Really appreciate the fiscal dominance breakdown here. The idea that real yields collapse when the Fed caps rates while tariffs drive inflation is the kind of second-level thinking people dunno how to price in yet. I was talking with some bond guys recently and they're genuinely worried about the Sargent-Wallace scenario playing out again. The Hassett angle makes this feel less like a academic exercise and more like something markets need to brace for sooner than most expect.
Thanks for sharing this. You highlighted two important things.
1. FED risking becoming a arm of political ambition will surely end in disaster. Having politicians extensibly be allowed to eat the cookie whilst saving it can only end with a catastrophe. There need to be a counterweight in the system, between politicians promising voters x, y, and z and the ability (in the case of the US) be able to fund every such promise. Despite how aweful the policy might be. If the FED goes under this changes now, whenever the democrats retain power, they will be forced to do the same (look at the chicken race with redistricting)
2. The use of AI and it producing more work/output is a hunch I had, and interesting to see the numbers. To me this is a trend driven by game theory relationships, where we think "if I don't do this, my competitors will, and then we lose". Incredibly hard to step off this kind of ever increasing race.
Higher cost of capital exposes which businesses were genuinely productive versus merely well-funded. When liquidity dries up, allocation discipline, not optimism decides who keeps operating and who exits.
Thanks, John, for such a meticulously researched and well-written post, as usual. What do you think we can do to stop ploughing the time that's been saved by AI into producing outputs over and over again? Is there something that needs to be driven from the top-down or bottom-up?
My newer regime classifier py said the current environment is most similar to stagflation, or debasement rally.
Of course my dataset doesn’t include the 70s, so only 0.36% of the time since 1995 have we been in something stagflationish. I think I need to get some older data.
Really appreciate the fiscal dominance breakdown here. The idea that real yields collapse when the Fed caps rates while tariffs drive inflation is the kind of second-level thinking people dunno how to price in yet. I was talking with some bond guys recently and they're genuinely worried about the Sargent-Wallace scenario playing out again. The Hassett angle makes this feel less like a academic exercise and more like something markets need to brace for sooner than most expect.
Thanks for sharing this. You highlighted two important things.
1. FED risking becoming a arm of political ambition will surely end in disaster. Having politicians extensibly be allowed to eat the cookie whilst saving it can only end with a catastrophe. There need to be a counterweight in the system, between politicians promising voters x, y, and z and the ability (in the case of the US) be able to fund every such promise. Despite how aweful the policy might be. If the FED goes under this changes now, whenever the democrats retain power, they will be forced to do the same (look at the chicken race with redistricting)
2. The use of AI and it producing more work/output is a hunch I had, and interesting to see the numbers. To me this is a trend driven by game theory relationships, where we think "if I don't do this, my competitors will, and then we lose". Incredibly hard to step off this kind of ever increasing race.
100% on both topics. Second that
Higher cost of capital exposes which businesses were genuinely productive versus merely well-funded. When liquidity dries up, allocation discipline, not optimism decides who keeps operating and who exits.
Thanks, John, for such a meticulously researched and well-written post, as usual. What do you think we can do to stop ploughing the time that's been saved by AI into producing outputs over and over again? Is there something that needs to be driven from the top-down or bottom-up?
My newer regime classifier py said the current environment is most similar to stagflation, or debasement rally.
Of course my dataset doesn’t include the 70s, so only 0.36% of the time since 1995 have we been in something stagflationish. I think I need to get some older data.