It’s been more than six years since I engaged in ceremonial bridge burning and otherwise sought to alienate friends, colleagues and acquaintances as a matter of course. As it turns out, overt, systematic efforts to antagonize other people aren’t conducive to favorable life outcomes. Who knew?
These days, I still cast aspersions, but it’s never directed any one person, specifically. Well, sometimes it is, but I don’t make it explicit. That lets me retain plausible deniability. And if I had to make a list of intangible things you absolutely have to have, plausible deniability would be somewhere near the top.
You might fairly contend that oblique criticism is cowardly. But the problem with being transplanted into a community of people to which you never did (and still don’t) belong, is that you don’t really understand your fellows and neither do they understand you. Such is my predicament in the community of people who comment regularly on capital markets and the economy.
I’m reminded of a discussion I had with a preeminent economist last year. This person explained they don’t suffer fools gladly, but in the collegiate context, that means something entirely different than it does in the world I inhabited for almost a decade. I won’t elaborate, but suffice to say the idea of, to use a real world example, snapping a smiling selfie with Nassim Taleb just months after he cursed at you on social media (as Bloomberg’s Joe Weisenthal once did) is anathema to my constitution. Relatedly, economists don’t have “spirited” arguments in the Hamilton-Burr sense. I’m a Hamilton-Burr type of guy: We can engage in the most eloquent discourse imaginable, but… well, just “but.”
The necessity of staying within certain boundaries even when assailed in the most caustic terms is what makes it impossible for me to, for instance, do podcasts. Or to engage people on social media. Or to “name names,” as the saying goes. I don’t play well with others. Hence my island exile.
It’s with that in mind that I eschew name-calling when I point out glaring discrepancies in arguments advanced and positions taken by many of the names and websites you’ve heard of and may read daily on markets and the economy.
To be sure, I name names when the offender is of such stature that there’s no chance of any verbal jousting. Jeff Gundlach will never know I exist, for example, and neither will Jamie Dimon or Leon Cooperman. So, I’ll occasionally lampoon them, content in the assumption that even if, by some cosmic miracle, they stumbled across my musings, they’d laugh and go promptly back to not knowing I exist. But dozens of the “regular” folks you might follow on “Finance Twitter,” people whose soundbites appear in articles published by financial news portals and some widely-followed purveyors of propaganda, do know I exist, and riling them up is a recipe for personal disaster.
Of the many glaring discrepancies shared by regular commentators on markets and the economy, almost none is so commonly held as that which juxtaposes allegiance to budget orthodoxy with the acknowledgement that climate change may kill us all within a century.
This is topical. And that’s an understatement.
Developed economies are currently engaged in massive deficit spending “financed” by central bank money creation, and I know of nobody (other than myself) willing to suggest that the limits of such alchemy are so unknowable as to be scarcely worth our consideration.
Modern finance is (and you’ll pardon the expression as I rarely lapse into the profane) a labyrinthine clusterf–k. A hopeless tangle of mind-boggling cross-holdings, characterized by overlapping obligations, duration mismatch, liquidity transformation and layer upon layer of rehypothecated collateral. No one understands it. There isn’t a living soul who can untangle this box of Christmas tree lights.
Somewhere in there are the ingredients for inflation. But you can also find everything you need for deflation. Or any other cake you want to bake.
We’re now so many steps removed from anything that’s a semblance of “real,” that it’s patently ridiculous to speak deterministically about the relationship between monetary aggregates, growth and inflation in advanced economies.
Ironically, considering how often I chastise him, Leon Cooperman understands this, or at least if the discussion is confined to 30,000-foot-level thinking. During an interview with Bloomberg last week, Cooperman cited Socrates in noting that wise men admit they know nothing. His point was that while “the party” (as he called a conjuncture that sets ultra-easy policy against an economy that purportedly doesn’t need it) probably won’t end well, “nobody knows when it’s gonna end.” “We’re all guessing,” Cooperman went on to say. “But I think we’ll have a bad end to this.”
And yet, back in May, during another interview with Bloomberg, Cooperman practically shouted that “We’re borrowing from the future!” That tired, old canard relies on a series of misleading narratives, most of which are captured by still another ridiculous canard: “We’re putting our grandchildren further and further into debt.”
I’ll leave aside the fact that as long as the US remains an advanced economy with a high level of monetary sovereignty, Treasurys aren’t “debt.” They just aren’t. As I’m fond of putting it, you can’t properly “owe” a sum denominated in a currency that you, and you alone, have the legal authority to issue. That doesn’t make any sense. It’s a logical (i.e., a philosophical) impossibility.
Leaving that for another time and pivoting quickly back to the pernicious discrepancy mentioned above, most people who espouse some version of budget orthodoxy and thereby accept as unequivocally true the idea that issuing bonds to “fund” dollar-denominated expenditures is necessarily tantamount to “borrowing from future generations,” also accept the reality of climate change. That, in turn, means accepting the notion that at some point in the next two centuries, large parts of the planet won’t be inhabitable.
No initiative that I’m aware of carries a price tag higher than that generally associated with the most ambitious green agenda pushed by Progressives in the US. Generally speaking, Progressives tend to question the link between deficits, debt and inflation, in part because the link has broken down over the years and in part because if we can do away with budget constraints, we can spend as much as we want to turn things around on the climate front so that future generations are possible.
Note that latter bit. I’m continually irritated by the number of (nominally) sane people who parrot some version of the “Borrowing from our future”/”Indebted grandchildren” narrative while simultaneously accepting the reality of climate change and the necessity of doing something about it.
As Cooperman acknowledged, we don’t know what the proverbial “point of no return” is when it comes to policy largesse and inflation. It’s not something that’s knowable. Anyone who tells you different is lying to you, either accidentally or on purpose. There’s a psychological element to across-the-board, economy-wide inflation. The more opaque the financial system and the economy that underlies it are, the harder it is for regular people to make the connection between policy and the value of money. If people can’t make that connection, the only kind of real world inflation that’s possible is that directly associated with identifiable shortages created by straightforward mismatches between supply and demand. Clearly, we can create that kind of mismatch across the entire economy overnight if we inexplicably decided, for example, to send everyone $15 million in the mail. But the mere act of creating money to finance infrastructure spending, green initiatives or simply to buy bonds from ourselves, isn’t very likely to cause average people to adopt an inflationary mindset.
Consider that QE is itself an act of obfuscation befitting of the “labyrinthine clusterf–k” characterization I employed above. We could just print money and spend it. Instead, we issue an interest-bearing version of that money, create the same money to buy that interest-bearing note from ourselves via an arm’s-length intermediary, then spend the same money and call that expenditure “funded.” Closing the insanity loop, we pay ourselves interest in the very same money, and then remit the interest payments back to ourselves. That’s QE. And if average people were smart enough to understand it, hyperinflation would have arrived a long time ago.
But average people don’t understand it. Nor do they care to understand it. That’s the main reason it’s impossible to know when “reckless” policy will result in an inflationary spiral. And deflationists would tell you the entire debate is at least partially meaningless because many of the factors which contributed to disinflation over the past forty years have, if anything, gotten worse in the pandemic era, whether it’s debt burdens or the acceleration of automation in the business world. Some of those trends may be counteracted by on-shoring and other inflationary pandemic dynamics, but that’s the point: We just don’t know.
While we don’t know what the point of no return is for policy extravagance, we can sketch a timeline for the point of no return when it comes to the environment. Just ask the UN’s Intergovernmental Panel on Climate Change, which on Monday essentially said, over 4,000 pages, that if we don’t do something now to turn things around, our grandchildren won’t have to worry about servicing any debt burdens. Because there won’t be any grandchildren. The very concept of grandchildren presupposes an inhabitable planet. Donald Trump was fond of saying “If you don’t have a border, you don’t have a country.” Well, allow me to modify that: “If you don’t have a planet, you don’t have any grandchildren.”
Read more: The Roof Is On Fire
The bottom line from the UN’s report is very simple: Absent enormous government expenditures over the next decade, future generations, to the extent they can subsist at all, will be living in a “Mad Max” sequel. That’s a virtual guarantee.
And yet, scarcely any economist — conservative, liberal, Progressive, orthodox or heterodox — is willing to come out and say the US should simply issue as much money as it takes to jumpstart the type of projects that might save us from what scientists say is otherwise certain doom. It goes without saying that no analyst (and hardly any politicians) would ever champion the complete and total abandonment of fiscal rectitude in favor of a literal blank check for climate initiatives.
Why not? Except by reference to insanity, there’s no way to explain rolling the dice on oblivion out of respect for the size of ledger entries and speculation about what those entries might entail for the “value” of something (money) that we created. If an asteroid were hurtling towards Earth and scientists could guesstimate the date of our extinction, surely there wouldn’t be a debate in Congress about how much is “too much” when it comes to providing the Pentagon and NASA with the resources they’d need to work out a plan to intercept the projectile. Would we worry about the “inflationary” consequences of any associated deficits if we knew that on or around May 16, 2032, life on Earth would vanish on impact?
You’d think the answer would be a resounding “no,” but that’s essentially what we’re doing currently. This is how far down the rabbit hole we’ve gone when it comes to being trapped by our own shared myths, in this case the imaginary constructs we call “money” and “government finance.” We’re now weighing what scientists tell us is a slow-motion apocalypse against the possibility that moving to avert the end of the world might be inflationary or that hypothetical future generations of leather-clad Mel Gibsons won’t remember us fondly because we saddled them with a series of large ledger entries.
The same is true of spending to ameliorate societal inequities. Forget what’s “right” or what’s “wrong.” I always encourage people to abandon normative language if they want to see things clearly. A society in which most people are poor and miserable will be prone to upheaval and, eventually, dissolution. How much is “too much” to prevent anarchy?
None of the assertions (made or implied) here are debatable. But people debate them every, single day. And vociferously so. Those people are disingenuous or else they’re just morons. In neither case is it obvious why I should engage with them or care what they have to say.
This is why Elon Musk has a history of being antagonistic towards analysts on conference calls. He understands that the questions they’re asking are, at best, so inconsequential in the grand scheme of things as to be laughable and therefore not worth his time. He suffers fools better than I would, even when he doesn’t suffer them at all.