Just one question Russell - how will governments finance themselves if long-term bond yields spike and TLT sells off?
If the bond market as a source of financing is closed, then they will be forced to run primary surpluses. Wouldn't that be very contractionary for demand and hence disinflationary?
I am pretty sure that rising wages will drive strong nominal growth, if not necessarily real growth, which should drive tax revenue, while also increasing GDP making financing relatively easy. I also see corporates getting taxed more heavily, which should also drive inflation.
In the UK, they are pushing austerity - which is deflation - but I see the conservatives getting destroyed at the next election, and austerity disappearing as a political policy for a generation at least
I probably should not be too mean to the Tories. Boris Johnson understood what voters wanted - and was running a tax and spend government. But I think any party that runs on austerity policies is going to do poorly. Given recent form - policies may well have changed by the time the election comes round!
Hi Russell, curious why you think there won't be a recession? I mostly agree with your view on the political shift and think there is no real appetite for a tough and/or long recession despite all the current rhetoric, so I think the Fed and the Republicans (and the Tories in the UK) will quickly reverse course if/when the going gets really tough, but even if it's more for optics than anything else, don't you think there is a decent chance they break something while pretending to be tough guys (and gals)?
From what I have seen, when wages rise, demand rises very quickly, particularly from the very low level real wages are now. So rising wages are creating fast rising demand, which is raising wages etc. Now profits could fall, and companies could decide to fire workers... but you would have to be a brave owner to get rid of workers at the moment. My guess its like the 50s and 60s where government spending keeps everything going strong
Got it, thanks. I agree with that over the medium to long term, just wondering about the sequence and thinking we might need a recession to get over the last remnants of pro-capital policies - I don't think the "liquidationists" are fully vanquished yet (like you say, not a political statement on my part, just an observation). I agree there is a lot of more or less sneaky stimulus behind the monetary and fiscal tightening rhetoric. It's a tough call for me which will prevail over the next 6-12 months. Beyond that I have more conviction.
Not sure about that... but lets say the fed does "pause" or even cuts, then I expect USD to fall, and the long end to sell off dramatically. That is if the Fed does not act, inflation surges
Good work
Just one question Russell - how will governments finance themselves if long-term bond yields spike and TLT sells off?
If the bond market as a source of financing is closed, then they will be forced to run primary surpluses. Wouldn't that be very contractionary for demand and hence disinflationary?
I am pretty sure that rising wages will drive strong nominal growth, if not necessarily real growth, which should drive tax revenue, while also increasing GDP making financing relatively easy. I also see corporates getting taxed more heavily, which should also drive inflation.
In the UK, they are pushing austerity - which is deflation - but I see the conservatives getting destroyed at the next election, and austerity disappearing as a political policy for a generation at least
Yes, let's see how the Tories fare at the next general election
I probably should not be too mean to the Tories. Boris Johnson understood what voters wanted - and was running a tax and spend government. But I think any party that runs on austerity policies is going to do poorly. Given recent form - policies may well have changed by the time the election comes round!
Hi Russell, curious why you think there won't be a recession? I mostly agree with your view on the political shift and think there is no real appetite for a tough and/or long recession despite all the current rhetoric, so I think the Fed and the Republicans (and the Tories in the UK) will quickly reverse course if/when the going gets really tough, but even if it's more for optics than anything else, don't you think there is a decent chance they break something while pretending to be tough guys (and gals)?
From what I have seen, when wages rise, demand rises very quickly, particularly from the very low level real wages are now. So rising wages are creating fast rising demand, which is raising wages etc. Now profits could fall, and companies could decide to fire workers... but you would have to be a brave owner to get rid of workers at the moment. My guess its like the 50s and 60s where government spending keeps everything going strong
Got it, thanks. I agree with that over the medium to long term, just wondering about the sequence and thinking we might need a recession to get over the last remnants of pro-capital policies - I don't think the "liquidationists" are fully vanquished yet (like you say, not a political statement on my part, just an observation). I agree there is a lot of more or less sneaky stimulus behind the monetary and fiscal tightening rhetoric. It's a tough call for me which will prevail over the next 6-12 months. Beyond that I have more conviction.
This would mean USD or DXY will surge to strength again. GBP and EUR denominated entries into US equities could get a free currency carry?
Not sure about that... but lets say the fed does "pause" or even cuts, then I expect USD to fall, and the long end to sell off dramatically. That is if the Fed does not act, inflation surges
Chances are that the EZB pauses / cuts before the Fed, unless they unleash the mother of all QE plans to support “southern” Euro.
U.K. denominated entries may well be different due to BoE singularity of focus.
But if I look at the 2023 FOMC, a cut seems most likely (bar a black swan) by Sept which gives c.3 quarters of a positive carry in Euro terms.
I’m usually wrong though 😆😆