Pozsar: Powell Would Risk US Depression To Slay Inflation

Zoltan Pozsar has a subtle suggestion for those attempting to forecast inflation: Consider the possibility that the shocks emanating from an epochal macro realignment precipitated by aggressive geostrategic jostling aren't over. In a sweeping new note welcoming investors to the "war economy," Pozsar employed what felt like gentle condescension. "As you focus on the contribution of used car prices, owners’ equivalent rent and Target’s inventory hangover to forecast the next CPI print and wh

Get the best daily market and macroeconomic commentary anywhere for less than $7 per month.

Subscribe today

Already have an account? log in

Speak your mind

This site uses Akismet to reduce spam. Learn how your comment data is processed.

22 thoughts on “Pozsar: Powell Would Risk US Depression To Slay Inflation

  1. I don’t think Powell has any political ambitions or other distractions. The same may not be true of all the other FOMC members. In general, though, I have long thought that for a Fed governor, the one thing you can not, never, nohow, noway do is to stumble into a grinding repeat of the 1970s inflationary decade. There can be nothing worse for the institution or your reputation. Causing a recession would not even compare. A “depression” would deflect your course, but you, dear Fed governor, don’t believe a depression is possible – for many of the same reasons you didn’t think the current inflation situation was possible. The only worser thing comparable to Unquenchable Inflation would be an outright breakdown of the US financial system, but you are very confident in the Fed’s tools for that eventuality, for pretty good reasons I think.

  2. H-Man, nice piece. I think Powell is all in for the fight but I believe he is also a “glass half full” guy who will pull out of that fight with any data that would warrant a pull back rather than keeping up the heat. So I guess we have trust his instinct on what is “clear and convincing” evidence. A rather obtuse legal concept that befuddles lawyers, judges and jurors and maybe members of the Fed.

    1. Dammit, I can do better than that.

      You: “I’m Heisenberg, so that’s what you call me. Or theRealHeisenberg, or H-Man, or Heisenbergarino if you’re not into the whole brevity thing.”
      Zoltan: “What in God’s name are you blathering about?”

    1. Is it “flip-flopping” if you like one especially good bag of grapes you buy but no so much another one? Are you a “grape flip-flopper”? It would be highly amusing if everyone were forced to spend one day applying all the things they say on the internet to daily life.

  3. Love your comments about Americans feeling entitled to driving gas gussling SUVs. I find it very difficult to sympathize with someone on the evening news complaining about gas prices while standing next to the equivalent of a Sherman tank.

  4. The Pelosi visit to Taiwan feels like cage rattling for China. I think they have every intent on trying to reclaim Taiwan after their massive success with the Ughyers and Hong Kong. So here comes another strain on inflation if so, the economic war Trump started might actually turn into a real military conflict.

    1. Xi isn’t going to do that. Not by outright military force. It’s (far) too risky. The casualties on both sides would be huge, and in the event Xi miscalculates and The White House and Congress decide to call his bluff by — for example — putting the US Navy in the middle of it and daring the PLA to shoot, he’d have to decide whether China is actually ready for a hot war with the US. I don’t think they (China) are. Not yet. I think that’s a 10-years-out type of thing. China has far too much to lose from that right now.

      1. The risk calculus changes with each new measure to restrict chip and chipmaking equipment sales to China. At some point they may shrug and ask “Why should we suffer alone?”

        But as you hint, other measures to disrupt chip exports from Taiwan would likely come first. Think Suxnet-like cyber attacks on the power grid, the two LNG import terminals and the fabs themselves.

        Beyond that, just how anxious are mainstream Americans to go to war to defend Apple and AMD? Hopefully we will not find out.

  5. To use Zoltan’s war allegory, we have had outbreaks of inflation during/just after wars and when the government reeled back war spending and accomodating monetary policy, inflation receded. We seem to be in the middle of that process. Since history only rhymes and I am not a particularly good short/intermediate forecaster I do not have a lot of confidence here. But if I had to bet with the excess demand for housing diminishing, tighter monetary policy, and government stimulus ramping down, my guess is that we will see inflation go down. Mr. Pozar of course could be correct but I am not in his camp.

  6. Well, this column got everyone’s attention…I’m a big fan of Case Histories, where a female character says of the main protagonist, “The most annoying man north of Hadrian’s wall”. I’m glad you and your readers have a clue, because we are surrounded by people who don’t. It’s not a war allegory, it’s a war….

  7. The first serious book I read in high school (boarding school) was in my year-long sophomore English Composition class. That book was Walden, by H.D. Thoreau. It is a book worth reading (or rereading) to remind us of the cost of extravagant complexity. I had to write thirty extemporaneous papers on various parts of that book and I have to say it made a lasting impression. What I discovered was that rational simplification can lead to great comfort. After simplicity becomes a habit, it is really hard to want what one doesn’t really need. My late wife and I shared 53 years together and never missed a thing we didn’t have.

    Really great column, BTW. I think I might be falling in love with Zoltan.

  8. Amen on the remarks re American exceptionalism (presumed) and American entitlement (insisted upon), which flies directly in the face of the true
    native Americans who suffered neither of these delusions, and consequently were largely pushed into the hinterlands to be ignored as a curiosity. In my lifetime, this disjunction is perhaps best epitomized by Reagan ripping down Carter’s solar panels at the White House. We love to tout sacrifice as some sort of distinctly American trait, but quickly draw the line when it comes to what we actually consume and what we actually do, wherein sacrifice is practically sacrilege. If we can’t survive (or even contemplate) a 2-3 degree change in the termperatures inside our houses, or less than 400 HP in our cars, or less than 64 oz of diabetes-inducing sodas, we’re gonna have a problem on an increasingly hostile planet already besieged by climate change. Why can’t it be “American” to use less and do differently? Instead, even the notion seems like anathema to far too many of us.

  9. Americans do not lack exceptionalism. But we are fat and happy.

    Globalization has been a massive, long-lasting party for Americans and US businesses. Incomes are high. The dollar is king. Money flows forth and back endlessly – or so it seems. Our circumstances are not an excuse. Americans are (literally) fat, me included. Our perspectives are distorted by our wealth. But if China tries to back Americans into a corner, see what happens.

    Remember the oil embargo and energy crisis of the 1970s? We were ridiculously indignant and inconvenienced because we had to wait in line for gas. Looking back, it’s laughable that the price per gallon went to 50 cents from 35 cents per gallon over a couple of years.

    The possibility of wide-ranging change is again on the horizon. If China and Russia continue to undermine the “global order,” we may find it more difficult to carry on with our fat and happy delusion about ourselves. Some companies are already onshoring manufacturing. They have found it is actually less expensive to build certain products in the US. But if we can find suppliers other than China to build our goods, we will take advantage.

    We’ll have to wait and see how the world changes. There will be change in some form – perhaps the end of globalization and a reset of the international economy. The question is, how will it wash? It may happen that we will have to put aside this fat and happy, entitled predisposition. But I doubt it.

NEWSROOM crewneck & prints