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My view is that an appreciation of China's REER is very much to be desired, but the real (haha) way to get there is through higher inflation domestically, and that means different macro policies.
Construction costs tend to rise at, or above, the level of overall inflation, and it rarely (if ever) gets cheaper to build houses, offices, or other buildings.
we have a very clear definition and expectation of what it is at the staff engineer level because we benchmark ourselves to all the great company out there Google, Facebook and all that
There were booms and busts, and cumulative price inflation was zero, and the United States went from a new-world emerging backwater in the late 1700s to being the world's largest economy by the late 1800s.
So, you while we kind of saved the system a lot, we bailed a lot of people out, they made us pay 5 billion dollars on the more the bad mortgages that Bear Stearns had done. And that's what made me make the statement I wouldn't do it again.
The inflation crisis was caused by massive overspending and escalating energy prices, and that is why today I will also declare a national energy emergency.
And so my argument is, that has now opened the door to the presidency of Donald Trump, which is potentially a deeply transformative moment that will change the size and shape of government, that may change our foreign policy profoundly, that may change our immigration policy, that may change the demographics of our country, all of that, and my thesis is that that's all been made possible by inflation.
And so the great mistake of the past years was to forget how fundamental inflation was to the rise of the last political order and to profoundly underestimate how much inflation would change the current political order.
Since inflation is not primarily driven by private-sector lending in the current environment, making borrowing more expensive will not significantly cool the economy.
Structural fiscal deficits have surpassed private sector lending and monetary policy as the primary drivers of economic activity and inflation, marking a fundamental shift in the economy's liquidity dynamics.
Several people have speculated that we'll see many very valuable one-person companies (see Sam Altman's interview and Reddit discussion). I think they might be right.
It is fair to say that, while economists expected the short end of the yield curve to reflect the higher rates needed to win the fight against inflation, the sharply steeper long end of the yield curve in the last few months has come as a surprise. I shall freely admit that I did not predict it.
Japanese macroeconomic policy is often characterized as a failure, with the central bank unable to achieve its inflation target, a low growth rate, and debt ratios steadily rising to reach more than 170% for net debt and 250% for gross debt. I think it should be seen instead as a qualified success, with the use of aggressive fiscal and monetary policies to compensate for very weak private demand: Output has remained close to potential.
Governments have not been bailed out by their central banks. As I discussed earlier, central bank intervention does not reduce the overall liabilities of the consolidated government, just their composition. And it does not automatically lead to more inflation: It increases the size of the balance sheet of the central bank, but it does not increase the size of the non-interest-paying money stock.
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