Key excerpt of the interview:   Mr. X: Once the Fed committed to ensuring the UST market “functioned” properly in 2020, in the presence of US debt/GDP this high, US deficits this high, foreign UST buying so low, and US Net International Investment Position (NIIP) this negative, the Fed unwittingly committed itself to an impossible Trilemma – it could have only two of the following three: Full employment. Low inflation. A functioning UST market. So,

Inflation picks up sharply (page 2) “Biden makes case to vastly expand government role” (page 5) “Biden forms pro-union task force to explore ways to help labor” (page 6) “Biden calls for the US to become more competitive against China” (page 8) “Fed to taper bond buying in 4q21, economists say” (page 10) Two hints from this week alone that Jerome Powell knows “this time is different v. the past 50 years” (page 13) “Russia

Key points: Consensus believes that the inflation the US economy is currently experiencing will be “transitory”; we’re not so sure.    Inflation won’t be “transitory” if the biggest economic actor in the US economy (the US government) continues running massive deficits, has a printing press, and remains willing to pay whatever prices are required to get the (mostly imported) goods the US government needs to function.  The only way US inflation will be “transitory” is

“Biden will seek tax increase on the rich to fund child care and education” (page 2) Real US home prices break out to new all-time highs, surpassing the housing bubble (page 3) More evidence that “Keeping rates < nominal GDP growth” has made its way into the Fed policy conversation (page 5) “These are not the droids you’re looking for.”  Powell jawbones inflation (Jedi mind-tricks) (page 7) “Italy’s debt/GDP surpasses old record set in 1920”

Key points: In the last two weeks, the narrative around Fed tapering/tightening appears to have shifted.  The growing narrative of “sooner than expected policy normalization” does not appear to be considering several critical pieces of macro context of the current rate cycle v. every other post-war recovery. Our view is that the key to the Fed normalizing policy will be getting US debt/GDP back to down a level that will allow a normalization of policy

“ECB needs to respond to this inflation by printing more money.” (page 2) The 7 most important words Fed Chair Powell said on ’60 Minutes’ in our view: “Or even maybe a little higher.” (page 4) “All of a sudden, literally overnight, the amount of trade that settles in Chinese CBDC will be multiples of today.” (page 6) “One of the dumber comments I regularly read is that the US trade deficit is beneficial for