Random Observations
I have mainly been looking at my inflation manuscript. It seems to be in good shape, not entirely sure when I will pull the trigger on it. I updated the figures, and I will need to make sure that comments remain in sync with what is shown. (I started cutting down time ranges to historical periods to avoid issues with what is happening at the end of the chart.)
One thing that I observed is that my manuscript has a lot of complaints about “hard money types” expressing scepticism about official economic data. However, segments of the online left also drifted in that direction. The whole “vibecession” sub-theme of the Biden Presidency has not entirely gone away — in online discussion, at least. My feeling is that this is a function of social media rewarding outrage and cynicism. However, this is a self-defeating stance for the left: if your politics are premised on government intervention in the economy, you have to have some confidence that the government can measure what is happening in the economy. As such, there is not going to be a lot of academic support for such a stance — unlike the case of libertarianism, which is premised on governments not being competent. However, I might scan my comments and perhaps adapt them to the changing vibes.
Currency Versus Money
In another online discussion, I ran into a new variant of Austrian thinking. The basic premise was one that I covered in my book — inflation is not really rising prices, rather it is an expansion in the “money supply.” (The rising prices is allegedly just a consequence of the money supply expansion.) However, the new angle was that I should not have written “money supply,” rather the “inflation is the expansion in currency.” I did not have the stomach to find out exactly what that person thought “currency” meant, but my understanding is that it is anything that can be used to purchase goods in that currency, which brings in a lot of credit instruments.
The immediate problem with using “currency” is that we already have a technical economic usage of the term — “currency in circulation” (e.g., dollar notes and coin). This is a subset of the “monetary base” (possibly M0, depending on which definition of M’s you use). Trying to widen to broader credit instruments is just a wider aggregate, like M4.
Although it was kind of neat to see a new variant of pop Austrian thinking on the internet, it is probably just a way of dodging the problem that things like the “k% rule” have no predictive power. It is just a way to revive the Quantity Theory of Money by adding fuzziness around the definition of “Money.” (If you do not have a precise quantity associated with money, the Quantity Theory of Money cannot be falsified.)
Fed Credibility
Other than concerns about oil storage and AI capital spending, the main economic chatter I seem to be running into revolves around credibility concerns at the Fed. Although these Fed discussions are somewhat entertaining, it still seems early for anything interesting to happen. My reading of the situation is that people are considering policy rate movements of only a couple quarter-point moves. The economy is not that sensitive to interest rates. We would need some chunkier inflation misses for this to be of interest to anyone other than the handful of people who are obsessed with the central bank. For bond yields, the intermediate-term trajectory over a span of a few years is what matters.
"People are considering policy rate movements of only a couple quarter-point moves...."
1. To my mind, even medium scale overnight target movements don't affect the long bond yields at all, but only the fact itself that the overnight rate is or isn't (significantly) below bond yields, as that is what one would think would determine what a politically appointed Treasury with a budgetary mandate would issue at auction. A low supply of long bonds (a high portion of T-bills and 2yrs) issued at auction is in the immediate term, not thirty years, a lowering influence on bond yields (assuming the law of supply and demand (supply of bonds at auction) applies. I don’t know, though, does it? Or is the price(/yield) just the price(/yield)?).
2. When Powell inverted the overnight target over the long bond yields, yields rose, though the 2 yr, which had, oddly, risen well ahead of Powell, stopped way down in the three percent range, with the T-bills all inverted upwards from the 2 yr. up to the overnight rate. So this forms a separate framework, but I will desist now in further lengthy discussion.
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"For bond yields, the intermediate-term trajectory over a span of a few years is what matters."
That sounds like a useful point, in that specifically "bonds" equals a term if twenty or thirty years.