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Public Policy Created Europe’s Energy Crisis

Public Policy Created Europe’s Energy Crisis

An energy policy that bans investment in some technologies based on ideological views and ignores security of supply is doomed to a strepitous failure. The energy crisis in the European Union was not created by market failures or lack of alternatives. It was created by political nudging and imposition. Renewable energies are a positive force within a balanced energy mix, not on their own, due to the volatile and intermittent nature of the technology. Politicians have imposed an unstable energy mix banning base technologies that work almost 100 percent of the time and this has made prices...

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Not a ‘Soft Landing,’ But a Crash

Not a ‘Soft Landing,’ But a Crash

After more than a decade of chained stimulus packages and extremely low rates, with trillions of dollars of monetary stimulus fueling elevated asset valuations and incentivizing an enormous leveraged bet on risk, the idea of a controlled explosion or a “soft landing” is impossible. In an interview with Marketplace, the Federal Reserve chairman admitted that “a soft landing is really just getting back to 2 percent inflation while keeping the labor market strong. And it’s quite challenging to accomplish that right now.” He went on to say that “nonetheless, we think there are pathways…for us to...

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Sanctions Don’t Hurt Only Russia

Sanctions Don’t Hurt Only Russia

The escalation of tension in Ukraine has reminded us of something many investors seemed to have forgotten: geopolitical risk. Sanctions and the inevitable drop in trade have proven to generate a significant negative impact on the different economies involved. We know from the 2014 Ukraine crisis that the economic hit is severe and persistent. The economic hit of sanctions is undoubtedly highest for Russia. The International Monetary Fund (IMF) estimated in 2015 that “Western sanctions and Russian countersanctions reduced Russian real gross domestic product (GDP) initially by 1–1.5% and that...

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Stagflation is Coming, Prepare Accordingly

Stagflation is Coming, Prepare Accordingly

The United States retail sales and jobless claims weakness, significantly below estimates, coincides with the largest fiscal and monetary stimulus in history. Something is not right when these figures come significantly below estimates in an environment of massive upgrades to gross domestic product (GDP). Why? The diminishing returns of stimulus plans are very evident. Artificially boosting GDP with large government spending and monetized debt generates a short-term sugar high that is rapidly followed by a sugar low. The alleged positive effects of a $1 trillion stimulus plan fade shortly...

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Joe Biden’s Fake Economic Recovery

Joe Biden’s Fake Economic Recovery

The University of Michigan consumer confidence index fell to 82.8 in May, from 88.3 in April. More importantly, the current conditions index slumped to 90.8, from 97.2 and the expectations index declined to 77.6, from 82.7. Hard data also questions the strength of the recovery. April retail sales were flat, with clothing down 5.1 percent, general merchandise store sales fell 4.9 percent, leisure and sporting goods were down 3.6 percent, with food and drink services up just by 3 percent. United States industrial production was also almost flat in April, rising just 0.4 percent month on month...

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Prepare for Negative Interest Rates

Prepare for Negative Interest Rates

Negative rates are the destruction of money, an economic aberration based on the mistakes of many central banks and some of their economists, who all start from a wrong diagnosis: the idea that economic agents do not take more credit or invest more because they choose to save too much and therefore saving must be penalized to stimulate the economy. Excuse the bluntness, but it is a ludicrous idea. Inflation and growth are not low due to excess savings, but because of excess debt, which perpetuates overcapacity with low rates and high liquidity and zombifies the economy by subsidizing the...

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The Fed Panicked, and Its Rate Cut Is Making the Economy Worse

The Fed Panicked, and Its Rate Cut Is Making the Economy Worse

The Federal Reserve's monumental mistake of cutting rates this past week can only be understood in the context of the rising God complex among central planners: an overwhelming combination of ignorance and arrogance. Less than a week ago, several members of the Federal Reserve board reiterated—rightly so—that cutting rates would not have a significant impact in a supply shock like the current one. We must also remember that the Federal Reserve already cut rates in 2019 and inflated its balance sheet by 14 percent to almost all-time highs in recent months, completely reversing the...

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Is China a Better Trading Partner for Latin America Than the US?

Is China a Better Trading Partner for Latin America Than the US?

Part of the economic debate in Latin America, particularly in Argentina after the elections, focuses on what type of financial and trade relationship is most convenient for the region, and several discussions consider the merit of strengthening relations with China instead of the United States The first thing we should understand is that it is a false dilemma. Latin America is not in an economic situation where it can afford to “choose” trading and financial partners. Therefore, the answer is simple: Latin American countries must strengthen their commercial relations with all countries,...

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