Take aways from the IMF/WB meetings
1. European denial: Europeans converged on DC this week. The degree of denial on the shift in geopolitics that Russia's invasion of Ukraine signifies is alarming. Short-termism rules. A strategic vision is woefully missing. A huge problem... 2. European strategic autonomy: there's a surprising number of folks who - in the event of a Trump win - advocate a European pivot towards China. Seriously? China allied itself firmly with Russia in its invasion of Ukraine. You may not like Trump, but this would be a disaster...

The Euro zone is like a bad game. There's high debt and low debt countries. The goal of high debt countries is to shift as much of their debt onto low debt countries, so they never have to pay down debt. Crazy thing is: low debt countries allow this to happen. High debt wins... The key balance sheet for this debt shift is the ECB, where a complex jargon exists to hide this debt transfer. For example, high debt means yields periodically spike when there's global shocks. In the ECB vernacular, this gets called "fragmentation" and has to be prevented...

Western gaslighting on Russia sanctions
1. The German word for gaslighting is "Nebelkerze," which means "fog candle." Many western commodity experts and journalists loudly claim the G7 oil price cap can't work, while endorsing financial sanctions on Russia. They're gaslighting... 2. It's exactly the other way around. Financial sanctions on Russia can't work, while the G7 cap is the only way to squeeze Putin. We sanctioned some of Russia's banks (red), so money just flows via non-sanctioned banks (blue). Putin still gets ALL the hard currency he wants...

A. Russia sanctions
1. Financial sanctions on Russia don't work
2. We sanctioned Russia central bank (red)
3. Russia switched to using Gazprombank (blue)
4. Russia still earned the same amount of cash
5. Only way to fix this is to sanction all banks
6. That's like an oil embargo B. Lesson is that you can't hurt a current account surplus country by sanctioning some of its banks. You have to sanction all banks, but that's like a trade embargo, since Putin won't export oil if he can't get paid. The G7 cap recognizes this. It targets the current account...

IMF/WB meetings in Marrakesh
1. Deep gloom beneath the surface. At best, the US is seen as divided and distracted. At worst, it's seen as weak. Wars in Ukraine and Israel are symptoms of this. Many think the US will get tested more and more, so geopolitical risk will keep rising. 2. A meta question that hangs over everything: "What if Trump gets re-elected next year?" Such an outcome is seen as being very negative for Ukraine and Europe. Even if it doesn't happen, Putin and others have every incentive to sow confusion and instability ahead of Nov. 2024...

@steve_hanke Argentina has a population of 46 million. El Salvador has a population of 6 million, Panama has 4 million. Both countries are thus much smaller than Argentina, not to mention the fact that El Salvador has much lower per capita GDP. Not good comparators for Argentina at all... @steve_hanke Ecuador has a population of 18 million, smaller than Argentina but better than the countries you listed. Ecuador - like Argentina - is a commodity exporter, which is key. Falling commodity prices often coincide with a soaring Dollar, which is a double whammy for dollarizers...

Argentina vs Turkey
1. Argentina and Turkey are at opposite ends of the planet, but have many bad things in common. Turkish Lira was kept artificially strong until the May 28 election, after which it collapsed (orange). Argentina's Peso collapsed after the Aug 13 primary (white). 2. This interference in markets is the worst kind of electioneering. This political manipulaton of the economy also shows up in real GDP growth. Similar electoral cycles have given both countries the same boom-bust pattern, even though they're at opposite ends of the planet...

Should Argentina dollarize?
1. Argentina has repeatedly pegged the Peso to USD, a policy that - over and over - ends in massive devaluation and hardship. Dollarization is just the most extreme form of such a peg, so - unfortunately - the current debate is just more of the same... 2. What's the problem with EM Dollar pegs (of which Dollarization is just a special case)? EM inflation is above US inflation. If you peg your currency to USD, your real exchange rate inevitably rises & becomes overvalued. That makes explosive devaluation inevitable. See Egypt...

Enforcing western export controls on Russia
1. Early this year we set up an algorithm that combs through all western export data to Russian periphery countries. We found many "suspicious" trade patterns, including false positives. Here's what we learned and lessons for policy... 2. Our algorithm looks for unusual trade patterns. It can sometimes pick out false positive. An example: Italy's exports to China spiked early in '23. This was about the end of China's zero-COVID policy and Chinese citizens panic-buying an Italian drug. Not Russia related...

Russia's shadow fleet
1. Right after Russia invaded Ukraine, Greek shipping oligarchs used their oil tankers (blue) to help Putin. As the war progressed, they changed strategy, selling their ships to Russia. Putin can't build his shadow fleet without help from these oligarchs... 2. These sales of Greek-owned ships to the shadow fleet are likely one reason the share of Greek oil tankers has fallen steadily from its peak in April 2022. There's more money in selling ships to Putin than shipping his oil, especially with all the paperwork around the G7 cap...

If Putin falls, what happens to Russian markets?
1. Russia's GDP is stable for two reasons: (i) we help Russia run huge c/a surpluses, so it gets lots of inflows all the time; (ii) ordinary Russians can't take money out, i.e. no outflows. So financial conditions are super easy. 2. This combination - large current account inflows without private capital flight - means liquidity in Russia has been super abundant since the invasion. The GS financial conditions index is back to where it was before the invasion in Feb. 2022. That's great for Russia's GDP...

Greek shipping oligarchs and the EU
1. Russia in H1 '23 exports more oil than ever (blue). That is possible only thanks to Greek-owned tankers (red), who - since Russia invaded Ukraine - stepped in to transport Russian oil big time. Greek ships are 50% of total tanker capacity... 2. Greek shipping oligarchs shifted their tankers to help Russia after the invasion. Greek ships were 33% of total tanker capacity out of Russian ports prior to the invasion. Since then, this number is up to 50%. This means Putin's war machine depends critically on Greek ships...

ECB PEPP reinvestments need to stop
1. The PEPP program - unlike QE under Draghi - allows ECB to skew bond buying in favor of certain countries. Maybe that was ok at the height of COVID, but it is NOT justified now. PEPP reinvestments that favor certain countries need to stop... 2. The country skew in ECB PEPP purchases has gone under the radar, but it shouldn't because it takes ECB bond buying into quasi-fiscal territory. This kind of fiscal skew would have been unthinkable when the ECB was established and is anathema to voters in northern Europe...

The US banking shock
1. The SVB shock is now almost 3 months old. Since then, deposits have stabilized (lhs, red). The more noteworthy development is on lending, which has ground to a halt (rhs, red) vs torrid loan growth in 2022 (rhs, blue). Where's this "sudden stop" happening? 2. The "sudden stop" in loan growth is most pronounced for C&I loans, where cumulative loan growth is 0.3% year-to-date versus 7.8% in 2022 (lhs). That's a HUGE slowdown in lending. Same for consumer loans, where cumulative growth is -0.2% year-to-date versus 4.5% in 2022 (rhs).

Germany in Crisis: Eurovision 2023
1. To many of us who - like me - love German rock and the fine "Schlager" genre, yesterday's last place finish at Eurovision was a gut punch. Germany faces many challenges, but - the common denominator for all of them - is Germany's music crisis 2. Germany last got first place in 2010 with Lena's mega hit "Satellite," a song we all love. Ever since, it's been the musical wilderness, with last place finishes in 2015, 2016, 2022 & now 2023. Germany got next-to-last place in 2021 and 2019 thanks only to the UK placing last.

Euro zone inflation puzzle
1. Back in 2019, we started the Campaign against Nonsense Output Gaps (CANOO), arguing that Euro zone slack is greater than consensus thinks, yet Euro zone core inflation (orange) rose along with everyone else. How can this be? @adam_tooze @heimbergecon 2. There's little doubt that Euro zone slack is greater than the US. Trend growth pre-GFC was on par with the US, only to fall behind in the decade following the 2008 crisis. The Euro zone HAS to have come into COVID and Russia's invasion of Ukraine with more slack than the US...

Italy's export surge to China
1. Last week we flagged a big rise in Italian exports to China. Here's the story. Without western vaccines, China's consumers are buying a generic liver drug made in Italy that's rumored to prevent COVID. Big thanks to @bancaditalia and @p_ceretti... 2. You can break out Italy's total exports to China into pharmaceuticals (red) and other (blue). The sharp rise in Italy's exports in recent months is entirely accounted for by pharmaceuticals. Other exports to China are actually down a bit. With @econchart and @JonathanPingle

Needed steps on Russia sanctions
1. Financial sanctions are very effective for current account deficit countries. Deficit countries borrow on global markets, which can make sanctions very impactful. Turkey in 2018 is an example. But Russia has a large current account surplus... 2. Russia's current account surplus - from energy exports - means it is a net lender to the world, not a borrower. We did sanction some banks, including the central bank (red), but Russia just built up foreign assets via non-sanctioned banks (blue). Putin still got tons of cash.

Europe's flawed debate on fiscal rules
1. Europe's debate on fiscal rules is flawed, as de facto spread management - and resulting low yields - make it seem like highly indebted periphery countries have fiscal space, when they do not. A major overhaul of this debate is needed. 2. Periphery spreads are low. Much of this is due to de facto spread management. We have a natural experiment to show this. In March 2020, President Lagarde said: "ECB isn't here to close spreads." Spreads immediately shot up. There's been de facto spread management ever since.

Evaluation of our sanctions policy
1. Only 2 questions matter. First, have our sanctions meaningfully curtailed Russia's ability to wage war? Second, are our sanctions a deterrent to countries that may wage war in the future? Unfortunately, the answer to both questions is: "No!" 2. Root problem is an infatuation with financial sanctions. These can be effective when used on current account deficit countries - Turkey in 2018 is an example - but they don't work on current account surplus countries. This is a key point that cannot be emphasized enough.

Requiem for IMF/WB spring meetings
1. After SVB, everyone's more bearish, but NO ONE forecasts a US hard landing, hard to square with reality of credit cycles. Assume credit is flat into end-2023 (black). Credit impulse (blue) - which drives GDP growth - goes deeply negative... 2. So there's a kind of collective denial how credit cycles work. Assuming credit in % GDP is stable into end-2023 is arguably an optimistic assumption. Yet even in this positive scenario, the credit impulse almost guarantees a US hard landing. Odds of deep recession have risen.