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Daniel Lacalle

Daniel Lacalle

Articles by Daniel Lacalle

The Recession in the Productive Sector Is Here

October 24, 2022

Governments and central banks have become the lender of first resort instead of the last resort, and this is immensely dangerous. Global debt soars, inflation creeps in, and many of the so-called supply chain disruptions are the result of zombification after years of subsidizing low productivity and penalizing high productivity with increased taxes.
There are many reasons why nations should not “spend now and deal with the consequences later.” First, the spending is made by politicians that will not be held accountable for the malinvestment and unwise outlay decisions. Furthermore, the cost will always be paid by taxpayers and businesses.
Think about the irony of promoting an “Inflation Reduction Act” that means spending more and monetizing more debt. But it is

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“Spend Now, and Deal with the Consequences Later” Is the Worst Policy

October 24, 2022

Quantitative easing was designed as a tool to provide time for governments to implement structural reforms, boost growth, and strengthen the economy. However, it has become a tool to increase the size of government and take increasingly riskier levels of debt.
The United States economy has not strengthened in the period of enormous fiscal and monetary stimuli, as the latest data shows. It needs increasing units of debt to generate a new unit of gross domestic product (GDP), productivity is extremely poor and leading indicators are negative.
The main problem of loose monetary policy is that it massively increases the size of government on the way in, through debt and deficit spending monetization, but it also expands government on the way out as rate hikes and

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Europe’s Energy Crisis Was Created by Political Intervention

October 20, 2022

An energy policy that bans investment in some technologies based on ideological views and ignores security of supply is doomed to a strepitous failure.
The energy crisis in the European Union was not created by market failures or lack of alternatives. It was created by political nudging and imposition.
Renewable energies are a positive force within a balanced energy mix, not on their own, due to the volatile and intermittent nature of the technology. Politicians have imposed an unstable energy mix banning base technologies that work almost 100% of the time and this has made prices soar for consumers and threatened security of supply.
This week, Ursula Von Der Leyen, President of the European Commission, gave two messages that have grabbed many headlines. First,

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How Money Printing Destroyed Argentina and Can Destroy Others

July 3, 2022

Inflation in Argentina is far worse than neighboring countries. It has only one cause: an extractive and confiscatory monetary policy—printing pesos without control and without demand.

Original Article: “How Money Printing Destroyed Argentina and Can Destroy Others”

The most dangerous words in monetary policy and economics are “this time is different.” Argentine politicians’ big mistake is to believe that inflation is multicausal and that everything is solved with increasing doses of interventionism.
The consumer price index in Argentina experienced a year-on-year rise of 58 percent in April 2022, which means 2.9 percentage points above the variation registered last March. A real catastrophe. Inflation in Argentina is more than six times higher than in

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US Household Saving Rate Vanishes, Credit Card Debt Soars

June 25, 2022

The United States consumption figure seems robust. An 0.9 percent rise in personal spending in April looks good on paper, especially considering the challenges that the economy faces. This apparently strong figure is supporting an average consensus estimate for the second-quarter gross domestic product (GDP) of 3 percent, according to Blue Chip Financial Forecasts.
However, the Atlanta Fed GDP nowcast for the second quarter stands at a very low 1.9 percent. If this is confirmed, the United States economy may have delivered no growth in the first half of 2022 after the decline in the first quarter, narrowly avoiding a technical recession.
The evidence of the slowdown is not just from temporary and external factors. Consumer and business confidence indicators

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How Money Printing Destroyed Argentina and Can Destroy Others

June 21, 2022

The most dangerous words in monetary policy and economics are “this time is different.” Argentine politicians’ big mistake is to believe that inflation is multicausal and that everything is solved with increasing doses of interventionism.
The consumer price index in Argentina experienced a year-on-year rise of 58 percent in April 2022, which means 2.9 percentage points above the variation registered last March. A real catastrophe. Inflation in Argentina is more than six times higher than in Uruguay, five times higher than in Chile, and four times higher than in Brazil and Paraguay, neighboring countries exposed to the same global problems.
No, inflation in Argentina is not multicausal; it only has one cause: an extractive and confiscatory monetary policy. Printing

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Powell’s “Soft Landing” Is Impossible

June 20, 2022

After more than a decade of chained stimulus packages and extremely low rates, with trillions of dollars of monetary stimulus fueling elevated asset valuations and incentivizing an enormous leveraged bet on risk, the idea of a controlled explosion or a “soft landing” is impossible.
In an interview with Marketplace, the Federal Reserve chairman admitted that “a soft landing is really just getting back to 2 percent inflation while keeping the labor market strong. And it’s quite challenging to accomplish that right now.” He went on to say that “nonetheless, we think there are pathways … for us to get there.”
The first problem of a soft landing is the evidence of the weak economic data. While headline unemployment rate appears robust, both the labor participation and

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The Chinese Slowdown: Much More Than Covid

May 11, 2022

The most recent macroeconomic figures show that the Chinese slowdown is much more severe than expected and not only attributable to the covid-19 lockdowns.
The lockdowns have an enormous impact. Twenty-six of 31 China mainland provinces have rising covid cases and the fear of a Shanghai-style lockdown is enormous. The information coming from Shanghai proves that these drastic lockdowns create an enormous damage to the population. Millions of citizens without food or medicine and rising suicides have shown that the infamous “zero covid” policy often disguises mass population control and repression.
It is easy to use the covid-19 lockdowns as the reason for the weakening of the Chinese economy but that would be a gross simplification. The problem is deeper.
China is

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And Now for a Really Bad Response to Political Calamity: Autarky

April 8, 2022

The invasion of Ukraine, the spike in inflation and the risks of supply shortages have made some politicians dust off some of the worst economic ideas in history: autarky and protectionism.
Some believe that if our nation produced everything we needed we would all be better off because we would not depend on others. The idea comes from a deep lack of understanding of economics. There is no such thing as autarky. There is no such thing as covering all the needs of a population based on the limit of a politically defined border. It makes no sense. If I told you that I want to make my city self-sufficient you would laugh about it understanding that it is impossible and that the reason why my city thrives is because of the interaction and commerce with other cities.

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European Environmentalists Have Made Energy Independence Impossible

April 3, 2022

Europe is not going to achieve a competitive energy transition with the current interventionist policies. Europe does not depend on Russian gas due to a coincidence, but because of a chain of mistaken policies: banning nuclear in Germany, prohibiting the development of domestic natural gas resources throughout the European Union, added to a massive and expensive renewable rollout without building a reliable backup.
Solar and wind do not reduce dependency on Russian natural gas. They are necessary but volatile and intermittent. They need backup from nuclear, hydro, and natural gas for security of energy supply. Dependency on these backup sources rises in periods of low wind and little sun, just when prices are highest.
“Solar goes to zero for twelve hours a day,

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Why Saudi Arabia Won’t Abandon Dollars for Yuan

March 31, 2022

There are numerous articles mentioning that Saudi Arabia may use the yuan, China’s domestic currency, for its oil exports.
How much does Saudi Arabia export to China? According to the Organisation of Economic Co-operation and Development, the kingdom’s main exports are to China ($45.8B), India ($25.1B), Japan ($24.5B), South Korea ($19.5B), and the United States ($12.2B). Exports of crude oil reached $145 billion in total.
Saudi Arabia is the world’s largest oil exporter at $145 billion, and China the largest buyer at $204 billion, with 2019 figures.
Saudi Arabia’s public accounts are exemplary. From a 4.8 percent deficit, the kingdom expects a surplus in 2022, and its ratio of public debt to GDP (gross domestic product) is 30.8 percent, one of the lowest in the

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The Fed’s Dovish “Tapering” and the ECB

December 25, 2021

This week, the Federal Reserve gave the most dovish “hawkish” statement ever, an apparent aggressive tapering that, in reality, means maintaining very low rates and massive repurchases for longer.
Inflation has skyrocketed and aggressive monetary policy is the key factor in understanding it. I already explained it in my article “The Myth of Cost-Push Inflation.” The Federal Reserve has finally recognized this and has made a U-turn in its policy of maintaining stimulus despite inflationary pressures.
The Federal Reserve now expects core inflation to remain above 2.7 percent in 2022 (previously it expected 2.3 percent) and above 2 percent in 2023 and 2024. That means the Consumer Price Index will probably remain above 3–4 percent in that period. Taking into account

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Biden’s Infrastructure Plan Points to Even More Price Inflation

November 17, 2021

What is the worst thing a government can do when there is high inflation and supply shortages? Multiply spending on energy and material-intensive areas. This is exactly what the US infrastructure plan is doing and—even worse—what other developed nations have decided to copy.
If you thought there were problems of supply and difficulties to access goods and services in the middle of a strong recovery, imagine what will happen once central banks and governments turn the printing machine to maximum level to spend on white elephants.

There is no such thing as “multicause inflation.” What Biden calls “speculation” is simply more money going to the same number of goods. So-called supply chain disruptions are more money to the same services, and “cost-push inflation”

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Governments Love Inflation, and They Won’t Do Anything to Stop It

October 22, 2021

No government looking to massively expand its size in the economy and monetize a soaring deficit is going to act against rising prices, despite claiming the opposite.
One of the things that surprises citizens in Argentina or Turkey is that their populist governments always talk about the middle classes and helping the poor, yet inflation still soars, making everyone poorer.
Inflation is the gradual erosion of the purchasing power of the currency. Governments will always use different excuses to justify inflation: soaring demand, “supply chain disruptions,” or evil corporations’ greed. However, most of the times these are excuses. Inflation is always a monetary phenomenon. Prices soar because money supply rises massively above real output and real money demand.

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More Evidence the American Economic “Recovery” Will Disappoint

May 28, 2021

The University of Michigan consumer confidence index fell to 82.8 in May, from 88.3 in April. More importantly, the current conditions index slumped to 90.8, from 97.2 and the expectations index declined to 77.6, from 82.7.
Hard data also questions the strength of the recovery. April retail sales were flat, with clothing down 5.1 percent, general merchandise store sales fell 4.9 percent, leisure and sporting goods were down 3.6 percent, with food and drink services up just by 3 percent.
United States industrial production was also almost flat in April, rising just 0.4 percent month on month in April, pushed by a 4 percent slump in motor vehicle production. You may think this is not that bad until you see that industrial capacity utilization came in at 74.7 percent

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How a Small Rise in Bond Yields May Create a Financial Crisis

March 19, 2021

How can a small rise in bond yields scare policymakers so much?
Ned Davis Research estimates that a 2% yield in the US 10-year bond could lead the Nasdaq to fall 20%, and with it the entire stock market globally. A 2% yield can cause such disruption? How did we get to such a situation?
Central banks have artificially depressed sovereign bond yields for years. Now, a small rise in yields can cause a massive market slump that evolves into a financial crisis.
Quantitative easing was designed as a tool to provide liquidity to a scared market and benefit from exceptionally attractive valuations of the lowest-risk assets, sovereign bonds. Central banks would cut rates and purchase these high-quality, low-risk assets from banks, thus allowing financial entities to lend

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New Lockdowns and More Regulations Are Disastrous for US Jobs

December 13, 2020

United States jobless claims have picked up, since the elections and the second wave of coronavirus have slowed down the economic recovery. Uncertainty about tax increases and changes in labor laws, including an increase in the minimum wage, add to the fear of new lockdowns, as employers see the devastating effects of these lockdowns in European employment.
While the United States has been able to recover fast and reduce unemployment to 6.8 percent, the eurozone jobless rate has risen to 8.3 percent before we consider the large number of furloughed employees who remain idle. The second wave of coronavirus in Europe has seen new government-imposed lockdowns and the impact on the economy is already severe. Estimates for the fourth-quarter gross domestic product

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If the US Adopts Eurozone Policies, the Jobs Recovery Will Suffer

October 8, 2020

The best social policy is one that supports job creation and rising wages. Entitlements do not make a society more prosperous, and ultimately drive it to stagnation.

This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Millian Quinteros.
Original Article: “If the US Adopts Eurozone Policies, the Jobs Recovery Will Suffer​“.

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If the US Adopts Eurozone Policies, the Jobs Recovery Will Suffer

September 30, 2020

The employment recovery in the United States is as impressive as the collapse due to the lockdowns.
In April I wrote a column stating that “The U.S. Labor Market Can Heal Quickly,” and the improvement has been positive. Very few would have expected the unemployment rate to be at 8.4 percent in August after soaring to almost 15 percent in the middle of the pandemic. This means that the unemployment rate is in August 2020 lower than what analysts projected for the end of 2020. Even the measure of underemployment (U-6) has fallen from 22.8 percent to 14.2 percent.
In August, the number of persons who usually work full time rose by 2.8 million to 122.4 million, or 10 million below the level of August 2019, and the number of persons not in the labor force who currently

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The US Dollar Collapse Is Greatly Exaggerated

September 15, 2020

The US Dollar Index has lost 10 percent from its March highs and many press comments have started to speculate about the likely collapse of the US dollar as world reserve currency due to this weakness.
These wild speculations need to be debunked.
The US dollar year-to-date (August 2020) has strengthened relative to 96 out of 146 currencies in the Bloomberg universe. In fact, the US Fed Trade-Weighted Broad Dollar Index has strengthened by 2.3 percent in the same period, according to data compiled by Bloomberg.
The speculation about countries abandoning the US dollar as the reserve currency is easily denied. The Bank of International Settlements reports in its June 2020 report that global dollar-denominated debt is at a decade high. In fact, dollar-denominated debt

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Bankruptcies Rise Despite Trillions in New Liquidity

September 9, 2020

Misguided lockdowns have destroyed the global economy and the impact is likely to last for years. The fallacy of the “lives or the economy” argument is evident now that we see that countries like Taiwan, South Korea, Austria, Sweden, and Holland have been able to preserve the business fabric and the economy while doing a much better job managing the pandemic than countries with severe lockdowns.
One of the most alarming facts about this crisis is the pace at which bankruptcies are rising. Despite an $11 trillion liquidity injection and government aid in 2020, stocks and bonds at all-time highs, and sovereign as well as corporate yields at all-time lows, companies are going bust at the fastest pace since the Great Depression. Why? Because a solvency crisis cannot

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Why the Central Bank “Bailout of Everything” Will Be a Disaster

June 25, 2020

Despite massive government and central bank stimuli, the global economy is seeing a concerning rise in defaults and delinquencies. The main central banks’ balance sheets (those of the Federal Reserve, Bank of Japan, European Central Bank, Bank of England, and People’s Bank Of China) have soared to a combined $20 trillion, while the fiscal easing announcements in the major economies exceed 7 percent of the world’s GDP according to Fitch Ratings.
This is the biggest combined stimulus plan in history. However, businesses are closing at a record pace and unemployment has reached extremely elevated levels in many countries.
There is an important risk in what I call the “bailout of everything,” or the conscious decision by governments and central banks to provide any

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Why the European Recovery Plan Will Likely Fail

June 19, 2020

The €750 billion stimulus plan announced by the European Commission has been greeted by many macroeconomic analysts and investment banks with euphoria. However, we must be cautious. Why? Many would argue that a swift and decisive response to the crisis with an injection of liquidity that avoids a financial collapse and a strong fiscal impulse that cements the recovery are overwhelmingly positive measures. But history and experience tell us that the risk of disappointment regarding the positive impact on the real economy is not small.
The history of stimulus plans in the eurozone should alert us against excessive optimism.
As you may remember, the European Union launched in July 2009 an ambitious project for growth and employment called the “European Economic

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The ECB Has Been Hiding Risk. They Won’t Be Able to Do It Much Longer.

May 19, 2020

Despite the unprecedented increase in the European Central Bank’s asset purchase program, the spread of southern European sovereign bonds versus German ones is rising.

The ECB balance sheet has soared to more than 42 percent of the eurozone’s GDP, compared to the Fed 27 percent of US GDP. However, at the same time, excess liquidity has ballooned to more than €2.1 trillion.

The ECB has been implementing aggressive asset purchases as well as negative rates for years, and the reality is that the eurozone economy has remained weak and close to stagnation already in the fourth quarter of 2019.
The eurozone’s main problem is that most governments have abandoned all structural reforms and bet all the recovery on monetary policy. The excessive government spending,

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Three Reasons Why the Eurozone Recovery Will Be Poor

May 12, 2020

The eurozone economy is expected to collapse in 2020. In countries such as Spain and Italy, the decline, more than 9 percent, will likely be much larger than in emerging market economies. However, the key is to understand how and when the eurozone economies will recover.
There are three reasons why we should be concerned:
The eurozone was already in a severe slowdown in 2019. Despite massive fiscal and monetary stimulus, negative rates, and the European Central Bank’s (ECB) balance sheet above 40 percent of GDP, France and Italy showed stagnation in the fourth quarter and Germany narrowly escaped recession. The eurozone weakness had already started in 2017, and disappointing economic figures continued throughout the next years. Many governments blamed the weakness

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Central Banks and the Next Crisis: From Deflation to Stagflation

April 25, 2020

All over the world, governments and central banks are addressing the pandemic crisis with three main sets of measures:
Massive liquidity injections and rate cuts to support markets and credit.
Unprecedented fiscal programs aimed at providing loans and grants for the real economy.
Large public spending programs, fundamentally in current spending and relief measures.
However, they may cause deeper problems than those they aim to solve.
When governments try to artificially boost debt and demand in a supply shock, the risk is the creation a massive deflationary spiral driven by debt saturation that is followed by stagflation when supply chains start to become insufficiently flexible.
This is a health crisis and a supply shock added to the forced shutdown of the

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Governments Are Using the Coronavirus to Distract From Their Own Failures

March 5, 2020

The Johns Hopkins University Coronavirus Global Cases Monitor shows that the mortality rate of the epidemic is very low. At the writing of this article,1 there have been 92,818 cases, 3,195 deaths, and 48,201 recoveries. It is normal for the media to focus on the first two figures, but I think that it is important to remember the last one. The recovered figure is more than ten times the deceased one. This should not make the reader ignore the epidemic, but it is worth reading the scientific study that shows that the death rate in citizens under age 60 is less than 1.3 percent, 0.2 percent in the young population, and a maximum of 4 percent on average.2
I have attended several debates in international media where scientists repeat these important factors to prevent

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