46.4 BONUS MAKING MORE SENSE: Will Biden’s stimulus overheat the US economy?
Jeff Snider reacts LIVE! to an article from The Economist. The magazine offers three arguments why the US economy might overheat in 2021: evidence that the downturn is temporary; generous fiscal stimulus; and the Federal Reserve’s monetary-policy strategy.

[Emil’s Summary] Having studied monetary policy for several years it was only natural that your podcaster spent considerable time contemplating the essential elements of fiction. Some experts say there are five components to it; others put the tally at six, even eight! But at the core it has always been the three elements: plot, setting and character.  

Plot was perfected, in the Western tradition at least, in the late 16th century by Shakespeare with the 5-act dramatic structure. Setting, given short-shrift for millennia, did not achieve co-equal status until the gothic novels of the mid-18th century. And character? Scholars point back 28 centuries to The Iliad: heroism, cowardice, pride, hubris – wrath. But the scholars are wrong. Character wasn’t perfected first, but last. Not until the 1980s action drama The A-Team did this element of fiction reach its zenith.

The American television masterpiece synthesized what the Great Books dared not imagine into the now classic quartet: Colonel John “Hannibal” Smith as the brains; Lieutenant Templeton “Faceman” Peck as the looks; Sergeant Bosco Baracus the muscle; Captain H.M. Murdock the wildcard. The casting blueprint can be observed most everywhere; in the arts, at the office; even family the dinner table. Central banking is no exception. In the role of the brains is Ben “Hannibal” Bernanke. The looks? Lady Lagarde. The muscle? Jay “Mad Dog” Powell. The wildcard? The audience will naturally point to Haruhiko Kuroda and, before January 28th, the audience would have been correct.

On that day Isabel Schnabel, Member of the Executive Board of the European Central Bank, gave a speech extolling the virtues of the sovereign-bank-corporate nexus. That is technocrat-speak for the government-guaranteed private-bank loans to private enterprise. Schnabel endorsed these “crucial” national loan schemes and encouraged Europe’s capitals to continue them, warning any premature end would be “destabilising”. Put another way, the baton that represents the supervision of money creation, has been wrested away from Frankfurt and placed into the neatly manicured hands of politicians, seeking re-election.

The new wildcard is not Isabel Schnabel but the Euro Area member state. All 19 of them.

In this episode we touch upon 1980s television shows, like CHiPs and interbank clearing mechanisms, like CHIPS. Also, why are corporate elephants on the hunt for fast-moving gazelle enterprises? Why are these elephants being offered their own fiefdoms in Nevada? Lastly, a potpourri review of Jeff Snider’s recent writing.  


Twitter: https://twitter.com/JeffSnider_AIP
Twitter: https://twitter.com/EmilKalinowski
Art: https://davidparkins.com/

Jeff Snider, Head of Global Investment Research for Alhambra Investments with Emil Kalinowski, seeing what the tide brought in. Art by David Parkins. Podcast intro/outro is “City Lights, City Dreams” by Forever Sunset at Epidemic Sound.


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00:05 Why won’t a large fiscal stimulus (e.g. Biden’s 9% of US GDP) save a post-2008 economy?
02:49 Why won’t a large fiscal stimulus overheat a post-2008 economy?
05:56 Why aren’t the positive employment gains of July-December 2020 positive?
07:23 Why isn’t a pool of excess savings indicative of potential activity in a post-2008 economy?
10:48 Did the Federal Reserve learn the right lesson from the 2013 “taper tantrum”?
13:29 Why won’t the Fed’s new “average inflation” strategy not make save a post-2008 economy?


The Economist, Fire without Fury: https://econ.st/3qnkWSu
Alhambra Investments Blog: https://bit.ly/2VIC2wW
RealClear Markets Essays: https://bit.ly/38tL5a7