By Michael Every of Rabobank
Bill Gates was in the press this week stressing “mutually exacerbating catastrophes” that threaten global health: “In the blink of an eye, a health crisis became an economic crisis, a food crisis, a housing crisis, a political crisis. Everything collided with everything else,” he argued.
Gates then leveled some valid criticisms at the US virus response…and then put wind in the sails of those who believe the FDA could be biased in its decision to approve a Covid-19 vaccine: that, as surveys show that a majority in the US are concerned vaccine development is being rushed, and a third say they won’t get vaccinated. Wouldn’t a low vaccine take-up rate risk exacerbating all the exacerbating that is already underway? On many fronts, however, we are not short of exacerbation.
The WTO yesterday ruled that the US imposition of tariffs on China violate international rules. This will have several effects, none of which will be the US removing the tariffs under a Trump presidency. One will be to lodge an appeal, and given that the US has frozen the WTO’s appellate system to hear said appeals, it means the tariffs stay, underlining the WHO is now just a talking shop; another will likely be the WTO being red meat for Trump in his re-election campaign, or maybe even risk it following the fate of the WHO.
The US just removed 10% aluminium tariffs from Canada, however, so there will be some good news in Free-Trade Weekly this week, apart from the economic normalisation between Israel, the UAE, and Bahrain (with 5-6 other countries flagged to join the accord soon), and between Serbia and Kosovo.
In the UK, PM Johnson is still dealing with party rebels trying to prevent him pushing ahead with legislation deemed contrary to international law – though the government now says it isn’t after having earlier said it is. Tricky stuff, this international law business. There you are, minding your own business, and suddenly *BANG!*, “international law breaker”.
Latest news is the Internal Market Bill may be amended to give Parliament a say on triggering the most controversial clause: if so, and paraphrasing Johnson’s own recent paraphrasing of Chekhov, that would leave the gun on the table in this First Act rather than pointing it at the EU directly. The EU have meanwhile not helped by apparently declaring that, yes, it may be forced to ban all British exports of live animals and animal products such as cheese, beef, eggs, chicken and lamb from 1 January. It’s not quite The Sun screaming “EU Marmite Pirates!”, but it still has one pulling one’s (Black or Blue) beard.
Yet most important today is the FOMC meeting. We have written plenty for many years, and again of late, pointing out that even with all the best of intentions –which is being very generous of spirit– central banks are arguably part of the problem and not part of the solution. Their actions exacerbate the socio-economic and financial imbalances we see all round us. Or, rather, they can’t be part of the solution until an entirely new political “-ism” that explains how we run our political economies, and why, is laid out, part of which will be their Magical Money Trees.
(On which, consider the proposed changes to how Bank Indonesia operates its monetary policy, and its debt monetization, and the same trend emerging in the Philippines: neither were economies we flagged as being able to sustain MMT in our analysis of it. This looks a poor portent for EM FX ahead, as it usually is when “-isms” and EM mix in the headlines.)
Today, however, the Fed lay out their plan of action within the new framework mouse of a policy they produced in August after so much laboring. (Which is about as near as ‘labor’ gets to the Fed: which is why we have the problems we do.)
To reiterate, the inflation they cannot generate will now be measured over the medium term, which effectively means they will have nothing to do for years as they fail to see inflation rise: just look to Japan, where a new Suga Daddy is taking over stewardship of the Good Ship Structural Deflation. Or Europe. The market expectation is that the Fed’s new ‘dot plot’ forward guidance will be prepared to flag rates on hold until well into 2023. That sounds decidedly optimistic. Why not 2025? So let’s see what Powell says today: be still, my beating heart.
The argument is then between those who think the Fed watching the weeds grow waiting for inflation to sprout is bullish EM FX, and those who think the fact that the Fed is having to do that means that EM central banks will be diving in with debt monetisation, which is very bearish.
Therein still lies some kind of market. Until they ban or suppress it.
But back to another key set of exacerbators: social media, on which there are several stories today. One is a different story that cannot be told because a key social media platform has banned it (acting as a “Gates Keeper”, if one will), which has then become the story. Another is that Facebook has been warned of a potential antitrust probe that may be filed by year-end. Recall Google is already facing something similar. Given there is an election coming up, if one had not noticed, and that major antitrust probes can often appear or disappear after a new US administration takes office, might it be a totally crazy question to ask if social media might (and dare one even think it?!) have its own political bias and agenda, or that it might even try to influence or lobby individual politicians, or the electorate?
No, that is clearly unthinkable. All news stories are accurate and social media always does its best to provide every user with as broad a range of stories from across the political spectrum as possible so that everyone can weigh and balance each development carefully in its proper context. We have truly efficient media.
In the same way we have efficient markets, stewarded by central banks.