Tuesday 1, March 2022

Wrap

Oil prices have gone up 76% YoY, 22% MoM and 15% in the last week. So far oil stocks and longer-dated contracts have not moved nearly so much, but inflation expectations are now so entrenched (in my view) that it will be a while before we see the price being driven down. Virtually every commodity is in an established upward trend. TTF gas has gone up 700% YoY and is still rising. Coal has gone up 244%.

The SPX has had two months running in which it has “lost ground.” We may be seeing a secular shift.

The driver of all this is a shortage of minerals caused by Russia being excluded from world trade links. It will be interesting to see how China reacts to this. For the moment, it will probably be content to buy cheap Russian oil and gas, but for how long can the west tolerate this sort of behaviour. We all know that Xi and Putin are autocratic thugs, but diplomats are not supposed to say that out loud.

The 1920s

I have been listening to Murray Rothbard’s lectures on the 20th Century American Economic History. Rothbard is regarded as a somewhat fringe figure by the economics profession, possibly because of the very low opinion in which he held most of the leading practitioners of his time and earlier. He is an entertaining lecturer, though, and his lectures can be downloaded as a series of podcasts. I was listening to his account of how the UK came to return to the gold standard at its pre-war parity in 1921, and how via the League of Nations, the UK impoverished the Balkan states by making them link their currencies to stirling. What is interesting is the extent to which bankers and industrialists were closely involved in setting monetary policy even back in the 1920s.

My conclusion, from listening to these lectures, is that monetary policy cannot actually prevent the economic damage that results from the operation of the business cycle, but it can redistribute the pain between classes. Rothbard has a fairly hard-line Misean world view, but his account of the history is largely a factual one, as far as I can tell.

He makes many points, but the one that I think is relevant today is that there is a natural tendency in any developed economy towards deflation. For a given set of factors of production, advances in technique and knowledge will allow the same quantity of consumer goods available at ever decreasing real cost. He would certainly decry the current governors of central banks.