Daniel Lacalle | The Libertarian Institute

Raising the Debt Ceiling Is An Anti-Social Policy

by Daniel Lacalle | Feb 22, 2023 | Featured Articles

Every time the United States reaches its debt limit, we read that it is important to reach an agreement to lift it. The narrative is that the debt ceiling must be raised, or the US economy will suffer a severe contraction. There is even an episode of a TV series, “Designated Survivor”, where the character played by Kiefer Sutherland places lifting the debt ceiling as the priority to get the U.S. economy on track. The debt ceiling is viewed as an evil and anachronistic burden on growth. It is not. Analysts all over the world consider the debt ceiling a non-event because Congress always agrees...

No, Tax Cuts Don’t Cause Inflation

by Daniel Lacalle | Dec 14, 2022 | Economics, Featured Articles

The narrative to attack any tax cut and defend any increase in government size is reaching feverish levels. However, we must continue to remind citizens that constantly bloating government spending and increasing the size of monetary interventions are some of the causes of the widespread impoverishment of the middle class. Constantly increasing taxes and diminishing the purchasing power of the currency is wiping out the middle class in most developed nations. Currency printing is not neutral, and it never is. It disproportionately benefits government and massively hurts real salaries and...

Public Policy Created Europe’s Energy Crisis

by Daniel Lacalle | Oct 18, 2022 | Economics, Featured Articles

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...

Not a ‘Soft Landing,’ But a Crash

by Daniel Lacalle | Jun 20, 2022 | Economics, Featured Articles

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...

Sanctions Don’t Hurt Only Russia

by Daniel Lacalle | Feb 22, 2022 | Economics, Featured Articles, Foreign Policy

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...

Stagflation is Coming, Prepare Accordingly

by Daniel Lacalle | Jun 29, 2021 | Economics, Featured Articles

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...

Joe Biden’s Fake Economic Recovery

by Daniel Lacalle | May 28, 2021 | Economics, Featured Articles

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...

Prepare for Negative Interest Rates

by Daniel Lacalle | Feb 19, 2021 | Economics, Featured Articles

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...