this is not financial advice

*I also have no idea what the hell I’m talking about




With the global economy experiencing a synchronized slowdown, any number of tail risks could bring on an outright recession. When that happens, policymakers will almost certainly pursue some form of central-bank-financed stimulus, regardless of whether the situation calls for it.

Fiscal and monetary loosening is not an appropriate response to a permanent supply shock. Policy easing in response to the oil shocks of the 1970s resulted in double-digit inflation and a sharp, risky increase in public debt. Moreover, if a downturn renders some corporations, banks, or sovereign entities insolvent – not just illiquid – it makes no sense to keep them alive. In these cases, a bail-in of creditors (debt restructuring and write-offs) is more appropriate than a “zombifying” bailout.

In short, a semi-permanent monetization of fiscal deficits in the event of another downturn may or may not be the appropriate policy response. It all depends on the nature of the shock. But, because policymakers will be pressured to do something, “crazy” policy responses will become a foregone conclusion. The question is whether they will do more harm than good over the long term.

Matt’s note:

I wish I had already owned gold. Or TIPS, Series I bonds, whatever Singapore’s dollar is, or another haven currency.

Soon enough we’re going to be back to bartering with each other with whiskey again.

Matt’s further edit:

If you’ve ever come to know me or read enough of my writing, you’d find I often write and have stronger opinions about things I know little about than I ought to have any sense or reason to. This may be one of those times. Bonds have since been “crushed” by the dreaded liquidity trap à lá Japan.

I still don’t know how I feel about the fed printing “whatever it takes” (i.e. unlimited balance sheet expansion) in the wake of the corona virus crisis (where general supply shortages could be an issue) and the stock bubble burst.

I would be interested in exploring whether treasury inflation protected securities (TIPS) are a reasonable purchase in this environment of supply shocks, credit crunch, and massive QE. It seems unlikely at present to be a great buy, but who knows? I don’t have much faith in the performance of equities, in the near future at least, anyways



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