Archive for March 2021


AIT is increasingly credible

The Fed recently forecast 2.4% PCE inflation for 2021. The TIPS markets are showing evidence that investors expect 2% PCE inflation over 30 years, and somewhat higher inflation over the next 5 years. This is all consistent with the Fed’s 2% AIT framework, as some make-up is required for the 2020 undershoot of 2% inflation. Mostly because of AIT, the economic recovery will likely be much faster than during 2009-19.

Note that TIPS are indexed to the CPI, which runs at least 25 basis points above the PCE that is being targeted at 2%. So TIPS spreads need to be adjusted downwards by at least 25 basis points to get a crude estimate of market PCE inflation forecasts. And finally, TIPS spreads are not a perfect indicator, as there may be a time-varying liquidity premium:

More Trump China lies

From today’s Bloomberg:

The U.S. intelligence community concluded with “high confidence” that China didn’t attempt to change the outcome of the 2020 election, an assessment that contradicts repeated assertions by former President Donald Trump and his allies.

“We assess that China did not deploy interference efforts and considered but did not deploy influence efforts intended to change the outcome of the U.S. Presidential Election,” the Office of the Director of National Intelligence wrote in an unclassified report released on Tuesday. “China sought stability in its relationship with the United States” and “did not view either election outcome as being advantageous enough for China to risk getting caught meddling.”

Instead, it was Trump’s pal Putin who was actively trying to defeat Biden:

The agencies also found that Russian President Vladimir Putin ordered influence operations to hurt President Joe Biden’s candidacy, favoring Trump just as the intelligence community says he did in 2016 against then Democratic presidential candidate Hillary Clinton.

Meanwhile, another overhyped threat seems to be much ado about nothing:

Courts have repeatedly sided against Trump’s TikTok ban, ruling that the effort appeared to be politically motivated and lacked a solid finding that the popular app posed a risk to Americans’ national security.

Well before Trump took the extraordinary step of attempting to shut down a business legally operating in the U.S., TikTok had been cooperating with the Committee on Foreign Investment in the U.S., an interagency panel that reviews companies that have overseas ownership.

And never forget that at the same time Trump was trying to prevent Americans from using Tik Tok and WeChat, he was quietly encouraging Xi Jinping to put one million Uighurs into concentration camps. Soon after, he encouraged his supporters to march to the Capitol building, and pressure Congress to overturn the election of Biden.

And people think the CCP is the biggest threat to our freedom.

Taiwan, Hong Kong, and the Uyghurs

A new book details Trump’s lack of concern for the China threat:

Former President Donald Trump once dismissed the possibility of U.S. intervention in case Beijing invades Taiwan, according to a new book.

“Taiwan is like two feet from China,” Trump was quoted as saying to an unnamed Republican senator in 2019, according to the book by Washington Post columnist Josh Rogin. “We are eight thousand miles away. If they invade, there isn’t a fucking thing we can do about it.”

Let’s hope Biden is not so spineless.

Yes, Trump’s first official call was from Taiwan, but it was a mistake:

According to the book, Trump took the call from President Tsai without being aware of its significance, and later promised Xi Jinping he would accept no more such phone calls.

For example, Trump got furious after a deputy assistant secretary of state, Alex Wong, visited Taipei and angered Beijing. Trump screamed, “Who the fuck is Alex Wong” and asked to “get him out of there,” according to the book. It also quoted then national security adviser John Bolton as saying in 2019, “Trump once told me, I never want to hear from you about Taiwan, Hong Kong, or the Uyghurs.”

And just as Trump voters in America often wrongly assumed that Trump was “on their side”, the same was true of Trump’s deluded supporters in East Asia:

Taiwan and Hong Kong were the most pro-Trump places in Asia ahead of the 2020 presidential election, according to a YouGov poll. Many people in Taiwan have credited Trump for the stronger U.S.-Taiwan relations. Some democracy activists in Hong Kong also hoped that Trump could advance their cause.


And human rights? Who cares about it?

According to John Bolton’s 2020 memoir, Trump refused to issue a statement on the 30th anniversary of the Tiananmen crackdown in 2019, saying “who cares about it?” At a G20 meeting the same year, Trump told Xi he should go ahead with building internment camps in Xinjiang, since Trump thought it was “exactly the right thing to do,” Bolton wrote.

PS. How long will I keep talking about Trump? At least until I stop seeing supposedly respectable reporters saying, “At least he was tough on China.”

PPS. Why don’t I post on something more important? I like Matt Yglesias’s response:

BTW, China’s economic growth since 1980 is the best thing that ever happened to the human race.

There! I talked about something important.

Will we have high inflation in the 2020s?

Probably not, at least if the Fed sticks to its 2% AIT. But I’m not reassured by the arguments being offered:

Actually, things like globalization and a lack of COLAs don’t matter it all. It mostly boils down to NGDP growth (a variable that globalization and COLAs do not significantly impact.)

If we have fast NGDP growth during the 2020s, say 5% or more, then we’ll likely have high inflation. If we hold NGDP growth below 4% then we’ll have moderate inflation. Below 3% and we’ll fall short of the Fed’s target. (These are decade average claims; 2020-22 will be unusual.)

It’s all about monetary policy. When it comes to inflation, fiscal policy doesn’t matter. Globalization doesn’t matter. Unions and minimum wage laws don’t matter. It’s completely up to the Fed.

Are they going to give us roughly 2% inflation on average, as they promised, or are they a bunch of liars? I trust them, but will “verify”.

PS. Off topic, I highly recommend Razib Khan’s new post on Italian history, which is comparable to his masterful posts on Indian history. If he did a half dozen more such posts, then turned them into a book, it would be one of the best books of 2022.

PPS. Give Business Insider credit for this prescient March 6, 2020 article.

National socialism describes the GOP’s search for a new identity:

Hawley’s rhetoric echoes progressives who say the government has a larger role in providing equal economic opportunity. He has been a vocal supporter of direct cash payments to Americans, even teaming up with democratic socialist Sen. Bernie Sanders, I-Vt., recently on the issue.

But despite his interest in fiscal liberalism, Hawley breaks sharply from Democrats by embracing Trump’s cultural conservatism, skepticism of immigration and even his promoting of conspiracy theories about the 2020 election result — a potential new model for the party.

“Republicans need to have a broader conversation about what we’re going to do to support working people, working families in the middle of the country, where I’m from, but all across the country,” Hawley said. “So I hope that that’s the direction that we’re headed.”

Nationalism plus socialism—what could go wrong?