It's not just that Warsh would be beholden to Trump. That is the most important thing, but it also overshadows the fact that his Fed calls down the years have been bad--not uniquely bad, but systematically bad. I'm old enough to remember when he wanted to hike rates in 2008
The greatest threat from AI is not that it will displace human work but that it will displace human thought. My latest. www.project-syndicate.org/commentary/a...
I am sure he is happy others are suffering the consequences of "not helping" (he likes revenge) and he is assuming that everyone else (including Iran) will figure things out. But let's call it what it is: the US blocking everyone's traffic to get what they want.
And this might be the obvious next step if my logic was right: block access for everyone that that rest of the world puts pressure on Iran -- under the assumption that the cost is lower on the US.
www.ft.com/content/55e4...
A trio of @wsj.com headlines from this weekend — none of them good.
Does the US think this stalemate hurts others (Europe, China, Japan…) more, and is it willing to stretch it out a little longer even if it risks becoming an own goal? @javierblas.bsky.social
European power prices are split since the US-Iran conflict. Gas-reliant markets like Italy and Ireland have seen high prices (€140/MWh) while renewable rich regions including Spain, Portugal and Sweden see far lower prices (€40/MWh).
These are average wholesale daily prices (8am to 8pm).
Donald Trump is calling the war a great victory. It doesn’t look like one alongside his scant progress in fulfilling the conflict’s three most persuasive aims. Register for free to read what they were
With Gulf supplies drying up, discounts on Iranian oil are evaporating
• Chinese teapot refineries used to get discounts of $18-24/barrel of Iranian Light against Brent
• Factoring in freight costs, Iranian Light delivered to China is now more expensive than Brent
www.economist.com/finance-and-...
NEW: The United States and China put parts of the global economy at risk in 2025 through their trade war over critical minerals and technology.
Here I explore a novel path for Washington and Beijing to 'cooperate' over *HOW* they reduce their dependencies on each other.
Reactions welcome.
New piece. The US campaign against Iran has revealed one major story which people are not acknowledging. For reasons of both internal US weakness and technological development, the US is showing it has almost no chance in a war against China in the Western Pacific. open.substack.com/pub/phillips...
Evidence from Finland’s shows that during energy price shock :
🔹High-income households largely adapt by cutting energy use
🔹Low-income households spend more of their budget on energy but have the least scope to reduce consumption.
cepr.org/voxeu/column...
Figure shows the volume of loans lent to non-bank financial institutions (NBFIs) versus non-financial corporations. The volumes are normalised by their value in January 2019. Bank balance sheets have undergone a significant transformation. This column finds that banks have increasingly reallocated lending towards non-bank financial institutions. A rising share of this activity finances government securities rather than credit to the real economy. This shift is driven by the rapid expansion of securities-financing operations, surging sovereign issuance, and the unwind of quantitative easing. Bank balance-sheet constraints reinforce this trend by making safer and more liquid loans comparatively attractive. As banks expand lending to non-bank financial institutions, they cut back on firm lending, with smaller and riskier firms bearing the largest contractions in borrowing and overall debt.
Banks have increasingly reallocated lending towards non-bank financial intermediaries. In doing so, they cut back on firm lending, with smaller and riskier firms bearing the largest contractions in borrowing and overall debt.
J Li, Y Ma, C Mendicino, D Supera
cepr.org/voxeu/column...
#EconSky
The figure shows the trade-off, by pilot quality quintile. The slope of the downward-sloping lines shows how well different groups converted risk (on the x-axis) into aerial victories (on the y-axis). Performance differences were dramatic – at an expected survival rate of 80%, the top 20% pilots scored twice as many victories as the next 20%. How can firms motivate top performers when financial incentives are costly or constrained? Using data on German fighter pilots during WWII, this column shows how a tiered, expanding system of status-based awards can induce repeated bursts of effort from high-ability workers. However, to sustain this effort, organisations must manage the ‘fashion cycle’ of awards: as the awards become less exclusive, they lose their signalling value and new, more exclusive honours must be invented.
Leonardo Bursztyn, Ewan Rawcliffe, & Hans-Joachim Voth use data on German fighter pilots during WWII to show that a tiered, expanding systems of status-based awards can induce repeated bursts of effort from high-ability workers.
cepr.org/voxeu/column...
#EconSky
Figure: Grey shaded areas indicate U.S. wars; light blue shading indicates American Revolutionary War (1775−83). r = real bond return; g = real GDP growth. Wars shown: American Revolutionary War (1775−83), War of 1812 (1812−15), Mexican−American War (1846−48), Civil War (1861−65), Spanish−American War (1898), WWI (1914−18), WWII (1939−45), Korean War (1950−53), Iraq−Afghanistan War (2001−03), COVID−19 (2020−23). Government bonds are widely viewed as safe assets, especially in times of recession and financial crisis. This column presents evidence from three centuries of US and UK history showing that wars and pandemic-scale emergencies have in fact consistently produced large real losses for bondholders, challenging the conventional notion that government bonds are safe assets.
Z Jiang, H Lustig, S Van Nieuwerburgh & M Xiaolan use data from 300 years of US & UK history to show wars & pandemic-scale emergencies consistently produced large real losses for bondholders, challenging the conventional notion that government bonds are safe assets.
cepr.org/voxeu/column...
#EconSky
The US is taking actions to reshore manufacturing while largely abandoning decarbonisation. This column argues that, in response, the EU should capitalise on the potential weakening of the US role in global services and strengthen its own services sector, while remaining firmly committed to decarbonisation by supporting clean technology with strategic investments and a strong business case for clean industry.
Román Arjona & Emanuele Tarantino argue that the EU could capitalise on the potential weakening of the US role in global services and strengthen its own services sector, while remaining committed to decarbonisation by supporting clean tech.
cepr.org/voxeu/column...
#EconSky
Reminder that high P/E ratios associated to higher volatility (forward 10 years) in stock returns - in addition to being associated to low forward returns.
Chart of the day - from a column by @katie0martin.ft.com on the death of the Trump trade. Chart by @raydouglas.bsky.social www.ft.com/content/cfdc...
Figure shows the average change in monthly payments upon internal refinancing: realised (red) vs passive counterfactual (blue). The passive counterfactual assumes borrowers roll over remaining debt at expiration without extra payments or contract adjustments. The surge in inflation following the COVID-19 pandemic prompted many central banks to raise interest rates sharply. This column combines data from a large German bank, a borrower survey, and a letter experiment to show that mortgage-holders’ actions substantially reduce the impact of higher rates on monthly payments when their fixed rate ends. Survey responses indicate high informedness and a strong propensity to prepare, while the letter increases awareness of available options and raises refinancing activity among borrowers close to expiration. Overall, financial strains on mortgagors appear limited despite much higher rates, and mortgagors’ anticipatory actions affect the transmission of monetary policy.
Mortgage-holders’ actions substantially reduce the impact of higher interest rates on monthly payments when their fixed rate ends. Financial strains on mortgagors appear limited despite much higher rates.
@fuster.bsky.social @gianiv.bsky.social et al.
cepr.org/voxeu/column...
#EconSky
The UK vote to leave the EU in 2016 led to an immediate rise in economic policy uncertainty. This column examines how Brexit-related policy uncertainty affected cross-border capital flows to the UK using firm-level evidence from Switzerland. Heightened uncertainty following the referendum led to a persistent decline in short-term debt flows to the UK, while equity investment remained largely unchanged. The adjustment was concentrated among US-controlled firms resident in Switzerland, reflecting their reliance on the UK as a platform for EU market access. The findings underscore the importance of monitoring the composition, not just the volume, of international capital flows.
Andreas Fischer & Pınar Yeşin use firm-level evidence from Switzerland to show Brexit-related policy uncertainty led to a persistent decline in short-term debt flows to the UK, while equity investment remained largely unchanged.
cepr.org/voxeu/column...
#EconSky
(1/6) In my recent piece with Maurice Obstfeld @piie.com, we describe features of today’s US tariff environment. There are three bits of good news and bad news, but it is clear that Section 122 doesn’t apply.
Most Important Good News:
The Court defended separation of powers.
Hacktivists tried to find a workaround to Discord’s age-verification software, Persona. Instead, they found its frontend exposed to the open internet, and that was just the beginning.
www.therage.co/persona-age-...
Chart of Tether’s equity ratio
For all the talk of cryptocurrencies going mainstream, this is the wobbly pillar on which the edifice rests: Tether’s stablecoin has a shrinking cash buffer and has parked more of its assets in bitcoin, gold and other illiquid investments. Via @liamproud.bsky.social
www.reuters.com/commentary/b...
By 6-3 decision, tariffs struck down.
This suggests high P/E ratios are more of an overvaluation as they are followed by low returns and high volatility (both would suggest low P/E valuations or high excess CAPE yields).
But equity premium should also depend on expected volatility. Here is the correlation between excess CAPE yield and 10 year forward volatility. Mostly negative. When CAPE yield is low (high P/E ratios), volatility is likely to be much higher in the 10 year that follows.
Do high P/E ratios signal a bubble? From Shiller: strong correlation between excess CAPE Yield (ex-ante equity premium) and ex post (10 year) excess returns (ex-post equity premium) except period where negative surprises on interest rates dominated returns (post-2009).
