Englund

Keynes reasoned that government needed to act as spender and risk-taker of first resort. Doing so could revive the animal spirits of the private sector and, with them, growth. And when put into practice, this Keynesian multiplier largely worked, helping reflate the world out of the Depression. Having dominated policymaking up to the 1970s, Keynesianism was then jettisoned for monetarist policies as stagflation displaced stagnation. A remarkable comeback in response to a new set of conjoined crises, the global financial crisis, Covid and the Russia-Ukraine war. Indeed, the new interventions have dwarfed any previous peacetime stimulus. But if people anticipate that borrowing today means higher taxes tomorrow, stimulus might prompt saving rather than spending — something first identified by David Ricardo in 1820. Historically, economists have been sceptical about the ability of households and companies to anticipate future tax rises when making spending choices. But ... After missing inf...

  https://www.marketwatch.com/story/why-it-pays-to-stay-invested-no-amount-of-bad-news-could-stop-the-stock-markets-strongest-run-in-more-than-25-years-54ba3f8a Tunga techfall på Wall Street – Klarna rasade 23 procent De ledande indexen på Wall Street stängde på rött för tredje handelsdagen i rad när inflationsoro kylde ner riskaptiten. https://www.di.se/live/tunga-techfall-pa-wall-street-klarna-rasade/ The rise in the US is part of a broader global shift as investors demand more compensation to protect against the risk of persistently high inflation that’s likely to keep short-term interest rates elevated. The movement is also being fueled by a ramp-up of corporate borrowing to fund the artificial-intelligence investment boom and waning demand from traditional buyers of long-dated bonds. https://www.bloomberg.com/news/articles/2026-08-17/us-bond-selloff-drives-30-year-yields-to-the-highest-since-2007 Global Bond Slump Sends Long-Term Borrowing Costs to Highest in Decades https://w...

Central banks may be accidentally subsidizing government borrowing through their efforts to prevent a repeat of past market blowups, and policymakers are starting to worry that anticrisis lending facilities could even be interfering with their own monetary policy. The source of the problem is the switch from central banks being the lender of last resort to, in 2008 and 2020, also being market makers of last resort, ensuring corporate—and government—debt markets keep functioning. During a crisis, support is often essential to prevent a downward spiral that destroys the financial system. But backstopping markets removes a key risk and encourages more borrowing—especially for the hedge funds that now own trillions of dollars of U.S. Treasurys. The scale is extraordinary: The Dallas Fed estimates hedge funds ended last year with $2.4 trillion of Treasurys, up from $600 billion a decade earlier.  Because the profits on each trade are tiny, hedge funds have to leverage as much as 100 tim...

Vitaliy Katsenelson, chief executive officer of Investment Management Associates, says:  I wrote in the past that the AI rollout feels a lot like déjà vu of the 1999 telecom bubble. Today it is also starting to feel like the 1999 bubble is being supersized into something closer to what led to the 2008 financial crisis. This is not a good change. Comparisons with 1999 provided some perverse reassurance. Burst stock market bubbles are in many ways a price of technological innovation as investors balk at trying to price new inventions years into the future.  They didn’t stop canals, railroads, cars, or the internet from remaking the economy, and a stock market selloff needn’t stop the growth of AI. Now, investors are beginning to hear the rhyme with a different bubble — the 2008 collapse of a massive edifice of mortgage-backed credit that caused the Global Financial Crisis Book extract: The Fearful Rise of Markets, Authers   https://www.ft.com/content/6d6ad426-63ac-11df...

For decades, the central bank believed talking openly made its policy work better. Its new chairman believes the opposite As a Fed governor through the 2008-09 crisis, Warsh had a front-row seat watching Ben Bernanke pioneer two of the central bank’s biggest innovations this century—a far larger holding of bonds and a more systematic practice of explaining its moves. Bernanke was extending a shift Alan Greenspan began in the 1990s, when the Fed first started announcing its rate decisions and signaling where they might head. Nick Timiraos Wall Street Journal June 14, 2026 https://www.wsj.com/economy/central-banking/fed-warsh-chair-communication-d2f2d226 Ending forward guidance. Centralbanker skall INTE vara förutsägbara. Englund blogg mars 2014 https://englundmacro.blogspot.com/2026/05/ending-forward-guidance-centralbanker.html

Det står klart att QE i stort sett haft förväntade effekter på finansiella variabler som långräntor och riskpremier av olika slag. Det gör det till ett lämpligt verktyg för att stabilisera finansiella marknader vid oro och kriser.  Effekterna på realekonomin och inflationen är dock inte lika tydliga, bland annat för att svenska hushåll och företag primärt lånar till rörliga och inte fasta räntor. - De negativa sidoeffekterna av värdepappersköp kan behöva beaktas i större utsträckning än vad man kanske tidigare räknade med. DI 4 juni 2026 https://www.di.se/live/thedeen-stora-kop-av-vardepapper-en-risk-for-oberoendet/ “Warsh will find that the reality of large and growing deficits, the need for foreign funding, and, more critically, the equity market monster, that more than a decade of QE created, will simply limit his degree of freedom to act.” https://englundmacro.blogspot.com/2026/04/a-treasury-fed-accord-qe-qt-usd.html Vem har rätt; John Maynard Keynes eller Mattias Svensson? - e...

The entire philosophy of post-2008 central banking may be entering a rollback phase Since 2008, the Federal Reserve has operated under a set of assumptions that would have been unrecognizable to Walter Bagehot or Paul Volcker.  Forward guidance as a primary tool. Permanent balance sheet expansion as the default response to any stress. The central bank as a perpetual crisis manager rather than a last resort.  That is the Bernanke/Yellen/Powell regime, and we are living with the rather severe unintended consequences.  The low interest rate, QE (infinity), balance sheet expansion regime created a distortion in asset markets and is the basis for much of the income and wealth disparity that has developed in the last 17 years.  Bernanke explicitly said he was targeting asset prices in order to create a wealth effect. The very people who mocked trickle-down economics under Reagan practiced an extreme version that resulted in trickle up. Warsh may be the first Fed chair in a...

Även om han under sin karriär har suttit mitt i en rad kriser, tvekar han inte om sin bedömning av de samlade riskerna i världen just nu. ”Det är den högsta nivån som jag någonsin har sett”, säger han. ”Det är ganska allvarligt.” ”Folk fokuserar alldeles för mycket på vad som kommer att hända 2026”, säger han.  ”Allt som händer i världen – kriget i Ukraina, kriget i Iran, handelskonflikter, för stor offentlig skuld – handlar egentligen om kursen för den fria och demokratiska världen och om vilken värld vi vill ha om 20 eller 30 år. Det är min verkliga oro – inte ekonomin eller aktiemarknaden nästa år.” Om västvärlden, den fria världen och dess ideal ska bestå, krävs det enligt Jamie Dimon en sak. ”Det är avgörande att vi håller ihop – både militärt och ekonomiskt.” Han ser en rad parallella tendenser som pekar mot ökad inflation. ”Om marknaden tror att sannolikheten för recession är cirka 15 procent, så hävdar jag att risken är dubbelt så hög på grund av allt jag nämnt. Det kan var...

Kevin Warsh has been critical of the central bank and promised “regime change.” What should Warsh do to improve how the Fed conducts and implements monetary policy? A Group of Thirty working group that I led released a report today,  The Federal Reserve’s Monetary Policy Framework: More to Do to Buttress Independence, that suggests a way forward. https://group30.org/publications/detail/6170 The report recommends the Fed develop a comprehensive framework for quantitative easing and tightening, including providing clarity about when QE might be appropriate and its objectives. The report suggests a thorough examination of the costs and benefits of shrinking the size of the Fed's balance sheet, including consideration of whether the current "ample" reserves regime should be retained. The report recommends the Fed publish a staff forecast with alternative scenarios at the conclusion of each Federal Open Market Committee meeting to facilitate better understanding of the Fed...

Despite high nominal yields on 10-year US Treasury bonds, the yield after expected inflation is around 2%, indicating that the market is not worried about debt. From Great Moderation to Great Stagflation https://englundmacro.blogspot.com/2023/01/secular-stagnation-not-secular.html A bond bubble could be more dangerous than an equity bubble, as a drop in bond prices would reprice risk throughout the economy,  causing disruptions and potentially leading to liquidity issues for banks and corporations. There is a popular notion that bond traders can see the future, that they know what inflation will be or if a recession is coming.  But bond markets are often wrong.  And they may be wrong now because bond yields are low relative to the risks the economy faces. Allison Schrager Bloomberg May 4, 2026 https://www.bloomberg.com/opinion/articles/2026-05-04/overpriced-bonds-are-a-bigger-threat-than-overpriced-stocks QE 10 år med nollränta Weak growth argues for a cut in interest rat...

The first Treasury-Fed Accord, in 1951 (discussed here ), gave the Fed independence to set rates after years when they had been held low by the Treasury to help repay war debts. Fed $6.5 trillion balance sheet, a legacy of the bonds it purchased to bail out the financial system after the 2008-9 crisis and the pandemic.  Slowly and deliberatively, I believe we need a smaller central bank balance sheet, Warsh told Senators. The issue — as Powell discovered when he tried to shrink the balance sheet in 2018 — is that selling bonds into the open market pushes up yields directly, while sucking out liquidity.  It led to a big market selloff and a demeaning “Powell Pivot (a major shift in direction) toward cheaper rates. Any such shrinking will have to be avoid repeating 2018. A further issue is the dollar. Bessent has made clear that he wants lower bond yields and a weaker dollar.  Steven Blitz of TS Lombard: “Warsh will find that the reality of large and growing deficits, the n...

Inget av partierna i den regerande Tidökoalitionen gick till val på att avskaffa de finansiella ramverken och låta Sverige gå med varaktiga underskott. Ändå är det i praktiken vad regeringen har gjort under mandatperioden. Framför allt höstens budget var så full av valfläsk att den till och med tryfferades med en tillfällig sänkning av matmomsen.  Som av en händelse just under valåret. Allt för lånade pengar. Samtidigt har samtliga riksdagspartier beslutat att låna till försvarets etappvisa tillväxt, åtminstone under de kommande år de själva sitter vid makten. Vi lånar alltså till den statliga kärnverksamheten – och utöver det till vidlyftiga vallöften. Regeringen menar att den statliga spenderfesten ska sätta fart på ekonomin. Men det går inte att äta sig till bättre produktivitet och fler konkurrenskraftiga företag.  Det är en lycka-till variant av en redan empiriskt motbevisad keynesianism.  Mattias Svensson SvD 16 februari 2026 https://www.svd.se/a/K8zKE6/regeringens-...

All the levers of economic stimulus in America are pushed to the maximum, setting the conditions for torrid overheating and an unstable boom by the end of the year. Bank deregulation, credit expansion, a weaker dollar, lower interest rates, stealth quantitative easing (QE) and neo-socialist affordability gimmicks are combining to stretch the economic cycle and deliver roaring growth in time for the mid-term elections in November. Dario Perkins from TS Lombard compares it to Britain’s “Barber Boom” in 1972. Anthony Barber, the Tory chancellor, unshackled the banks and let rip with corporate tax cuts, insisting that it was safe because his supply-side measures would raise the non-inflationary speed limit of the UK economy to 5pc.  Many cheered him on at the time. It was the zeitgeist. Barber got his boom. It lasted around 18 months. I am old enough to remember the crushing stagflationary bust that followed. “Stagflation” remains a word not uttered in the polite company of the financi...

The Global Financial Crisis of 2008 and Its Aftermath Great Moderation. However, calm never lasts. In 2008 the United States and the world economy as a whole were wracked by the global financial crisis.  The Fed’s response to that crisis was deeply controversial, with harsh criticism coming especially from the political right. The turning of the political wheel has now put the people who were proved wrong about monetary policy in charge of Trump administration policy.  When that bubble deflated, starting in 2005, the economic consequences were severe. Real estate is a very big sector: The plunge in housing prices when the bubble burst wiped out wealth equal to 40 percent of GDP, the equivalent of $12 trillion today.  The plunge in home construction slashed total spending by more than 4 percent, the equivalent of a trillion-dollar plus hit today. The housing bubble was financed in large part by loans from “shadow banks”.  RE: Shadow Banks https://englundmacro.blo...

Fed bought more than $90 billion of short-dated government debt Fed officials regard this activity as a technical measure designed to ensure e smooth functioning of short-term money markets,  while others have suggested the central bank’s efforts might be just another version of quantitative easing, or QE.  No matter what it’s called, one crucial result of this T-bill buying has been a stabilization of short-term and even long-term market-based rates https://www.marketwatch.com/story/the-fed-has-bought-over-90b-in-treasury-bills-since-december-why-this-has-a-huge-impact-on-your-finances-311e5b91

Warsh’s words indicate that he is very much the “hard money” central banker.   I agree, too, that the post-pandemic inflation was in part its fault: together with other central banks, it failed even to consider that the jump in the money supply in 2020 might lead to a jump in the price level.  I also agree with Warsh that the backward-looking monetary policy framework introduced in 2020 was a conceptual and practical error (not to mention grossly mistimed). Warsh might be far too willing to argue for whatever Trump wants.  It also appears that he intends to justify doing so by offsetting lower short-term rates with higher longer-term ones, as the Fed’s balance sheet is aggressively shrunk.  Martin Wolf 4 January 2026 https://www.ft.com/content/93b4c72a-0ceb-4839-bf72-06de3870d407

  Buy the dip https://englundmacro.blogspot.com/2025/02/buy-dip.html Dagen innan https://englundmacro.blogspot.com/2026/01/pa-fredagen-nominerades-kevin-warsh-som.html Muntert i USA. Wall Street stänger tydligt upp. Nasdaq yfte 0,6 procent, S&P 500 0,5 procent och  Dow Jones 1,1 procent. Disney rasade 7,3 procent. Nvidia backade 2,9   https://www.di.se/live/wall-street-stanger-tydligt-upp-tungt-tapp-for-disney/ https://www.wsj.com/livecoverage/stock-market-today-dow-sp-500-nasdaq-02-02-2026/card/bitcoin-price-drops-under-77-000-sIPnmVA6FY30XS3LbZd4 U.S. stock futures fall after bitcoin’s weekend drop, as gold and silver’s sell-off may be bleeding into other markets.  “Given the build up of positioning and leverage involved, [Friday’s gold and silver] sell-off is bleeding into other markets,”  “Effectively, a deleveraging is happening, forcing traders to sell other assets to cover losses on their losing precious metals positions. That’s contributing to t...