Wednesday 13, July 2022
The UK is in danger of repeating the mistakes of the inter-war years
A post called Monetary and fiscal policy in interwar Britain is a post which suggests that the root cause of the 20’s/30’s depression in the UK (known at the time as ‘The Slump’) was more a result of a deluded monetary policy than a bad fiscal policy. I have always believed that Churchill, in his idiotic decision to bring the UK back onto the pre-war Gold Standard in 1921, was the author of the misery of the 20s, including the General Strike. How he is considered a Great Man by contemporary Britain is beyond me, but I guess those who fail to study history are condemned to misunderstand it.
Unfortunately, the present Governor of the Bank of England seems hell-bent on repeating the mistakes of the twenties.
H/T (as they say) to Dario Perkins, who tweeted about this today.
Batteries are so not the answer
We're told solar and wind future
— Bjorn Lomborg (@BjornLomborg) May 21, 2022
But when wind is not blowing and sun not shining?
Batteries! Yet
Europe uses 7.5GWh/minute and has 10.2GWh of battery storage: enough for just 1m:21s
2030: 11m:45s
After that, we need 100% backup, mostly fossil fuelshttps://t.co/dore3BbLIO pic.twitter.com/GUUh8m0iF1
The tweet points out that we’ll never have enough batteries to replace fossil fuel generation. This is an article about the battery market.
Online Safety/Harms Bill
UK Now Calling Its ‘Online Harms Bill’ The ‘Online Safety Bill’ But A Simple Name Change Won’t Fix Its Myriad Problems is a piece about this dismal piece of legislation. It represents the continuation of a trend in which enforcement of the law is outsourced to unpaid third parties. In this case, social media companies are to be threatened with criminal sanctions if they fail to remove vaguely defined harmful content. Governments hate free speech. All of them. One only has to look at what has happened to Assange and Snowden. The Internet has the potential to amplify the voices of those critical of the establishment. It’s natural that these measures should be targetted at the Internet.
There is some opposition to this in the mainstream media but it’s not a topic in The Sun.
This is the Government saying:
Sometimes bad things happen on the Internet. We don’t know how to deal with this. So if you run an Internet service, and something bad happens, we’re going to blame and punish you, so fix all the problems yourself.
Curve inversion
EDM3/EDM4 spreads, a year calendar spread on eurodollar futures, Jun-23 to Jun-24, is now standing at -64bp, according to Alex Manzara, i.e. rates are expected to drop by 64bp over the year concerned. Such inversion almost invariably presages a recession. I guess it’s unsurprising that copper prices are cratering, along with the Chilean Peso. At some point, this will bounce back violently, but probably not for a while.
Bank of England indicates that it sees the neutral rate as low and unchanged
This suggests that the Bank will slow down or stop tightening fairly soon, but with Bailey in charge it’s anyone’s guess.
Reading tips: Neutral interest rates likely to remain low. In his speech last night, Bank of England Governor Bailey presented findings of a new research paper, concluding that global interest rates are likely to return to historically low levels once the current inflation shock has been addressed. Global structural forces speak in favour of permanently low interest rates, implying that the current rate hike cycle will be limited and relatively short-lived. According to Mr Bailey, equilibrium real interest rates could rise if investment increased and productivity improved but he was skeptical that the pandemic had changed those dynamics but said climate change was “a more salient” reason.
From SEB: an excellent, free resource.
US competition policy
The US government has been hijacked.
But while Republicans, situated in what is know as the Chicago School, get a lot of the blame, Democrats, who came from the ‘post-Chicago School’ or ‘Harvard School’ were just as important. Stephen Breyer, for instance, helped Antonin Scalia eliminate monopolization law. And Ruth Bader Ginsburg, until late in her career, ruled on intellectual property rights, the big business lobby and monopoly power in a manner indistinguishable from her conservative colleagues. RBG laid down the template for the elite liberal legal establishment, which is to do something important and meaningful on left-wing social questions, and rule for business where few but big money are noticing. It’s why she was endorsed by the U.S. Chamber of Commerce for the Supreme Court.
It’s not just the Supreme Court. Democratic judges have been important partners in the project of destroying antitrust at lower levels. In 2019, it was Clinton nominated judge Victor Marrero who allowed the Sprint-T-Mobile merger to go through. Last year, Obama-nominated judge James Boasberg snottily dismissed both New York state and the Federal Trade Commission’s antitrust complaint against Facebook. And earlier this year, a Bill Clinton judge dismissed the D.C. Attorney General Karl Racine’s complaint against Amazon.
The Global Reach of Inflation
ARP Investments points out that inflation is at very high levels throughout the world and that this will inevitably result in political fallout, not only in Sri Lanka.
The coming winter could be brutal in those countries, and it won’t be much better in the rest of Europe. Putin is toying with the idea of playing his best card – the ability to turn people in western democracies against their own governments by switching off gas supplies to all of Europe. If he does that, continental Europe will almost certainly enter a recession over the next 6-9 months.
This scenario seems very likely. Buckle up, everyone!
Hemingway quote
No, not me!
“The first panacea for a mismanaged nation is inflation of the currency; the second is war. Both bring a temporary prosperity; both bring a permanent ruin. But both are the refuge of political and economic opportunists.” - Ernest Hemingway, Esquire 1935
H/T the great Rudy Havenstein.
Wrap
CPI in June in the USA hit 9.1%, with core CPI hitting 5.9%, slightly below the May figure, but above the expectation. Markets didn’t much react. 10Y US yields actually went down 3bp: curves are becoming more and more inverted, and everyone is talking about a recession. The Euro hit parity with the USD again. Everyone is talking about Tesla, as usual, but I’m not sure that’s a good thing. A new ETF in the US was launched which allows retail investors to conveniently go short Tesla. It’s widely expected that Twitter will win its case against Elon Musk.
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