current interest rates are clearly *not*restrictive.🤷♂️