Thoughts from the Frontline

The Strange Recession we are now entering is strange for another reason beside those I described last week. The last “normal” recession ended in 2009, almost 13 years ago. As with most unpleasant experiences, we don’t put a lot of energy into remembering what it was like.

Back in the good old days, recessions were simply the unpleasant part of the business cycle. Consumer choices, exuberant businesses, and monetary policy would periodically generate growth contractions. We debated the timing, but recessions didn’t come out of the blue.

“How did you go bankrupt? Two ways. Gradually, then suddenly.” - Ernest Hemingway, The Sun Also Rises

This week’s news is seemingly all about Ukraine and Russia. It is a terrible situation. But as an economic matter, we still have serious economic challenges no matter how it develops.

But mouse-friend, you are not alone In proving foresight may be vain: The best-laid schemes of Mice and Men Go oft awry, And leave us only grief and pain, For promised joy! —Robert Burns, “To a Mouse,” English translation

Interest rates—the “price of money”—have been unusually low for most of this century, particularly since the 2008 crisis but going back to Greenspan’s era. The wisest people I know differ on exactly why. Was it purely a policy choice, or the result of larger, less-controllable economic forces? I believe the answer is some of both. Whatever the cause, persistently cheap money has had consequences we are only beginning to recognize.

You’ve heard the old stock market adage, “As goes January, so goes the year.” If so, 2022 will be a wild ride.

Ranked by population, the United States is the world’s third largest country, behind China and India. But the gap is greater than the ranking implies. According to Worldometer, as of 2020 China had 1.44 billion people, India 1.38 billion, and the US 331 million.

If you are a booklover like me, you probably have many shelves. On some of those shelves you probably have bookends holding the books in place. They come in opposing pairs—similar but reversed.

Twenty-two years of tradition dictate I begin the new year by forecasting what lies ahead. Unfortunately, the future is never really knowable. “Forecast” is a polite synonym for “guess.” The better ones are informed guesses, but still inherently uncertain.

This week is a little bit different than your usual Thoughts from the Frontline. It is Christmas Day as this is sent out, so not the time to ramble on about inflation and the markets. Instead I’ll share a story from my good friend Vitaliy Katsenelson. He immigrated to the US with his family from Russia over 30 years ago. I’ve always been fascinated by this story when we get together. All he knew of America came from movies and propaganda, which wasn’t altogether flattering.

Milton Friedman famously said inflation is “always and everywhere a monetary phenomenon.” He was right but that short statement doesn’t fully explain how inflation works. It has other causes, too. The period in which he did his most famous research showed inflation was clearly a monetary phenomenon, but I’m not sure he would make the same assertion today.