Dornbusch overshooting in Japan

In Rudi Dornbusch’s exchange rate model, a tight money policy causes a currency to appreciate sharply, overshooting its long run equilibrium value. From that point on, it is expected to gradually depreciate over time.

Recent trends in the dollar/yen exchange rate provide an almost textbook example of Dornbusch overshooting. This graph is from Bloomberg:

The 10-year nominal bond yield differential is even more striking, more than 300 basis points. Because of the interest parity condition, that means the yen is expected to appreciate by more than 3%/year over the next decade. And because monetary policy has little effect on the long run expected real exchange rate, a tight money policy in the US that causes higher interest rates must force the spot dollar much higher, so that it can be expected to fall back to something closer to its long run equilibrium over time.

Note that “never reason from a price change” still applies. If a country sees its interest rates rising merely due to higher inflation expectations (not tight money), then there is no reason for its currency to appreciate in the spot market. For example, look at countries like Turkey and Argentina. This is presumably why the FT graph shows the real interest rate differential.

A more timely example might be the UK, where rising bond yields triggered by an announced tax cut (seen as recklessly expansionary) were associated with a depreciating pound. I’m often critical of the “fiscal theory of the price level” (in the US context), but the recent market reactions to Truss’s policy initiative do match that model.

Bloomberg also reports that the Japanese government is trying to prevent yen appreciation. depreciation:

Japan intervened to prop up the yen for the first time since 1998, after its central bank sparked further declines in the currency by sticking with ultra-low interest rates as its global peers hiked.

The yen rose as much as 2.5% against the dollar, pulling back sharply from the lows of the day when it had breached a key psychological level of 145, as top currency official Masato Kanda said Thursday the government was taking “decisive action.”

This seems misguided. Every time that Japan shows any sign of breaking out of the low inflation trap, the Japanese government does something to push the yen higher. What are they afraid of?

PS. A graph showing the nominal interest rate differential and the exchange rate would look quite similar. What would a NeoFisherian make of such a graph?



48 Responses to “Dornbusch overshooting in Japan”

  1. Gravatar of Mike M. Mike M.
    25. September 2022 at 01:45

    So if the 10-year UST yield goes to 7% (say) and the 10-year JGB yield is 1% (75bp above the limit the BOJ currently sets), then the spot USDJPY rate would need to double to get the 7%/year subsequent depreciation… USDJPY at 200??? I get paid in JPY, yikes! Great news for all the US readers who come here to Japan though, you’ll be able to enjoy $4 dinners in Japan if UST yields go to 7% then.

  2. Gravatar of ssumner ssumner
    25. September 2022 at 05:51

    Mike, Yup. And Japan was cheap even before the yen plunged in value.

  3. Gravatar of dtoh dtoh
    25. September 2022 at 06:07


    Here’s how I tend to look at exchange rates (at least in the case of Japan.)

    The forward rate(s) is the market’s expectation of the rate(s) at which the current account would be in equilibrium in the future.

    The spot rate is just a function of the forward rate and the interest rate differential.

    If you look at the data, the forward rate is pretty steady. The spot rate varies with the interest rate differential.

  4. Gravatar of David S David S
    25. September 2022 at 14:21


    Thanks for the brief comment on Britain’s situation. I hope you expand on that more as it develops.

    As far as I can tell, the Truss plan for Britain consists of the following set of delusions:
    -Tax cut that spurs massive growth of the economy, including an export boom to the E.U.
    -Energy subsidies that keep people happy and warm over the winter
    -Deregulation of the London banking sector that makes it a haven for Russian oligarch money laundering again—and steals market share from New York, Paris, etc…
    -Pray for lower inflation

    Will the Bank of England spray cold water on her fantasy?

  5. Gravatar of George George
    25. September 2022 at 17:47

    Japan is a beautiful country.

    How about we the fix the mess right outside the windows of the children of ‘this’ country?

  6. Gravatar of Michael Sandifer Michael Sandifer
    26. September 2022 at 03:05

    My thought for a long time is that Japan fears being bullied by the US. After the stupidity of the Plaza Accord in ’85 and the subsequent Louvre Accord in ’87, which tried to fix the problem with exchange rates caused by the Plaza Accord, Treasury Secretary Baker started publicly bullying Japan and West Germany to promote a weak dollar policy in early fall of ’87. This, I think, along with other factors such as expected tightening of monetary policy, contributed greatly to the stock market crash in fall of that year.

    The idea that the Reagan administration was somehow economically wise is an interesting perspective.

  7. Gravatar of Michael Sandifer Michael Sandifer
    26. September 2022 at 03:10

    What’s happening with the Pound this morning is more interesting though. Scott can take a victory lap concerning his perspective on Brexit. As he predicted, along with many other economists, it made the UK poorer, with no prospect of trade outside of the EU to come close to making up for the trade lost with the EU.

    And to all of the conservatives there who correctly warned that Jeremy Corbin could lead the UK to stagflation and debt problems, why didn’t you support better policy?

  8. Gravatar of Spencer Spencer
    26. September 2022 at 06:08

    re: “contributed greatly to the stock market crash in fall of that year”

    Black Monday was caused by Alan Greenspan dropping legal reserves at the fastest rate since the GD.

  9. Gravatar of Todd Ramsey Todd Ramsey
    26. September 2022 at 11:20

    Scott, off topic.

    What are your expectations around the USD GBP exchange rate for the next couple years?

    Obviously I don’t know whether you will answer, but I figure it can’t hurt to ask.

    IMO the Truss reforms present a rare opportunity to bet on free market reforms, which I can do by purchasing a UK ETF. The USD GBP exchange rate will affect my returns in the US, so I’m hoping for some insight.

    Thank you! (For reading, even if you don’t respond).

  10. Gravatar of Brian Brian
    26. September 2022 at 13:16

    Quote… “Bloomberg also reports that the Japanese government is trying to prevent yen appreciation”.

    Could it be you mean to say “prevent yen depreciation” ?

  11. Gravatar of George George
    26. September 2022 at 17:55

    Imagine if Trump said these things.

    Where are all the posters on Biden’s stupidity, and corruption? Crickets?

    Is the belief really that it’s all the fault of others, because too much anti-Biden narrative would risk being labelled or perceived by others as helping Trump and MAGA?

    Politics over truth? Power over consistency? Authority over freedom?

    Consider what fake is saying and not saying because it’s Biden, and then ask yourself why, and then find out the msm is IN REALITY the political propaganda arm of the Democrat Party.

  12. Gravatar of George George
    26. September 2022 at 17:58


    You wrote:

    “What’s happening with the Pound this morning is more interesting though. Scott can take a victory lap concerning his perspective on Brexit. As he predicted, along with many other economists, it made the UK poorer, with no prospect of trade outside of the EU to come close to making up for the trade lost with the EU.”

    You’re not predicting anything other than a “Theory” that will be confirmed “true” regardless of the outcome.

    Know how I know? It’s because you don’t have the tools to do any better. The UK is richer THAN IT OTHERWISE WOULD HAVE BEEN because of Brexit.
    If the UK were still in the EU, it would have been EVEN WORSE.

    Your ideology is nothing but garbage globalist communism that is not even a falsifiable science.

    “And to all of the conservatives there who correctly warned that Jeremy Corbin could lead the UK to stagflation and debt problems, why didn’t you support better policy?”

    Do you still beat your wife?

  13. Gravatar of Michael Sandifer Michael Sandifer
    26. September 2022 at 18:52

    George, LOL

    Don’t see a commmenter here who doesn’t know more about economics, and hence, free markets than you do. That’s why you unwittingly support anti-free market policies. It’s okay though. Just leave the economics to the adults and enjoy your beer.

    Adults understand that there’s no way the UK can make up for the lost trade with the EU, due to the so-called law of gravity. Other potential trading partners are too distant. This is why UK stocks and the pound tanked on pro-Brexit news, including the vote outcome.

  14. Gravatar of ssumner ssumner
    26. September 2022 at 21:03

    Todd, I don’t predict asset price movements, but if forced to guess I suspect the pound is more like to appreciate (due to PPP).

    Brian, Thanks, I corrected it.

  15. Gravatar of George George
    27. September 2022 at 08:36

    FBI and Fakebook are overshooting their designs.

    Fakebook recently went hat in hand asking Trump to come back after they censored and banned him. What tone deaf arrogant arseholes.

    Fun fact: Facebook is a DARPA program “LifeLog” used to spy on and track citizens under the guise of ‘cool, hip social media’. There is a database in China so the CCP has it all too.

    Feb 4, 2004 same day ‘LifeLog’ name ended, ‘Facebook’ name started. Surely that’s a coincidence.

    Fake News and Pedowood assets pushed narrative Facebook is cool, competitors like MySpace are uncool.

    Tik Tok is CCP malware, designed to confuse and divide America’s youth. Tik Tok videos in China are largely ‘normal’, masculinity is not ‘problematic’ or ‘toxic’, patriotism is encouraged, and yet they ban there the perverted drivel that confuses US children. Surely that’s a coincidence too.

  16. Gravatar of George George
    27. September 2022 at 08:55

    Michael Sandifer:

    “Don’t see a commmenter here who doesn’t know more about economics, and hence, free markets than you do.”

    Is that a question, a smear, or a projection, or just habit stemming from envy and/or resentment?

    “That’s why you unwittingly support anti-free market policies.”
    I am not an anarchist who believes it’s a free market when some countries are taken advantage of while other countries are favored.

    You’re only free market when you can make a political party propaganda statement, and you’re anti-free market when you can make a political propaganda statement.

    You are ok with fascism (FBI colluding with Facebook and media companies to censor Hunter Laptop story) and you are VERY VERY OK with communism (central bank fiat systems are plank 5 in Marx’s Communist Manifesto), and VERY VERY VERY OK with GLOBAL COMMUNISM by your attacks on the UK’s sovereignty by a communist logic of radical leftist EU dominance, so all your low IQ smears of others being ‘anti free market’ is just rank hypocrisy.

    The Iron Law of Woke Projection Never Misses.

    Repost what I wrote here to source the claim that I am ‘anti-free market’, and then post how you are pro free market while supporting the takeover of countries by an unelected radical left elite cult of Soros, please and thanks.

    “It’s okay though. Just leave the economics to the adults and enjoy your beer.”

    Serious question, I don’t mean this as enflaming or trolling, but were you abused growing up? Were you told to shut up because the adults in the room are more important? Taunted in school and now this is how you believe adults are ‘supposed’ to talk and behave? You sound exactly like how an abusive adult or teenager would treat young children.

    “there’s no way the UK can make up for the lost trade with the EU”

    The EU caused the ABSENCE OF TRADE from what WOULD have been lots of free trade in the free market WITHOUT the unelected EU commissars imposing constraints on it.

    I see you have no clue what ‘free markets’ even are. They are NOT ‘creations’ of states, let alone unelected supranational states like the EU, just like Hitler wished for. Free markets occur when there is LESS POLITICAL POWER ASSETING ITSELF IN THE ECONOMIC LIVES OF THE PEOPLE.

    You’re blaming the outcome of EU activity, as the fault of the UK people for wanting more liberty in the form of elected self governance, and less unelected communist dictatorial decrees on trade.

    You have a conception of the world that is upside down, because you trust the very same msm fake news who are in fact attacking the country informationally.

    Perhaps, to quote your approach, the more adult of the adult minded can see what you can’t yet see because you haven’t looked at the information that is available open source that the more adult minded adults are RESEARCHING FOR THEMSELVES.

    I am going to bet that you research from just a few sources and they’re all radical left communist controlled.

    If YOU were so enlightened about economics why are you parroting fake news and invoking crude unrelated analogies to gravity?

  17. Gravatar of George George
    27. September 2022 at 09:19

    How’s THIS for ‘free market’?


    Where are all the ‘free market’ champions on this blog calling for Biden admin and the Democrat Party in general to stop attacking American Energy Production while at the same time PROMOTING energy production in Europe, including Ukraine and Russia?

    Where are the ‘free market’ explanations that to decrease prices, YOU INCREASE SUPPLY?

    Remember when Trump called for prescription drug price REFORM? He did so using legal channels, to EQUALIZE the prices of the SAME DRUGS that were charged at super high prices in the US while cheap overseas (brought to you by the Clinton crime family’s pay to play corruption). He didn’t donut by DEMANDING drug companies reduce their prices by dictat.

    Why aren’t the ‘free market’ advocates like Michael Sandifer writing posts criticizing Biden’s attacks on US energy production while supporting energy production elsewhere in the world, “10% for the big guy”?

    Threatening Ukraine in withholding $1 billion of loan guarantees in exchange for the prosecutor investigating his son Hunter (Burisma energy company corruption, bilking the Ukrainian people) to drop the investigation? Quid Pro Quo in plain sight. AND THEY IMPEACHED TRUMP FOR MERELY ASKING ABOUT THIS IN THE PHONE CALL WITH ZELENSKY.


    They accuse their political opponents of what they themselves are doing, and then the msm propaganda arm echoes and repeats the lies, and big tech censors the truth and pushes the lies.

    That’s the matrix of control that a few on this blog are still connected to, while others who are awake are ‘attacked’ because they are displaying non-assimilation to the code.

    Where is the media calling for Biden’s impeachment? WHERE IS THE FBI CONDUCTING AN INVESTIGATION FOR D PARTY COLLUSION?

    Can’t you see what the FBI’s real political function is? It’s a political weapon of a uniparty.

  18. Gravatar of Michael Sandifer Michael Sandifer
    27. September 2022 at 09:53

    George, LOL

    I prefer experimenting with true free banking, with the goal of abolishing central banks.

    What should I call a person who just labels everyone he disagrees with a communist? There are very few communists anywhere. I can’t even think of one Democrat who favors the government owning most or all means of production.

    The UK joined the EU willingly, and it left willingly. NOthing was forced on the UK. The EU is a cartel. It exists to serve its member states. That you can’t understand such a basic fact means it isn’t surprising that you don’t understand any related issues either.

    I certainly respect the right of the UK to leave the EU, but it was a dumb idea, because they had more free trade within the EU than they can possibly have outside of it. The EU monetary union has been a disaster, but EU membership makes sense in a number of ways.

    If you don’t favor more free trade, and more immigration, then you don’t favor free markets. I’d prefer 100% open borders to labor and goods and services globally, with the certain exceptions concerning technology that is sensitive from a national security perspective.

    If you’d actually start trying to learn how the world works, which requires reading and listening with an open mind, instead of just trying to convert people into conspiracy theorists, such as yourself, you wouldn’t feel the need to type in all caps so often.

  19. Gravatar of George George
    27. September 2022 at 10:06



    Coincidence I’m sure.

  20. Gravatar of George George
    27. September 2022 at 11:33



    You have little real awareness of how the world works, because your source material is weaponized to keep you blind, and then you project your own blindness onto others and they are accused of needing a more open mind, which really means more closed mind.

    “What should I call a person who just labels everyone he disagrees with a communist?”

    I know! A “Trumpista”! LOL!

    Not sure what you would call me because you are incorrect to impute to me the notion that I ‘just label everyone who disagrees with communist”.

    I look at the source code logic, because the ‘superstructure’ appearances extend from that source code.

    You can’t hope to understand how the world works if you only observe the instantiated objects/events while not observing the source code(s) responsible for the very events we’re all observing. That’s how and why I was asleep to fake news for most of my life. No more.

    You and I, I think, ‘see’ the world similarly and differently. Based on what you have written, the patterns, the echoes, the logic you are either consciously or unconsciously utilizing to form conceptions is THE DIALECTIC FAITH logic which all I am saying is what drives the communist operating system of the INFILTRATED ‘left’ today, and I view it at the level of language of languages.

    Hegel’s dialectical faith is what Marx extended, which is what NeoMarxists extended from, which in combination with PostModernist rejection of objectivity, is what ‘Woke’ ideology extends from.

    I see the threads in the architecture because I FINALLY LOOKED AT IT AND LEARNED THE GAME. I wasn’t waiting for the world to hand it to me on a silver platter such that if I don’t know then it’s not my fault in any way it’s the world’s fault, which then impacts how I view events after that.

    You and I may use the same words, but we use a different dictionary.

    You said this:

    “If you don’t favor more free trade, and more immigration, then you don’t favor free markets. I’d prefer 100% open borders to labor and goods and services globally, with the certain exceptions concerning technology that is sensitive from a national security perspective.”

    I will submit that your definition of ‘open border’ is not what people actually hear and think when they see you write that. You don’t actually want open borders, not saying you’re ‘lying’ but the inconsistency is revealed as soon as we address YOUR PERSONAL BORDERS as included in the conversation. You would NOT be in favor of ‘open borders’ of your home, your business, your land property, FOR ANYONE TO WALK IN UNVETTED BY YOU, rapists, murderers, human traffickers, no don’t want that, and THEN you’ll sound like Trump and the overwhelming majority of the country in wanting SAFETY AND SECURITY.

    If you don’t have safety and security, you don’t have a country let alone a home or a place or business.

    When you say ‘open borders to labor’ I believe you’re just virtue signaling a source that in fact wants to turn everyone into ‘material’ sources of globalist powers. They’re mutilating children’s bodies and using ‘woke’ logic of dialectic projection to force it, if you disagree then you’re the evil THEY are introducing.

    Maybe you know maybe you don’t, but you are posturing yourself exactly like the brunch and tennis Democrat haven community of Martha’s Vineyard, who preach open borders and immigration and refugees welcome, who smear Republicans as xenophobes, who attack a secure border and the wall as racist, but as soon as they EXPERIENCED their own advocacy by seeing merely 50 migrants in THEIR neighborhood, migrants WHO WERE MORE THEN WILLING TO GO AND SIGNED CONSENT LETTERS, guess what, the residents there LOST THEIR MINDS and they took less than 24 hours to KICK THEM ALL OUT.

    Now ask yourself, if a person was REALLY all about ‘open borders’, and not just that but to carry themselves as ‘holier than thou’ and smearing all who have questions or disagree with some parts of it, wouldn’t they NOT kick willing to work immigrants out?

    It’s OK when open borders are worst hit by people living along the border, because f them right? Let their children get killed, let their stores get looted, it’s only when open borders are DIRECTLY EXPERIENCED by the upper crust champagne Democrat havens do the loudest accusers of xenophobia become their own professed enemy (projection all along).

    So no, I do not accept your statement that you are ‘for’ open borders at all. You are for armed to teeth security and extreme vetting and merit based immigration into YOUR home and YOUR place of business and YOUR neighborhood with children playing outside, just like Trump admin enacted for the southern border which is, dum dum dum, A SOURCE CODE LOGIC FOR WHAT EXTENDS TO INSTANITATED EVENTS ALL ACROSS THE COUNTRY, affecting everyone’s safety.

    The loudest accusers are themselves the most guilty.

    I can CONSISTENTLY write that I am for maximum legal immigration based on merit. For that is how I would manage my home and business AND what I would do with the southern border. No inconsistency from me. That’s how I know I am MORE CORRECT than the caviar Democrats calling for everything they are in fact against, while the people experience the fallout of their ‘logic’.

  21. Gravatar of George George
    27. September 2022 at 12:07

    These events are happening ALMOST EVERY DAY.

    And who claimed to me “You should go work at a polling station and you’ll see that everything is perfectly fine” (stated) “just like my fake news sources said” (unstated).

    I won’t ‘ask for an apology’ like the site owner because I know that INFORMATION impacts everything we think and do, and when someone says something here, it’s because they are operating according to the information they have access to. It’s not because they unfairly denied me and my fragile ego the acknowledgment of being correct, as if the reason they told me what they did is because they knew I knew but wanted to not stroke my ego, so they ‘must’ have been lying and intentionally did not disclose to me what they knew was true and how dare they for NOT BLINDLY BELIEVING ME against their own minds for the sake of my ego.

    I no longer operate according to the dialectical faith where the only ‘truth’ that can be knows is what is thought and said as the only valid information objects.

    Human relations become gods vs. monsters in the dialectical faith operating system. Egos arrogating themselves as Gods, and all ‘abject others’ who dare assert their own epistemic authority and trust in themselves, who know the truth and speak the truth, are ‘labelled’ as monsters who deserve to be attacked, jailed, re-educated, annihilated.

    Now you know what logically caused genocide under communist and fascist dictatorships 20th century. Two fingers attached to the same hand.

    The STATE by dialectic is considered the only ‘real’ GOD. That is itself a religion. Then, it projects its own extreme religion, infiltrates the church, engages in evil, and then accuses God worshipers of being the enemy of humanity, while pointing to the cherry picked instances of events consistent with its own projection, and ignore/suppress/censor all events ‘inconsistent’ with its own projection.

    That explains why big tech and msm censors. Their logic is communist logic of seeking to ‘defeat’ the transcendent God by arrogating itself as God as manifested on Earth, by cherry picking events ‘consistent’ with their smears, while destroying all events inconsistent with it.

    This is what caused the “95% of doctors agree” that vaccines are safe. It’s because they censor and cancel all the doctors who told the truth.

    Meet Dr. Malhotra, one of if not the most ’eminent’ doctors in the UK speaking about the vaccines.

    See how the dialectic practitioners are becoming their own enemies but now it’s OK after they initialized the dialectic thesis of introducing their real goal?

    This is how ‘history progresses’ in the Hegelian faith. Humans are used up and discarded along the way. Contradictions are ENCOURAGED because they ‘change’ the world in a Gnostic level of religious devotion.

    “Philosophers have hitherto only interpreted the world. The point, however, is to change it” – Karl Marx

    Critical Theory and all its variants is a religion. The world was under the spell of a demonic religious cult and hardly anyone knew about it, because those who knew and got to the level of President, were shot dead (JFK referencing ‘secret societies’)

  22. Gravatar of Michael Sandifer Michael Sandifer
    27. September 2022 at 12:17


    Even if immigrants committed crimes at a higher rate than native citizens, I would favor open borders. Immigrants also pay more in taxes overall than they take in government benefits, so it’s good for us fiscally in that sense.

    Even better though, all who come here to work increase total real GDP, and even productivity. Real economic growth consists of productivity growth + growth in the labor force. And the US population growth rate has been consistently declining for decades, and is near zero in recent years. It’s been shown to be very difficult empirically to increase birth rates, which are below replacement rates in the developed world. And anyway, immigrant laborers can contribute to our output right now. We wouldn’t have to wait for higher birth rates in future years to yield laborers only after 18 or so years of childhood.

    I mentioned productivity, because even the least skilled immigrants increase productivity via comparative advantage. Consider an attorney who types three times as fast as any secretary she could hire. Her productivity, and hence that of the firm, can increase simply by hiring a secretary that can type for her, even given the relative inefficiency at that task. Hours spent providing legal services are much more valuable than hours providing typing services.

    So, you’re simply wrong on the theory and the facts. I’m not post-modernist. I try to be an empiricist.

    American population growth barely exists anymore and productivity growth has declined since the early 2000s. Do you want low productivity, and a much smaller total real GDP in future years? Wouldn’t that mean that we’re not only poorer than need be, but less secure militarily?

  23. Gravatar of Effem Effem
    27. September 2022 at 12:44

    I think the fiscal theory of the price level comes into play when the central bank wont act for whatever reason. BOE, for example. Then the question becomes, why won’t they act?

  24. Gravatar of David S David S
    27. September 2022 at 14:45


    Completely from the hip here, but BOE knows the U.K. is in deep trouble regardless of what action they take, so they’re delaying a counter-fiscal response for longer than they should—call it the “ghost of Arthur Burns” effect. Whatever happens I think Britain is going to have a very strange 2023, and not in a good way.

  25. Gravatar of sd0000 sd0000
    27. September 2022 at 15:47

    Scott – how does the UK example make sense in the context that inflation breakevens in the UK are *decreasing* – the increase in yields is entirely explained by REAL yields. How does deficit spending lead to increased real yields, depreciating currency and LOWER inflation estimates?

  26. Gravatar of Effem Effem
    28. September 2022 at 03:00

    I’m pretty sure the BoE just confirmed the fiscal theory of the price level by restarting QE.

  27. Gravatar of ssumner ssumner
    28. September 2022 at 03:31

    sd0000, I’m also puzzled. The high real interest rates can be explained by multiple factors—fast rising global real rates and the big package of UK tax cuts and pro-growth policies. But this doesn’t explain the weak pound.

    Lack of confidence in monetary policy might explain the weak pound–as Effem suggests—but then why the falling inflation spreads in the UK bond market?

    There must be multiple factors at work, impacting real rates and the pound, but I’m stumped.

  28. Gravatar of Effem Effem
    28. September 2022 at 04:26

    On UK bonds and breakevens – clearly this is a hyper-volatile period and liquidity and forced-selling type effects can become dominant in the short-term. I’d probably let the dust settle before drawing any conclusions.

  29. Gravatar of Michael Sandifer Michael Sandifer
    28. September 2022 at 05:26

    For what it’s worth, perhaps the proposed UK energy price cap is not getting the attention it deserves. I haven’t studied this, but if the UK government is simply going to subsidize more energy imports, that could explain at least some of the mild rise in default probabilities in CDS market. That wouldn’t have such a large effect on the Pound, but the realted expected higher trade deficit could help explain it.

  30. Gravatar of George George
    28. September 2022 at 06:35

    Here’s Joe Biden back in January 2022 **threatening** to shut down NordStream 2 pipeline, which is under Germany’s control:
    “I promise you, we will be able to do that.”

    Here’s Victoria Nuland also in January 2022 **threatening** to shut down Nord Stream 2 pipeline, which is under Germany’s control:
    “If Russia invades Ukraine, one way or another, Nord Stream 2 will not move forward.”

    Here’s Radek Sikorski, Poland’s Foreign Minister and former Minister of Defense, yesterday, after NORDSTREAM 2 was SABOTAGED:

    Now, all my “BIDENISTA” frens, all my “PERSONALITY CULT” frens, all my “CONSPIRACY THEORY” frens, are you able and willing to conduct basic logical deduction or is mind still asleep to fake news msm induced narrative patterns of thought?

  31. Gravatar of George George
    28. September 2022 at 06:41

    Michael Sandifer:

    “Even if immigrants committed crimes at a higher rate than native citizens, I would favor open borders.”

    The Democrat Party is the party of crime, so it makes sense you would support that which gets more children trafficked, raped and killed, more businesses looted, more death and destruction.

    I don’t know you, but based on what you write I recommend seeking a mental health professional and getting an assessment immediately. Your mind is so warped that I am VERY thankful and grateful that you are no where near the halls of political power anywhere on Earth, and that you’re here instead where you can only speak evil rather than practise it.

    And so the dialectic progresses. Humans are used up and discarded along the way.

  32. Gravatar of George George
    28. September 2022 at 07:45


    “American population growth barely exists anymore”

    “I am pro abortion, aka pro-depopulation”


  33. Gravatar of Michael Sandifer Michael Sandifer
    28. September 2022 at 08:55


    I no more favor forcing women to give birth than I do forcing them to get pregnant. I can’t be pro-depopulation if I favor open borders. The immigrant influx would vastly more than make up for any number of abortions.

    I favor free markets, unlike you. You want the government to decide how labor and goods and services flow across our borders. You implicitly want the government to decide the conditions under which women can have abortions. Are you happy with the government deciding which drugs you’re allowed to take as well?

    Many men today complain about the dating market and the attitudes of modern American women. The free market solution to the problem is to open the borders and allow women from other countries to live here and offer competition.


  34. Gravatar of George George
    28. September 2022 at 14:15


    “I favor free markets, unlike you”

    No you don’t. You only favor wanting to be perceived as such as you project your own anti-free market stance onto others, to cover up your own anti-free market stance so that you don’t first get labelled as what is already circulating in your head ready and waiting as a smear pre-engagement.

    It’s a defensive dialectic projection tactic to control the dialogue. That garbage doesn’t work on me. I don’t use your operating system. I use another.

    “You want the government to decide how labor and goods and services flow across our borders.”

    You just explained in a previous post how you want government to decide how goods and services flow across our borders:

    “with certain exceptions concerning technology”

    That’s you wanting government to decide what the free market can exchange cross border and what the free market cannot exchange cross border. You literally just described an ‘anti-free market’ action that you support.

    You are falsely representing yourself as ‘seeing’ your own perceived flaws ONLY in others when they are alive and well in you, and I will tell you it is ultimately logico-syntactically DRIVING your accusation of me as ‘anti-free market’. You’re saying what you are, and trying to control my language so that I get tricked into only seeing it myself and not you.

    There are more ‘anti-free market’ stances you have based on what you have written that, which based on your latest reply makes clear, you likely don’t even realize it, because you’re projecting it in your mind.

    How about this:

    Before you post what you claim to be a flaw ONLY in me, pause for a few moments and SELF-REFLECT. It should help you in fixing your presentation of self as inconsistent.

    Question: If you’re not anti-free market, surely you would condemn as anti-free market the FBI approaching Facebook to suppress the Hunter Biden laptop story, which the FBI admitted alone changed the outcome of the election (that’s why they suppressed it, to get Biden to win).

    If Trump’s FBI did that, if it was Trump’s son who brokered illegal deals with foreign nations to enrich his family, if it was Trump that threatened to withhold $1 billion of US taxpayer money from Ukraine unless the prosecutor dropped the investigation into Trump’s son, you and the site owner would be losing your NPC minds, the fake news MSM would be losing their minds.

    But because MSM is the political propaganda arm of the D party, you see crickets from them about it, and so your NPC mind doesn’t say a thing about it either.

    You’re asleep Sandifer, what you’re trying to ‘control’ is not controllable.

  35. Gravatar of Michael Sandifer Michael Sandifer
    28. September 2022 at 15:04


    I’m not going down the rabbit hole with you on some of the silly claims you make. The idea that the FBI asked Facebook to suppress news about Hunter Biden is absurd and unsupported. Facebook made a mistake. It happens. The FBI can’t force Facebook to do anything anyway, with the exception of requiring them to allow access to information if they have a warrant, for example.

    Most of the mainstream media is not aligned with the Democratic Party. They have one goal, which is making money. If you don’t understand that, you don’t understand anything. Most of the media often does a poor job in choosing which news stories to cover and how they’re covered, but it has nothing to do with partisan bias. It has to do with not wanting to offend too many advertisers or potential consumers, wanting to maintain access to politicians, etc.

    MSNBC is an exception. They openly carry water for the Democratic Party as part of their business plan, and they get special access to Democratic politicians, scoops, etc. in exchange.

    I find it interesting that you mention the “mainstream” media, but don’t mention Fox News, OAN, News Max, Breitbart… Are they not mainstream? Millions consume their content. Fox News is the most popular cable channel. Fox News is very openly a propaganda arm for conservative politicians. It’s long been their business model.

    So, I find your perspective ignorant, extraordinarily biased, and riddled with conspiracy theory nonsense as opposed to facts.

  36. Gravatar of Jeff Jeff
    28. September 2022 at 16:56

    The information about UK inflation expectations is interesting, but the events overall seem to gesture at the idea that in modern economies there is an “invisible line”, as it were, above which sovereign interest rates are not politically sustainable.

    What is somewhat surprising is just how low that “invisible line” might be. Could it really be that, unlike just a couple decades ago, 5% on a long bond is completely untenable now? If that is true, and if 8% inflation has legs, then it would seem central banks have been functionally underwater for some time now and just using prevarication and distraction to buy time.

  37. Gravatar of Jeff Jeff
    28. September 2022 at 17:20

    In other words, did all the vaunted economists at various central banks make essentially the same rookie mistake as the “portfolio insurance” providers of the 1980s, whose rather facile models anecdotally contributed to the 1987 market crash? That is, they implicitly assumed that changes in inflation (or changes in stock prices, in the earlier case) would always be basically gradual, continuous, and largely one-tick-at-a-time, giving central bankers ample opportunity to reposition and adjust? A signficant step-function jump in inflation was simply not on their radar, not a scenario they ever realistically planned for?

  38. Gravatar of ssumner ssumner
    28. September 2022 at 22:46

    Jeff, Good point, but the bigger mistake was made by the fiscal authorities. Rising rates would be less of a problem if public debt had not risen so sharply as a share of GDP.

    And let’s hope it’s a repeat of 1987, as we all know how that turned out!

  39. Gravatar of Effem Effem
    29. September 2022 at 03:23

    Isn’t acknowledging that raising rates is harder with a large debt load essentially supporting the fiscal theory of the price level?

  40. Gravatar of Effem Effem
    29. September 2022 at 06:19

    Thought you’d like this Bullard quote. This is basically incoherent monetary policy. How did we end up here?

    St. Louis Fed President James Bullard explains how to think about the Fed’s new FAIT framework.

    There are two branches to this:

    If the US is in a low inflation environment, then FAIT is operative

    If the US is in a high inflation environment, “See Volcker.” FAIT isn’t operating

  41. Gravatar of ssumner ssumner
    29. September 2022 at 06:44

    Effem, Do you have a link for Bullard?

    “Isn’t acknowledging that raising rates is harder with a large debt load essentially supporting the fiscal theory of the price level?”

    What it does is make the FTPL more likely to be true. Perhaps moving from a 10% chance to a 20% chance of being true. I still don’t think it’s true in the US (it certainly hasn’t been true in the past.) But things could change, perhaps the FTPL will become a factor in the US

  42. Gravatar of Effem Effem
    29. September 2022 at 08:08

    This is the only link i see. But typically considered a good source.

  43. Gravatar of George George
    29. September 2022 at 10:07

    bEcAuSe iT wOulD bE aNti-fReE mArKeT tO hAvE a SeCuRe bOrDeR

    How can you have a free market FOR PEOPLE when they’re killed?

    Are the dialectic faith believers saying “free markets in death” should be “included”?

  44. Gravatar of Michael Sandifer Michael Sandifer
    29. September 2022 at 16:51


    How many would die at the US borders if we legalize all drugs and make visas, including permanent visas, available on demand, if required at all?

    Let as many people come and stay here as will come. Make citizenship difficult to get, but make it easy to be a permanent resident. Any who violate the law can be deported, but we shouldn’t bother anyone who just comes here to live and work. Those who are willing to serve 4 years in the military should get citizenship upon completion of service, along with all of the benefits veterans normally get.

    That article you sight from that silly website you constantly reference only mentions 800 deaths anyway. 800? You want to prevent millions from coming here with all the output they bring over 800 deaths in a year? Immigration lowers the per-capita crime rate, because immigrants commit crimes at a lower rate than native-born Americans, while increasing GDP growth.

    Are you aware of how large a difference a boost in real GDP from open immigration could give the US in a decade? Could easily be 10%, or much higher. We don’t know how many would come if they could, but it’s certainly not unrealistic to think we could get 1% higher population growth alone with open immigration, to say nothing of potential productivity growth.

    The higher our real GDP, the more money we can spend on defense, so all else equal, the more secure the US is, and the more we can shape the international order.

    People like you make America far weaker than it could be, and so you’re very, very, very anti-American.

  45. Gravatar of George George
    29. September 2022 at 17:38


    “That article you sight from that silly website you constantly reference only mentions 800 deaths anyway.”

    I mean this with all sincerity: I think you’re a sick immoral bastard, consider this my last communication with you. You’re a psychopath. Bye.

  46. Gravatar of Michael Sandifer Michael Sandifer
    29. September 2022 at 19:56

    I guess I offended George’s delicate sensibilities. lol Does he place an infinite value on each human life, with no balance for the bulk of hundreds of millions of other people?

  47. Gravatar of Michael Sandifer Michael Sandifer
    30. September 2022 at 04:05

    People like George illustrate the problem with many conservatives, and sadly some fringe liberals today. He doesn’t even have the beginnings of coherence or logic in any of his perspectives.

    If we end the drug war and legalize prostitution and mass immmigration, there would be few if any deaths at the borders. There would be far less, if any, incentive for drug or human trafficking and the organized crime that comes with it.

    But, point out that 800 deaths on such a long border between countries of many tens of millions of people is not many anyway, and you’re deemed insensitive. lol

    I wouldn’t be surprised if George considers himself an American Firster, no matter how much the stupid policies he supports weakens our country.

  48. Gravatar of Kester Pembroke Kester Pembroke
    5. October 2022 at 11:06

    The countercyclical effect of interest rate increases is lagging as rate increases work through the economy, e.g., depress RE sales owing to increased carrying cost. In fact, there is evidence that interest rate rises dampen the economy through the housing channel.

    But being a price increase that increases fiscal injection through interest payments on government securities, effect of the central bank raising the interest rate is immediate and procyclical. More interest income is injected into the economy.

    The full amount of this fiscal injection will not all go toward spending, but some will be committed to financial investment. Financial investment is a form of saving, and not to be confused with firm investment, which is a form of spending. But if market prices rise as a result, so will the “wealth effect,” which has an inflationary bias. So there are contradictory aspects of central banks’ raising interest rates. This is generally overlooked.

    According to the conventional thinking, interests rate increases lead to curtailed investment that results in cut backs in hiring and eventually layoffs. This reduces the wage pressure that is assumed as the cause of inflationary pressure.

    This is a from of “single-variable” thinking, which is illogical with respect to systems with more than one major causal factor. Modern economies are not simple systems, as Keynes observed.

    The interest rate is not a single independent variable that determines the price level at full employment, so that raising rates is entirely countercyclical. There are procyclical fiscal effects as well.

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