5 ms·

> Either way, once acute Treasury liquidity problems manifest themselves, or the Fed front-runs and avoids them by shifting policy, there’s a significant probab

> Either way, once acute Treasury liquidity problems manifest themselves, or the Fed front-runs and avoids them by shifting policy, there’s a significant probability of it resulting in a top in the dollar index, meaning it would likely mark the end of this major dollar rally, and would be a catalyst for the next leg higher in many commodity prices, which fuels the existing inflation problem even more. If it's obvious to me that this is exactly what will happen, it should be obvious to Fed board members, no? Therefore, those holding out for a for a pivot could be waiting for a long time. There seem to be three models: 1. Paul Volker. Smack the economy with a 2x4 to kill inflation. Get back-to-back recessions that were the worst since the Great Depression. 2. Arthur Burns. Bow to political pressure and ignore inflation - maybe it will go away. Get roaring inflation leading into the 1980s. 3. Roy Young. Fight wild speculation by raising interest rates and get the Great Depression.

boppo1 4y ago
What's the nuance between 2 and 3? luck?
globalreset 4y ago
> Smack the economy with a 2x4 to kill inflation. Who cares about the broader economy. First-most they are smashing USG Treasury with a 2x8. Tax revenue down across the board (income, capital, corporate, you name it), social programs spending up, deficit through the roof. K.O. They can raise the rates all the want, but as long as they are monetizing the deficit, it will be multi-trillions of money being pumped into broader economy anyway. There is no other way then to print and incinerate the debt in a inflationary inferno.
- Judgmentality 4y ago
  > There is no other way then to print and incinerate the debt in a inflationary inferno. What good is paying off a debt in a currency that's no longer valuable? We're fucked no matter what.
- comte7092 4y ago
  > but as long as they are monetizing the deficit Good thing they aren’t monetizing the deficit.
- mickdeek86 4y ago
  I'd rather be hit by the 2x8. The wielder wouldn't be able to get as good a purchase on the grip, it's a greater mass to for him/her to accelerate, and the impact area would be more spread out.
  - globalreset 4y ago
    You're right!
mercy_dude 4y ago
> If it's obvious to me that this is exactly what will happen, it should be obvious to Fed board members You also have to discount the possibility that Fed might be incompetent, given how their recent track record has been in predicting transitory inflation and delays in calling off QE.
01100011 4y ago
There are a lot of very smart folks who are trying to predict what the fed will do when something breaks. Their opinions are all over the map. In addition to that uncertainty, you have the uncertainty in the market's reaction. If the fed does 'pivot' (whatever that means, because to some folks it means rate cuts, to others QE, and to some just a rate hike and/or QT pause earlier than expected) the market may see it as bullish or may react negatively because it is a signal that things are very unwell in the economy. I'm too lazy to look it up, but I'm pretty sure there is precedent for greater pain in equities after rates have peaked.
__Joker 4y ago
Noob here. What is 2x4 means ?
- minitoar 4y ago
  A 2” by 4” piece of lumber, a common dimension in the states. It’s being used metaphorically here, of course.
  - andreareina 4y ago
    Sometimes called a "clue by four". Not actually 2" x 4", IIRC it's more like 1.5" x 3.5".
- magicalhippo 4y ago
  https://en.wikipedia.org/wiki/Lumber#/media/File:2_By_4_Clue_Stick.jpg https://en.wikipedia.org/wiki/Lumber#/media/File:2_By_4_Clue...
caeril 4y ago
> it should be obvious to Fed board members, no? What? Take a look at the dot plots of FRB expected rate surveys and compare them to actual rates. These people have substantially less predictive capacity than a monkey throwing darts. No, it should not be "obvious" that people who are consistently wrong will miraculously start being right. They really do believe their own bullshit.
mickdeek86 4y ago
Volcker wrote in his memoir that when he told Carter about the 2x4 solution, he followed it by saying 'I can fix stagflation, but it'll cost you re-election'. Carter told him to do it anyway, initiating a several year recession (basically the country taking it's belated lumps) indeed costing Carter re-election. In comes Reagan - who had opposed this ultimately effective strategy during the election - and gets credit when it finally pays off. So Carter gets blamed both for causing stagflation (Nixon's fault) and for failing to resolve it (which he actually did). Doing the right thing is for chumps.

boppo1 4y ago

What's the nuance between 2 and 3? luck?

globalreset 4y ago

> Smack the economy with a 2x4 to kill inflation. Who cares about the broader economy. First-most they are smashing USG Treasury with a 2x8. Tax revenue down across the board (income, capital, corporate, you name it), social programs spending up, deficit through the roof. K.O. They can raise the rates all the want, but as long as they are monetizing the deficit, it will be multi-trillions of money being pumped into broader economy anyway. There is no other way then to print and incinerate the debt in a inflationary inferno.

Judgmentality 4y ago
> There is no other way then to print and incinerate the debt in a inflationary inferno. What good is paying off a debt in a currency that's no longer valuable? We're fucked no matter what.
comte7092 4y ago
> but as long as they are monetizing the deficit Good thing they aren’t monetizing the deficit.
mickdeek86 4y ago
I'd rather be hit by the 2x8. The wielder wouldn't be able to get as good a purchase on the grip, it's a greater mass to for him/her to accelerate, and the impact area would be more spread out.
- globalreset 4y ago
  You're right!

mercy_dude 4y ago

> If it's obvious to me that this is exactly what will happen, it should be obvious to Fed board members You also have to discount the possibility that Fed might be incompetent, given how their recent track record has been in predicting transitory inflation and delays in calling off QE.

01100011 4y ago

There are a lot of very smart folks who are trying to predict what the fed will do when something breaks. Their opinions are all over the map. In addition to that uncertainty, you have the uncertainty in the market's reaction. If the fed does 'pivot' (whatever that means, because to some folks it means rate cuts, to others QE, and to some just a rate hike and/or QT pause earlier than expected) the market may see it as bullish or may react negatively because it is a signal that things are very unwell in the economy. I'm too lazy to look it up, but I'm pretty sure there is precedent for greater pain in equities after rates have peaked.

__Joker 4y ago

Noob here. What is 2x4 means ?

minitoar 4y ago
A 2” by 4” piece of lumber, a common dimension in the states. It’s being used metaphorically here, of course.
- andreareina 4y ago
  Sometimes called a "clue by four". Not actually 2" x 4", IIRC it's more like 1.5" x 3.5".
magicalhippo 4y ago
https://en.wikipedia.org/wiki/Lumber#/media/File:2_By_4_Clue_Stick.jpg https://en.wikipedia.org/wiki/Lumber#/media/File:2_By_4_Clue...

caeril 4y ago

> it should be obvious to Fed board members, no? What? Take a look at the dot plots of FRB expected rate surveys and compare them to actual rates. These people have substantially less predictive capacity than a monkey throwing darts. No, it should not be "obvious" that people who are consistently wrong will miraculously start being right. They really do believe their own bullshit.

mickdeek86 4y ago

Volcker wrote in his memoir that when he told Carter about the 2x4 solution, he followed it by saying 'I can fix stagflation, but it'll cost you re-election'. Carter told him to do it anyway, initiating a several year recession (basically the country taking it's belated lumps) indeed costing Carter re-election. In comes Reagan - who had opposed this ultimately effective strategy during the election - and gets credit when it finally pays off. So Carter gets blamed both for causing stagflation (Nixon's fault) and for failing to resolve it (which he actually did). Doing the right thing is for chumps.