22 Comments
Mar 14, 2022Liked by Noah Smith

So in layman's terms: the next year or two might suck, but hopefully we'll come out of this with somewhat minimal damage for the everyday US citizen?

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Noah, I feel like we are about to witness a BOOM in private and public investment with the goals of onshoring supply chains and decarbonization. Equiv. to a sort of war mobilization. How would that affect the 'stag' part? I'll assume bad for the 'flation' part b/c of ongoing (accelerating?) supply problems.

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Do the 25% tariffs have nothing to do with inflation. Why tariffs on half the products from China but not the other half? The Democrats said Trump was a moron for tariffs on China but now it seems like a great idea with record inflation, I'm confused.

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I think this article misrepresents the market for mRNA vaccines, and the reasons why China developed it own vaccine. The United States nationalized its vaccine industry and refused to sell mRNA vaccines, or any other type of Covid vaccine, outside America. Even Canada had to buy vaccine from Europe because the U.S. refused to sell. If Canada had problems buying vaccine from a close ally in the early days of the pandemic, I don't think China had much of a choice but to make their own.

I'm sure there are political reasons that China developed its own vaccine, but there is a practical reason too: if you are not an American citizen, you had better not depend on a company in the United States to supply your vaccines.

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Your article is primarily about US inflation expectations. Is this also going to be a case of global inflation? How much can unilateral US actions control the effects of global inflation within the US? Might we need global action of some sort to control the global inflation?

One more thing: could you tell us a little about how such oil shocks could be prevented in the future? We've seen prices below zero, reductions in production, opening of the strategic oil preserve and who knows what else: I could appreciate a recap, explanation of how they work together, and how oil prices could be stabilized long term.

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I apologize/hope it's okay for posting comments/tidbits from other places...

The Heisenberg (daily independent eco blogger) said : “The Fed [that] was already destined for a policy “mistake,” where the scare quotes are there to suggest that although policymakers are all but certain to find themselves tightening into, and thereby exacerbating, a slowdown, it’s hard to call that a mistake considering the inflation backdrop”.

My reply : My understanding is that stagflations are relatively rare and generally due to unusual supply constraints. Here, today, I think most of us think the inflation we got was due to a demand shock – the excess savings of the COVID years (made worse by some composition issues and supply constraints in some specific items like semiconductors).

If demand cools down b/c excess savings are gone and wage gains have dissipated/melted away due to past/present inflation, what would sustain inflation (and drive the Fed to hike 7 times this year) for the remaining of the year?

Now that was my thinking pre-war. I understand war makes oil prices go up/make inflation more persistent i.e. it’s a proper supply shock.

But it’s still true that I don’t get what is to be gained by raising rates in a stagflation environment. Higher rates won’t cure supply shocks. Unless the intent is to cause a recession to lead to such demand destruction that the reduced supply no longer affect prices. And I mean, ok, though that’ll be a bitch to sell to the poor suckers whose jobs and lives got to be destroyed for the sake of fighting inflation.

Seems to me it’d be better to force corporations to take a margin hit – i.e. force them not to pass along rising input prices. Appeal to their patriotism and if that doesn’t work (smirk), threaten them with special confiscatory taxes.

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So inflation looks like it’s gonna be about 3.5%

Whatever happened to the ZLB concerns and the arguments to increase the inflation target to 4%

Ppl act like the 2% target was bought down from Mt Sinai on stone tablets but it was chosen by men and we still don’t know for sure it’s the ideal target

So why not start discussing the 4% target again?

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In terms of breakevens, I wonder how much of that is actual inflation expectations vs market technicals. The TIPS market is small and the Fed owns ~20% of outstanding bonds. If we are gauging the market, watching the 10-year is important (saw a decent move up today). Also, looking at fwd curves, the market is actually pricing in a rate cut in 2024

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O.S.B. is $43 a sheet. Can someone please talk about this?

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What do you do with your cash savings then? Stocks?

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Noah, what is your view on the yield curve as a leading indicator of recession? The 2-10y spread has only had one false positive in 1965.

And have you read Foldvary's geo-Austrian synthesis? I'm guessing not since you're distinguishing recessions induced by the Fed from the real estate cycle, when they should be treated as two interrelated factors in the business cycle.

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