Two Measures for the Fed and Investors

With inflation in excess of 5% in each of the last 5 months, two measures would have been helpful for the Fed and investors in prior months. To be sure, they should influence Fed and investor decisions going forward.

They include

  • Center for Financial Stability (CFS) Divisia M4-,
  • Global inflation diffusion indexes that analyze price and expectation signals in 49 countries.

To view the two measures:
https://centerforfinancialstability.org/research/Measures_Fed_110221.pdf

We look forward to any comments you might have.

New Giancarlo Crypto book

J. Christopher Giancarlo – America’s leading authority on Cryptocurrency and the coming digital economy – has just released his new book, CryptoDad: The Fight for the Future of Money (https://www.amzn.com/111985508X/). 

CryptoDad is engaging and destined to have great impact. Even the footnotes are superb! The book adds depth to the many vectors influencing the future of cryptocurrencies and regulation.

Chris Giancarlo is the former Chairman of the CFTC – first nominated as a CFTC Commissioner by President Barack Obama and subsequently nominated as Chair by President Donald Trump.  He is the founder of the new Digital Dollar Project (https://digitaldollarproject.org/), which is committed to advancing the exploration of a United States Central Bank Digital Currency (CBDC).  Over the years, he has done pathbreaking work at the intersection of regulation and financial innovation.

Beers on the U.S. Debt Fight

Today, Barron’s published an op-ed by CFS senior fellow David Beers titled “Democracy is at Stake in the U.S. Debt Fight.”

David discusses the ongoing struggle with deficits and the debt ceiling within the context of Standard & Poor’s (S&P) decision to become the first major credit rating firm to downgrade U.S. debt. At the time, David led S&P’s global team of analysts responsible for sovereign and international public finance credit ratings and research. He later worked on sovereign debt, IMF, China, and Euro Area policy issues for the Bank of England.

As noted in the piece, the opinions are the author’s alone.

Many points are worth further exploration, yet some may be viewed as political. CFS focuses on analytics. CFS is nonpartisan. Hence, we leave the politics for you to sort through.

The op-ed is excellent. It clearly illustrates drivers behind the deterioration in sovereign credit quality in the U.S. as well as other sovereigns around the world. In fact, going forward, economic management with a keen eye to these drivers can reverse the slide in credit quality.

To view the full article:
https://www.barrons.com/articles/us-debt-downgrade-51633382585?tesla=y

We look forward to any comments you might have.

Bair on Finance for Kids

CFS Advisory Board Member Sheila Bair is now the author of a new series of entertaining children’s books about money called “Money Tales.”

She notes that “kids ‘get money’ at an early age, and we need to feed that inquisitiveness. Over 70% of student borrowers say they wish they had better information about debt and its burdens when they decided to borrow, and over half wish they had not borrowed at all.” She wants to make sure future generations of borrowers are better prepared.

Sheila has a hidden past as a children’s book writer. She was recognized by the Council on Economic Education, Association of Educational Publishers, JumpStart Coalition, and the Institute for Financial Literacy for her efforts to teach kids and their parents about money basics.

On September 15, the new Money Tales series will include:

Billy the Borrowing Blue-Footed Booby
https://www.amazon.com/Billy-Borrowing-Blue-Footed-Booby-Money/dp/0807508128
Princess Persephone Loses the Castle
https://www.amazon.com/Princess-Persephone-Loses-Castle-Money/dp/0807566470

Her first two books, Rock, Brock and the Savings Shock and Isabel’s Car Wash, published 15 years ago, continue to sell well.

They are available for pre-order now on Amazon, for yourselves, your friends, or anyone you know with children or as donations to schools or libraries.

Barnett Keynote on BREXIT at UK Conference on Uncertainty, Risk Measurement and COVID-19 Challenges

CFS Director of Advances in Monetary and Financial Measurement (AMFM) Professor William A. Barnett delivered the keynote lecture “Is the BREXIT Bifurcation Causing Chaos in the United Kingdom?”

Bill’s remarks explore:

  • Why is Brexit changing economic risk without a source of external shocks?
  • Mathematical properties of chaos with relevance to BREXIT and U.S. monetary policy.
  • Why chaos is not necessarily bad. It is normal in nature (weather, climate, etc.) and is relevant to science and economics. Chaos contains useful information.
  • The United Kingdom and United States economies have undergone significant structural and policy changes in the past decades rendering chaotic dynamics more relevant.
  • Meaningful policy implications stem from the existence of Shilnikov Chaos.
  • Shilnikov chaos, produced by interest rate feedback policy with sticky prices, explains the downward drift of interest rates over the past 20 years.
  • Interest rate feedback policy rules need to be augmented by simultaneous use of a second policy instrument focused on the long run to avoid unintentional downward drift of interest rates to their lower bound.

For the slide deck…
http://www.CenterforFinancialStability.org/speeches/UK_bifurcation_Barnett.pdf
For the lecture…
https://www.youtube.com/watch?v=W2URCxL5owU&ab_channel=KUDepartmentofEconomics%20

FT Letter: Investors shouldn’t bet too much on macro forecasts

Today my letter in the Financial Times (FT) responds to Howard Marks’ “Investors must not bet too much on macro forecasts.”  Marks offers a superb road map for navigating future inflation twists and turns.

However, he misses how macro rules of nature can often be measured – helping investors and public officials better achieve their respective goals.

Monetary measurements represent simply one meaningful mapping.

To view “Inflation was inevitable after the Fed fuelled monetary growth”:
https://www.ft.com/content/2f7f1bad-ed6b-4a6a-9123-0eb024541c8a

We look forward to any comments you might have.

UK Invitation: Uncertainty, Risk Measurement and COVID-19 Challenges Conference

An important United Kingdom economics conference “Post BREXIT: Uncertainty, Risk Measurement and COVID-19 Challenges” is being held online on July 20-21.

CFS Director of Advances in Monetary and Financial Measurement (AMFM) Professor William A. Barnett will be delivering a keynote lecture “Is the BREXIT Bifurcation Causing Chaos in the United Kingdom?”

Other keynotes include:

  • David Aikman: Professor of Finance and Director of the Qatar Centre for Global Banking and Finance, King’s Business School, King’s College.
  • Jagjit Chadha: Director of the National Institute of Economic and Social Research (NIESR).
  • Marcelle Chauvet, Professor of Economics, University of California Riverside.
  • Costas Milas: Professor of Finance at the Management School, University of Liverpool.
  • Patrick Minford: Professor of Applied Macroeconomics at Cardiff University.
  • Federica Romei, Associate Professor in Economics, University of Oxford

The full agenda is available at
http://www.centerforfinancialstability.org/events/Post_Brexit_Conference_Programme.pdf

Attendance and registration are free of charge and available at
https://www.birmingham.ac.uk/schools/business/events/2021/post-brexit-conference.aspx

Congratulations to Professor Jane Binner, Chair of Finance at the University of Birmingham, and her colleagues for organizing a timely and impactful conference.

Rhodes on France / Promotion to the Rank of Commander, Legion of Honor

Congratulations to William R. Rhodes – CFS Advisory Board Chairman – for his promotion to the rank of Commander in the Legion of Honor by France.

As Bill notes, “France is our oldest ally, and the friendship between France and the United States has allowed our countries to achieve great things together and to affect the course of history and international relations.”

I was privileged to attend the ceremony and was moved by Bill’s perspective on French and American history as well as his personal engagement with France over the years.

Hence, I thought that you too might enjoy his remarks on receiving this prestigious award…
www.CenterforFinancialStability.org/speeches/William_Rhodes_Legion_of_Honor_Remarks.pdf

Now, Inflation is Clear and Global

Across the board higher consumer price inflation in the United States removes any ambiguity or doubt regarding the existence of price pressures beyond transitory or base effects.

Overall consumer prices increased by 5.4% on the year ending in June. Core inflation increased by 4.5% over the same period.  In fact, in the last 4 months, both overall and core inflation exceeded market expectations and increased relative to the previous month’s release.

The phenomenon also extends well beyond simply the United States. It is global.

A diffusion index of every inflation release relative to the prior release for 49 countries shows an upward impulse since the beginning of the year. More pointedly, a diffusion index of reported inflation relative to expectations for the same complex of countries illustrates how actual inflation has been exceeding expected inflation especially since May 2021.
(see Figures 1 and 2… www.CenterforFinancialStability.org/amfm/studies/Global_inflation_071421.pdf)

The Center for Financial Stability (CFS) has been clear about risks and financial stability implications.  Our first email on April 22, 2020 noted how the initial impulse in the signal from CFS broad money would be a period of disinflation followed by inflation.

Inflation Fears Offers the Fed a Chance to Modernize with Money
http://www.centerforfinancialstability.org/research/Modernize_Money_042621.pdf
Post-Pandemic Economic Risks
http://www.centerforfinancialstability.org/research/Post_Pandemic_Economic_Risks_050521.pdf

June CFS Divisia money and financial liability data will be released on August 2 at 9:00 AM ET.

The present global macro backdrop for investors and officials is one of the most challenging and complex in decades. We look forward to any comments you might have.

Money Growth Falls – Inflation Threat Remains…

CFS broad money growth slowed to 12.1% on a year-over-year basis in the latest reading for April down from 23.8% in March.

The initial response might be to assume that the large expansion of money is reaching an end. This would be a mistake. The “base effect” elevating monetary growth on a year-over-year basis began to end in March 2021 and fully finished in April 2021. A few issues include:

  • CFS Divisia monetary growth of 12.0% in April dwarfs average growth of 5.6% since 1967 (DM4- excluding Treasury bills).
  • A high frequency reading of CFS monetary data stretching back over 54 years portrays a radically different perspective regarding the performance of broad money and its implications for inflation. It highlights how broad money growth and inflation risks are actually beginning to accelerate (chart available on request).

On April 22, 2020, we were early and clear in our email message “CFS Money Growth Soars to double digits.” The initial impulse embedded in the signal from CFS broad money would be a period of disinflation followed by inflation.

Going forward, inflation will likely continue its upward ascent and stretch beyond the Fed’s comfort zone.

The present global macro backdrop for investors and officials is one of the most challenging and complex in decades. We look forward to any comments you might have.

For more on CFS Divisia money and inflation:
http://www.centerforfinancialstability.org/research/Modernize_Money_042621.pdf
http://www.centerforfinancialstability.org/research/Post_Pandemic_Economic_Risks_050521.pdf

For Monetary and Financial Data Release Report:
http://www.centerforfinancialstability.org/amfm/Divisia_Apr21.pdf

Bloomberg terminal users can access our monetary and financial statistics by any of the four options:

1) ALLX DIVM
2) ECST T DIVMM4IY
3) ECST –> ‘Monetary Sector’ –> ‘Money Supply’ –> Change Source in top right to ‘Center for Financial Stability’
4) ECST S US MONEY SUPPLY –> From source list on left, select ‘Center for Financial Stability’