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Yeah, and consider the effect that it has on the rouble: with lots of sales (of mostly energy) but nowhere to spend that money the rouble is actually likely to

Yeah, and consider the effect that it has on the rouble: with lots of sales (of mostly energy) but nowhere to spend that money the rouble is actually likely to appreciate rather than depreciate. I'm referring here to the premature celebration of the "death of the rouble", you may remember this narrative. This is still a bit obfuscated by the ongoing sale of the Russian foreign reserves (the ~50% that wasn't frozen). But generally speaking the rouble needn't decrease in value, despite the sanctions taking the intended effect. If you're still unconvinced then look at the granddaddy of all deflations, the great depression. Caused by the freezing of trade it was (in most countries) experienced through the appreciation of the value of currency - deflation, rather than inflation.

082349872349872 4y ago
Heh. I sometimes wonder how vulnerable the US would be to a squeeze appreciating USD. You could probably even get large parts of the US political class to go along with it, as (in the short term) they'd be benefiting relative to their countrymen.
- RC_ITR 4y ago
  Very invulnerable. This whole “Squeeze” thing is a function of liquidity. The reason that stocks like GME and AMC can experience the effects of a short squeeze is because of how relatively illiquid they are (i.e. point $1bn of consumer capital toward a $3bn stock with thin trading and you can do wild things). The USD is the currency in which nearly all middle eastern oil is priced, the currency in which $16tn of consumer spending is done, quadrillions of stock trades, etc etc etc. There’s no individual or group who can point enough capital at that to make for a squeeze, and even if they could, then why wouldn’t the treasury take advantage and start printing more dollars (see: Hertz issuing new shares and ruining wallstreetbet’s day)
  - H8crilA 4y ago
    It has happened in the 80s though. Soros (for example) has written a lot about this phenomenon and traded extensively on it, making a small truckload of money. It peaked in early 1985: https://tradingeconomics.com/united-states/currency https://tradingeconomics.com/united-states/currency It was bad for a lot of countries that had dollar-denominated debt, which is a bad idea precisely for this reason. Countries never learn though, it seems. But it was not too bad for the US actually.
    - RC_ITR 4y ago
      No, not even close. In 1985, Soros bet that the Plaza Accord (a market manipulation among a cartel of leading economies to weaken the dollar for political reasons) [1] would work and he was right. That has nothing to do with shorts or squeezes and everything to do with collusion among the Treasuries and Central Banks of something like 75% of the world economy at that point. Soros 'won' the trade because he realized how impactful this collusion would be while the rest of the market didn't. [1]https://www.nber.org/system/files/working_papers/w21813/w21813.pdf https://www.nber.org/system/files/working_papers/w21813/w218...
      - 082349872349872 4y ago
        Maybe you can answer a different question of mine: what, if anything, did Japan get out of the Plaza Accord? By weakening USD (and hence USD-denominated commodities?) West Germany got a strong DM and hence could LBO East Germany and reunify. Japan got a strong JPY and ... what, besides stagflation? edit: am I calculating this right? to do a Plaza today would need, not the G5, but pretty much the entire G20?
        RC_ITR 4y ago
        Japan got the opportunity to go on an international asset-buying spree (which is always less impactful to real GDP than it seems cough Belt and Road cough) [0] [1] [0]https://www.washingtonpost.com/archive/politics/1989/10/31/japanese-to-buy-51-of-rockefeller-center/d6cca3ff-9e5a-4593-b6f0-4f939f464624/ https://www.washingtonpost.com/archive/politics/1989/10/31/j... [1]https://www.latimes.com/archives/la-xpm-1987-11-19-fi-22750-story.html https://www.latimes.com/archives/la-xpm-1987-11-19-fi-22750-...
        082349872349872 4y ago
        Aha, so the japanese didn't really care about domestic stagflation because they'd internationally diversified? Seems like that might lead into "absentee landlord" moral hazards at some point?
      - 4y ago
- foverzar 4y ago
  Wouldn't inflation actually be much more harmful for a loan-based economy like the US?
  - 082349872349872 4y ago
    I don't believe so in the long run (but RC_ITR might have something much more accurate to say; thanks very much for the sibling analysis!). We're a much smaller economy than the US, and have a big problem that whenever there's geopolitical instability, flight to quality appreciates our currency massively (despite negative nominal rates; we've broken pegs before because although they would've been nice to keep, the cost would've been prohibitive), which then hoses our innovative sectors, because they had been counting on being competitive in global exports. I had been imagining that keeping a currency too elevated for too long would eventually stifle growth, and that would defo be more harmful than inflation. (for a loan-based economy, for example, substantial appreciation might mean that many borrowers would just default, for lack of any other option) Edit: see the cousin comment: ...it was extremely hard to build a sustainable business in Russia, due to the fact that it was just cheaper to buy something from abroad
  - dragonwriter 4y ago
    > Wouldn't inflation actually be much more harmful for a loan-based economy like the US? No, hence the speed and strength of Fed responses to anticipated deflation vs. anticipated above-optimal inflation. OTOH, the Fed is also why the theoretical adverse impact is unlikely to materialize in any real world scenario.
- dragonwriter 4y ago
  > Heh. I sometimes wonder how vulnerable the US would be to a squeeze appreciating USD. Not very; it faced two (not deliberate) recently and dealt with them through QE; our monetary policy system is tuned to deal with that problem, the main failure mode is overshooting into inflation on the tail end.

082349872349872 4y ago

Heh. I sometimes wonder how vulnerable the US would be to a squeeze appreciating USD. You could probably even get large parts of the US political class to go along with it, as (in the short term) they'd be benefiting relative to their countrymen.

RC_ITR 4y ago
Very invulnerable. This whole “Squeeze” thing is a function of liquidity. The reason that stocks like GME and AMC can experience the effects of a short squeeze is because of how relatively illiquid they are (i.e. point $1bn of consumer capital toward a $3bn stock with thin trading and you can do wild things). The USD is the currency in which nearly all middle eastern oil is priced, the currency in which $16tn of consumer spending is done, quadrillions of stock trades, etc etc etc. There’s no individual or group who can point enough capital at that to make for a squeeze, and even if they could, then why wouldn’t the treasury take advantage and start printing more dollars (see: Hertz issuing new shares and ruining wallstreetbet’s day)
- H8crilA 4y ago
  It has happened in the 80s though. Soros (for example) has written a lot about this phenomenon and traded extensively on it, making a small truckload of money. It peaked in early 1985: https://tradingeconomics.com/united-states/currency https://tradingeconomics.com/united-states/currency It was bad for a lot of countries that had dollar-denominated debt, which is a bad idea precisely for this reason. Countries never learn though, it seems. But it was not too bad for the US actually.
  - RC_ITR 4y ago
    No, not even close. In 1985, Soros bet that the Plaza Accord (a market manipulation among a cartel of leading economies to weaken the dollar for political reasons) [1] would work and he was right. That has nothing to do with shorts or squeezes and everything to do with collusion among the Treasuries and Central Banks of something like 75% of the world economy at that point. Soros 'won' the trade because he realized how impactful this collusion would be while the rest of the market didn't. [1]https://www.nber.org/system/files/working_papers/w21813/w21813.pdf https://www.nber.org/system/files/working_papers/w21813/w218...
    - 082349872349872 4y ago
      Maybe you can answer a different question of mine: what, if anything, did Japan get out of the Plaza Accord? By weakening USD (and hence USD-denominated commodities?) West Germany got a strong DM and hence could LBO East Germany and reunify. Japan got a strong JPY and ... what, besides stagflation? edit: am I calculating this right? to do a Plaza today would need, not the G5, but pretty much the entire G20?
      - RC_ITR 4y ago
        Japan got the opportunity to go on an international asset-buying spree (which is always less impactful to real GDP than it seems cough Belt and Road cough) [0] [1] [0]https://www.washingtonpost.com/archive/politics/1989/10/31/japanese-to-buy-51-of-rockefeller-center/d6cca3ff-9e5a-4593-b6f0-4f939f464624/ https://www.washingtonpost.com/archive/politics/1989/10/31/j... [1]https://www.latimes.com/archives/la-xpm-1987-11-19-fi-22750-story.html https://www.latimes.com/archives/la-xpm-1987-11-19-fi-22750-...
        082349872349872 4y ago
        Aha, so the japanese didn't really care about domestic stagflation because they'd internationally diversified? Seems like that might lead into "absentee landlord" moral hazards at some point?
    - 4y ago
foverzar 4y ago
Wouldn't inflation actually be much more harmful for a loan-based economy like the US?
- 082349872349872 4y ago
  I don't believe so in the long run (but RC_ITR might have something much more accurate to say; thanks very much for the sibling analysis!). We're a much smaller economy than the US, and have a big problem that whenever there's geopolitical instability, flight to quality appreciates our currency massively (despite negative nominal rates; we've broken pegs before because although they would've been nice to keep, the cost would've been prohibitive), which then hoses our innovative sectors, because they had been counting on being competitive in global exports. I had been imagining that keeping a currency too elevated for too long would eventually stifle growth, and that would defo be more harmful than inflation. (for a loan-based economy, for example, substantial appreciation might mean that many borrowers would just default, for lack of any other option) Edit: see the cousin comment: ...it was extremely hard to build a sustainable business in Russia, due to the fact that it was just cheaper to buy something from abroad
- dragonwriter 4y ago
  > Wouldn't inflation actually be much more harmful for a loan-based economy like the US? No, hence the speed and strength of Fed responses to anticipated deflation vs. anticipated above-optimal inflation. OTOH, the Fed is also why the theoretical adverse impact is unlikely to materialize in any real world scenario.
dragonwriter 4y ago
> Heh. I sometimes wonder how vulnerable the US would be to a squeeze appreciating USD. Not very; it faced two (not deliberate) recently and dealt with them through QE; our monetary policy system is tuned to deal with that problem, the main failure mode is overshooting into inflation on the tail end.