A lot of the elites are going out to bat for NIRP. Be vigilant & do not let them normalise negative interest rates in the US. If you don’t like inequality where it is today after a decade of ZIRP, think about what happens when NIRP comes to reduce costs of risks entirely.
NIRP is not normal & do not let anyone normalise it. Ever.
We all will pay for it. No such thing as a free lunch. We will enter something in which there is NO EXIT, well, let’s just say that no one has exited, yet, & don’t know how to exit as NIRP is a doom loop. Yep.
Something else. Look for negative interest rates & their consequences beyond the entire bund yield curve going below zero OP EDS. Do you see them in the FT & key financial journals? No. Do you know why?
George Orwell wrote: the REAL news is what is NOT on the news 👌🏻
Will continue this thread when I have more band-width. Will do something similar to my trade-war one pinned above.
This. Does it say anything about ordinary people. The economy? No.
The abstract says: HOW TO ENABLE NIRP.
What is NIRP for: MAINTAINING THE POWER OF MONETARY POLICY to end recessions.
Really. It says that. To maintain the power of monetary policy 👌🏻
That phrase that the zero bound is not the law of nature by the IMF & repeated by some on twitter. Do u know what is the law of nature when mankind doesn't have rules?
Allow me to quote Hobbes on life before the social contract: Life is solitary, poor, nasty, brutish and short👌🏻
The LAW OF NATURE is NO WAY TO CONDUCT MONETARY POLICY and definitely NO WAY TO WRITE A GUIDE ON HOW TO CONDUCT MONETARY POLICY.
This is not sufficient logic. Thread will continue later. Got Asian economics to deal w/ 1st.
Before I go, he summarized his thesis in this sentence for the 89 pages of how to ENABLE NIRP (I didn't say it, author did). Read this: to MAINTAIN THE POWER of monetary policy in the future to end recessions w/in a SHORT time.
ECB started NIRP in 2014. We're 2019. Define SHORT.
Here is food for thought, since NIRP in 2014, the German economy now shrank -0.1% in Q2 2019. Read that thesis again: To MAINTAIN THE POWER of monetary policy in the future to end recessions w/in a SHORT time.
Winter is here & they have burned all the wood 👌🏻👌🏻👌🏻.
A technical recession is 2 consecutive quarters of contraction so let's see if Q3 is better. But let's ask a basic question for those pro NIRPers:
The ECB has been lowering the deposit rate since that fateful June 2014 from -0.1% to now -0.4% & bund deep below zero. So where to?
• • •
Missing some Tweet in this thread? You can try to
force a refresh
India unveiled its FY25 budget yesterday (btw, they have another one in 6 months) & it was very much a fiscal consolidation, jobs, and responding to people's beef about the woeful labor market (Modi lost seats in Uttar Pradesh).
Before I talk about the Budget, let's talk about India labor supply & demand. Ready?
As you know, India is the most populous country in the world today & will be even more so in the future.
Let me put it a different way, by 2040, one out of 5 people will be Indian.
So what happens to India matters because it's a fifth of the world population by 2040.
India will have more people than China or the same as China and the US combined.
Yes, a lot of people. That's beautiful (generally referred as demographic dividend assuming that we have jobs for them) and highly problematic for India (high joblessness and civil unrest), Indian politics and also how to manage this massive supply of people (skilling them, finding jobs for them etc).
First, nickel is a material that has to be DUG out of the earth & process. Some easier (colder nickel in Russia) & some harder like wet & warm places like Indonesia where you have plenty of it but it's the processing that's difficult.
Here comes China.
The mining & processing of nickel are energy intensive. And more importantly, for Indonesian nickel, it was considered too low grade to do & China had breakthroughs in a technology called high-pressure acid leaching (HPAL). "Low-grade nickel ore is placed into pressure vessels, where it’s treated with sulfuric acid and heated. After that, the nickel that separates out will be suitable for batteries, once it’s refined"
China new home sales fall further & while some may say that the real estate is now not so important for China, it remains a key driver of wealth effects & that is negative. Meaning, the data dump that we will get in 10 mins will likely show a further misaligned economy where consumption falters while supply rises.
This will add to further tensions with the West & even the South as China will need to export that excess supply, driven by policy to rise in the value chain, or to vertically integrate its supply chain, to the rest of the world.
Chinese corporates will increasingly have to do it via tariff arbitrage, as in third country export or building factories where they want to sell.
Some say it doesn't matter as Chinese firms gain market share.
Actually, it does matter. Employment matters. So unless they can get Chinese workers to manufacture goods in third country or in the country/region of export, over time, employment demand will fall in China for manufacturing.
Instead of a landslide, we got earthquakes, Modi & the BJP got the most seats but much less than they benchmarked (400) & less than 2019 (303) at 240. To govern, they need to work with fickle allies to operate a coalition government.
This will require a much more consensus driven governance.
That may be positive or negative depending who u are. Meaning, in the short-term, forming a government takes priority over long-standing reforms that are already politically difficult when they had the government. We may have more fiscal welfares & so if we continue with the same capex, fiscal deficit may widen. Or we may have less capex than before. Irrespective, this area will be watched carefully. Under Modi, grain & fertiliser subsidies remain large & was promised to be in place.
Note that India fiscal deficit has consolidated as of late but remains large. What has changed is the quality - higher tax rev ratios & more capex & less subsidies as share of GDP
Some say that a coalition won’t change as it is still Modi in change. But that is IF a coalition stays the course (he got some really fickle allies) & this that if adds to risk premium in the short-term.
Irrespective, India fiscal is in a rather decent shape so we have a solid foundation to work with here.
This article in the FT doesn't make any sense. The author argues that Modi fails to create job for low-skilled people, esp labor-intensive manufacturing. It also faults Modi for its high-end growth (services, high-tech, infra, etc)
But then it ends with saying, well, don't bother to even develop manufacturing and just work on service exports.
Btw, all the critiques of India makes sense. The issue I have with Rajan and also Congress is their solutions.
They don't have one. Literally. Rajan tells India to forget about trying to do manufacturing & focuses on services.
India exports a lot of services. Manufacturing is the weak spot, not services!!! And if u want a lot of jobs, u need labor-intensive manufacturing.
A country with such a large population needs to growth via all sectors - services, manufacturing, agriculture etc. You can't leapfrog development & go to services.
India & the Philippines have tried that. Not working & hence need to include manufacturing & infrastructure building.