What if he's right?

Delivered on By Justin Pyvis

Good morning! ScoMo confirmed that the federal election will be held in “mid May”, which presumably means either the 14th or 21st, the latter of which is the latest possible date stipulated by the Australian Constitution and the Commonwealth Electoral Act 1918.

A minimum of 33 days of notice is required prior to an election, which means ScoMo will need to visit the Governor-General within the next couple of weeks. At that point, campaigning will really start to ratchet up.

Yayyy.. 😢

Reading the tea leaves

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Note: Brent oil, gold bullion and iron ore prices are the second futures contract. Bond yields are 10-year Treasuries.

The US S&P500 fell -0.63% last night after Russia’s government said talks with their Ukrainian counterparts yielded no breakthrough and Russian forces bombed areas around Kyiv, just hours after it pledged to “boost mutual trust” by cutting back operations in the area.

Locally the ASX200 (+0.67%) closed higher for a seventh consecutive session, buoyed by an apparent easing tensions between Russia and Ukraine the night before and a big-spending federal budget, with all sectors gaining except for energy (-0.84%) and materials (-0.29%).

Food for thought

Remember when inflation was only "transitory"?
Remember when inflation was only "transitory"? Source

The New York Times' Ezra Klein interviewed Larry Summers for an hour in an episode titled “I Keep Hoping Larry Summers Was Wrong. What If He’s Right?”

It’s worth a listen if you have the time (the transcript is here). For context, Summers was one of the few people to warn about the inflationary wave that has subsequently engulfed the US and much of the world.

But what makes Summers' views especially influential is that he’s not a perma-inflationist or politically opposed to the Biden administration. To the contrary, Summers worked for the Clinton and Obama administrations and previously argued that the US economy needed more demand stimulus to counter what he dubbed “secular stagnation”.

If you don’t have time to listen to it, here are several choice quotes:

  • “In a way, the situation continues to resemble the 1970s, Ezra. In the late ’60s and in the early ’70s, we made mistakes of excessive demand expansion that created an inflationary environment.”
  • “The macroeconomic overexpansion of 2021 created those problems, and then layered on with something entirely separate, in terms of the further supply shocks we’ve seen in oil and in food.”
  • The Fed faces “very difficult dilemmas as to whether to accept economic restraint or to live with high and quite possibly accelerating inflation”.
  • “The pursuit of excessively expansionary policies that ultimately lead to inflation, which reduces people’s purchasing power, and the need for sharply contractionary policies, which hurt the biggest victims, the most disadvantaged in the society, that’s not doing the people we care most about any favour.”
  • “I think it’s very important not to be short-sighted and to recognise that what we care about is not just the level of employment this year, but the level of employment averaged over the next 10 years.”
  • “If you don’t respect the basic constraints of situations, you find yourself doing things that are counterproductive and that in the long-run prove to be harmful.”
  • “What I did care about was real wage growth over time, average levels of employment and opportunity over time… I thought those vital ends were being compromised by those with good intentions but a reluctance to do calculations.”
  • “I don’t think we’re going to avoid and bring down the rate of inflation until we get to positive real interest rates. And I don’t think we’re going to get to positive real interest rates without, over the next couple of years, getting interest rates north of 4%… If they don’t do that, I think we’ll get higher inflation. And then over time, it will be necessary for them to get to still higher levels and cause even greater dislocations.”
  • “I think the likelihood is that we will not return to 2% inflation without having at least a mild recession.”

All very glass half-empty but for good reason. It’s probably what we have in store for us down under, too, especially after Tuesday’s big spending budget, which because “more than half is set to occur in the current financial year and 2022-23… adds to demand at a time when the economy is already strong”.

Ultimately the job of the Reserve Bank of Australia (RBA) – “the demand managers”, according to Summers – “is to judge what supply is and calibrate appropriately. It’s not an excuse for inflation to blame it on supply”.

The RBA’s goal of driving unemployment below 4% by failing to properly adjust demand is admirable, but it’s likely to come with longer-term costs such as higher average unemployment, inflation and potentially even a loss of credibility in the RBA itself.

Chewing the fat

Bits and bytes

👏 This is urgently needed, Australia is well behind its global peers: The ABS is “examining the feasibility of producing a monthly Consumer Price Index (CPI)”.

📈 Germany’s inflation rate hit a 30-year high 7.3% in March, with higher prices and supply concerns forcing the government to slash its economic growth forecast this year from 4.6% to just 1.8%.

👩‍💻 A hacker reportedly stole $US600m in Ethereum from the Ronin blockchain, went short, but “NO ONE notices and they get liquidated on [the] short before news breaks”.

🚀 Speculative: “Either SpaceX or Tesla would not exist… If because of a wealth tax ⁦Elon Musk⁩ had left PayPal with $60 million less.”

🎮 The Sequel to Nintendo’s popular Zelda: Breath of the Wild has been pushed to the second quarter of 2023 (previously 2022).

🦆 “Like a duck swimming”: Iron ore miner Fortescue and Germany’s E.ON signed a MOU to supply green hydrogen to Europe by 2030, with a “high-level assessment” putting the cost at “minimum $50 billion”.

🏡 At a 95% LVR with interest rates about to rise: ScoMo said the “best way to support people who are renting a house is to help them buy a house”.

🦊 Eeesh. Outgoing Liberal Senator Concetta Fierravanti-Wells, who lost her party’s preselection, told Parliament that ScoMo is an “autocrat”, who “is adept at running with the foxes and hunting with the hounds, lacking a moral compass and having no conscience”.

🦥 The US National Institutes of Health, given $US1.2 billion in December 2020 to research so-called ‘long COVID’, has been described as “a slow-moving glacier”, recruiting just 3% of its patient enrolment goal by 18 March.

🧠 Hong Kong’s Chief Executive Carrie Lam admitted her government’s “measures have certain influence on corporates and individuals… it’s an unarguable fact that we have a brain drain and some senior management of some corporates have left”.

🦗 Australia defeated the West Indies by 157 runs to qualify for the ICC Women’s World Cup final against either South Africa or England.

⛈️ Sydney officially recorded its wettest March ever (since 1859), clocking up 537mm of rain as of 11am yesterday.