It seems that Zoltan Pozsar is tasked with telegraphing the Fed’s comprehensive message out to the investing public if they will listen. Then the Fed implements small pieces of it. To the extent this approach is successful, structural volatility is kept to a minimum. To the extent that it is not.. then QE infinity will necessarily follow.
The economic and industrial work which Zoltan speaks so extensively on that must be done is a marathon, not a sprint. Sadly, elected officials don’t care about marathons when they are sprinting to the next election poll. Some Central bankers have also sprinted to their next jobs already. We're skeptically optimistic one can tell the country to take its medicine when it is those same doctors that have made them sick; and then expect the country to swallow it. Maybe that is why they have Zoltan doing this and not the current leadership. Who would believe them?
Zoltan Pozsar: War and Industry
Background
This is merely a first read through (10,000 foot view) of Zoltan Pozsar’s missive. We will get to a more detailed version soon. But wanted to get you some background first. We are looking forward to Zerohedge's more comprehensive take on this new "missive".
Zoltan’s post is also likely a warmup to a series of future posts about how monetary policy must be tighter to offset the coming fiscal easing/investment domestically. That means inflation without free money.
His latest post goes through several concepts all related to understanding and coping with the newly split world we live in. Again, this is as general as general gets as an analysis. But we think it hits the main points.
War and Industry
Zoltan Pozsar’s latest 4000 plus word newsletter opens with this:
War means industry. Wars cannot be fought with supply chains that crisscross a globalized world, where production happens on faraway, little islands in the South China Sea, from where chips can be transported only if airspaces and straits remain open… Global supply chains work only in peacetime, but not when the world is at war, be it a hot war or an economic war. The low inflation world had three pillars: cheap immigrant labor keeping nominal wage growth “stagnant” in the U.S., cheap Chinese goods raising real wages amid stagnant nominal wages, and cheap Russian natural gas fueling German industry and Europe more broadly. Implicit in this “trinity” were two giant geo-strategic and geo-economic blocks: Niall Ferguson called the first one “Chimerica”.
I will call the other one “Eurussia”. Both unions were a “heavenly match”: the EU paid euros for cheap Russian gas, the U.S. paid U.S. dollars for cheap Chinese imports, and Russia and China dutifully recycled their earnings into G7 claims. All sides were entangled commercially as well as financially, and as the old wisdom goes, if we trade, everyone benefits and so we won’t fight. But like in any marriage, that’s true only if there is harmony. Harmony is built on trust, and occasional disagreements can only be resolved peacefully provided there is trust. But when trust is gone, everything is gone…
He then goes on to mix history, economics, pop culture references, and much more in what can be described as a chapter in his mission to educate readers on the tough love that is coming.
