The Federal Reserve and European Central Bank repeat that the recent inflationary spike is “transitory”. The problem is that investors do not buy it.

Inflation is always a monetary phenomenon, and this time is not different. What central banks call transitory effects, and the impact of supply chains are not the real drivers of inflationary pressures. No one can deny certain supply shock impacts, but the correlation and extent of the increase in prices of agricultural and industrial commodities to five-year highs as well as the abrupt rise of non-replicable goods and services to decade-highs have monetary policy to blame…


Anyone who believes the “rich” and large corporations will pay for $28 trillion in debt or the $2 trillion in new deficit has a real problem with maths.

Biden’s announcement of a massive tax increase on businesses and wealthier segments of the population simply makes no sense. The tax hikes will have a significant impact on economic growth, investment and job creation and do not even scratch the surface of the structural deficit. Even if we believe the Gross Domestic Product growth and revenue estimates announced by the Biden administration, the impact on debt and deficit is negligible. So, what…


The International Monetary Fund has published its April outlook for the global economy. It has been hailed by most commentators due to the strong upgrade in GDP recovery. The report states that “global growth is projected at 6% in 2021, moderating to 4.4% in 2022. The upward revision reflects additional fiscal support in a few large economies, the anticipated vaccine-powered recovery in the second half of 2021, and continued adaptation of economic activity to subdued mobility”.

However, there are important warning signs that should be considered because headlines have been predominantly euphoric about this optical upgrade.

Two factors that…


For more than ten years, ECB monetary policy has been ultra-expansionary, whether there was crisis, a recovery, economic growth or stabilization. The worst excuse of all that was used to justify endless quantitative easing has been the often-repeated mantra that “there is no inflation.”

Defenders of aggressive monetary policy have always used the same arguments really.

First, they say there is no inflation — as if an average 2% increase in prices during a crisis whereby many salaries fell up to 20% does not constitute “inflation”.

After, they say it is temporary, so to justify maintaining aggressive easing policies.

Next…


The United States: Hardly A Recovery

There is an overly optimistic consensus view about the speed and strength of the United States’ recovery that is contradicted by facts. It is true that the United States recovery is stronger than the European or Japanese one, but the macro data shows that the euphoric messages about aggregate GDP growth are wildly exaggerated.

Of course, Gross Domestic Product is going to rise fast, with estimates of 6% for 2021. It would be alarming if it did not after a massive chain of stimuli of more than 12% of GDP in fiscal spending and…


If we looked at most investment bank outlook reports for 2021, one of the main consensus themes was a strong conviction on a rapid and robust eurozone recovery. They were wrong.

This week, Capital Economics joined other analysts and downgraded the eurozone growth, highlighting “We now think that the euro-zone economy will recover more slowly than we previously anticipated, growing by about 3% this year and 4.5% in 2022. …


President Biden has announced the American Jobs Plan, which is summed up in the headlines as a $2 trillion investment program in infrastructure and green energy plan is expected to boost job creation, strengthen the manufacturing sector, and drive innovation. However, most of it goes to subsidies and current expenditure and comes with the largest tax increase in United States’ history. …


Central banks do not manage risk, they disguise it. You know you live in a bubble when a small bounce in sovereign bond yields generates an immediate panic reaction from central banks trying to prevent those yields from rising further. It is particularly more evident when the alleged soar in yields comes after years of artificially depressing them with negative rates and asset purchases.

It is scary to read that the European Central Bank will implement more asset purchases to control a small rise in yields that still left sovereign issuers bonds with negative nominal and real interest rates…


In this era of monetary fiction, one tends to read all types of undocumented and misguided views on monetary policy. However, if there is one that really is infuriating is the MMT science fiction.

One of its main principles is based on a fallacy.

“A country with monetary sovereignty can issue all the debt it needs without default risk”

First, it is untrue. A report by David Beers at the Bank Of Canada has identified 27 sovereigns involved in local currency defaults between 1960 and 2016 (database here).

(source: Bank of Canada, David Beers)

David Beers explains: “A long-held view by some investors is that…


In recent weeks Jerome Powell at the Federal Reserve and Christine Lagarde at the European Central Bank have commented on the likelihood of implementing digital currencies in the next years. The positives have been well explained. More transparency, ease of use and lower cost.

The European Central Bank has stated that “a digital euro would guarantee that citizens in the euro area can maintain costless access to a simple, universally accepted, safe and trusted means of payment. The digital euro would still be a euro: like banknotes but digital. It would be an electronic form of money issued by…

Works of Daniel Lacalle

Sharing the writing of Daniel Lacalle with his permission.

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