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Daniel Lacalle

Daniel Lacalle

Articles by Daniel Lacalle

Statism Is Destroying Real Wages

8 days ago

When we read about the US economy, we often get wage growth as a signal of a strong labor market. It is hardly a strong market when the labor participation rate and the employment to population ratio are both below the February 2020 level and have been stagnant for months.
Additionally, the headline figure of 4.6 percent annualized wage growth is misleading, as it shows a nominal and average figure that disguises a much tougher environment. According to the Bureau of Labor Statistics, from December 2021 to December 2022, real average hourly earnings decreased 1.1 percent, seasonally adjusted.
When we look at wage growth by sector, the picture is even worse. According to JP Morgan, no sector in the US economy has seen a rise in wages that covers inflation. Only two

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Central Bank Digital Currencies Would Bring Hyperinflation

14 days ago

There are many excuses often used to explain inflation. However, the fact is that there is no such thing as “cost push inflation” or “commodity inflation.” Inflation is not an increase in prices, it is the destruction of the purchasing power of the currency.
Cost-push inflation is more units of currency going to relatively scarce real assets. The same can be said about all other, from commodities to demand and my favorite, “supply chain disruption.” More units of currency going to the same goods and services.
The monster inflation we have endured these years first arrived through asset inflation and then through consumer prices. Now, governments and statistical bodies are tweaking the calculation of CPI to disguise the loss of purchasing power of the currency and

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How Easy Money Killed Silicon Valley Bank

18 days ago

The second-largest collapse of a bank in recent history after Lehman Brothers could have been prevented. Now the impact is too large, and the contagion risk is difficult to measure.
The demise of the Silicon Valley Bank (SVB) is a classic bank run driven by a liquidity event, but the important lesson for everyone is that the enormity of the unrealized losses and the financial hole in the bank’s accounts would not have existed if not for ultra-loose monetary policy. Let me explain why.
As of December 31, 2022, Silicon Valley Bank had approximately $209.0 billion in total assets and about $175.4 billion in total deposits, according to their public accounts. Their top shareholders are Vanguard Group (11.3 percent), BlackRock (8.1 percent), StateStreet (5.2 percent)

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Governments Will Make You Poorer Again

January 23, 2023

The International Monetary Fund (IMF) has warned about the optimistic estimates for 2023, stating that it will likely be a much more difficult year than 2022.
Why would that be? Most strategists and commentators are cheering the recent decline in price inflation as a good signal of recovery. However, there is much more to the outlook than just a moderate decline in price inflation rates.
Price inflation is accumulative, and the estimates for 2023 and 2024 still show a very elevated level of core and headline inflation in most economies. The longer it remains this way, the worse the economic outcome. Citizens have been living on savings and borrowing to maintain current levels of real spending. But this cannot last for many years.
Politicians all over the world are

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2023: You Wanted Endless Stimulus, You Got Stagflation.

January 5, 2023

After more than $20 trillion in stimulus plans since 2020, the economy is going into stagnation with elevated inflation. Global governments announced more than $12 trillion in stimulus measures in 2020 alone, and central banks bloated their balance sheet by $8 trillion.
The result was disappointing and with long-lasting negative effects. Weak recovery, record debt, and elevated inflation. Of course, governments all over the world blamed the Ukraine invasion on the nonexistent multiplier effect of the stimulus plans, but the excuse made no sense.
Commodity prices rose from February to June 2022 and have corrected since. Even considering the negative effect of rising commodity prices in developed economies, we must acknowledge that those are positives for emerging

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Latin America’s Descent into Interventionism Continues

December 30, 2022

The latest estimates from consensus for the main Latin American economies show a continent facing a lost decade. The region GDP growth has been downgraded yet again to a modest 1.1% for 2023, with rising inflation and weakening gross fixed investment. Considering that the region was already recovering at a slower pace than other emerging markets, the outlook is exceedingly worrying.
The poor growth and high inflation expectations are even worse when we consider that consensus estimates still consider a tailwind coming from rising commodity prices and more exports due to the China re-opening.
How can a region with such high potential as Latin America be condemned to stagflation? The answer is simple. The rise of populist governments in Colombia, Chile and Brazil

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Why Central Banks Will Choose Recession Over Inflation

December 20, 2022

While many market participants are concerned about rate increases, they appear to be ignoring the largest risk: the potential for a massive liquidity drain in 2023.
Even though December is here, central banks’ balance sheets have hardly, if at all, decreased. Rather than real sales, a weaker currency and the price of the accumulated bonds account for the majority of the fall in the balance sheets of the major central banks.
In the context of governments deficits that are hardly declining and, in some cases, increasing, investors must take into account the danger of a significant reduction in the balance sheets of central banks. Both the quantitative tightening of central banks and the refinancing of government deficits, albeit at higher costs, will drain liquidity

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Keynesian Policies Gave Us High Debt, Inflation, and Weak Growth

December 17, 2022

The evidence from the last thirty years is clear. Keynesian policies leave a massive trail of debt, weaker growth and falling real wages. Furthermore, once we look at each so-called stimulus plan, reality shows that the so-called multiplier effect of government spending is virtually nonexistent and has long-term negative implications for the health of the economy. Stimulus plans have bloated government size, which in turn requires more dollars from the real economy to finance its activity.
As Daniel J. Mitchell points out, there is evidence of a displacement cost, as rising government spending displaces private-sector activity and means higher taxes or rising inflation in the future, or both. Higher government spending simply cannot be financed with much larger

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Global Rate Hikes Hit the Wall of Debt Maturity

December 16, 2022

More than ninety central banks worldwide are increasing interest rates. Bloomberg predicts that by mid-2023, the global policy rate, calculated as the average of major central banks’ reference rates weighted by GDP, will reach 5.5%. Next year, the federal funds rate is projected to reach 5.15 percent.
Raising interest rates is a necessary but insufficient measure to combat inflation. To reduce inflation to 2%, central banks must significantly reduce their balance sheets, which has not yet occurred in local currency, and governments must reduce spending, which is highly unlikely.
The most challenging obstacle is also the accumulation of debt.
The so-called “expansionary policies” have not been an instrument for reducing debt, but rather for increasing it. In the

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Tax Cuts Do Not Cause Inflation. Printing Does.

December 14, 2022

The narrative to attack any tax cut and defend any increase in government size is reaching feverish levels. However, we must continue to remind citizens that constantly bloating government spending and increasing the size of monetary interventions are some of the causes of the widespread impoverishment of the middle class. Constantly increasing taxes and diminishing the purchasing power of the currency is wiping out the middle class in most developed nations.
Currency printing is not neutral, and it never is. It disproportionately benefits government and massively hurts real salaries and deposit savings. It is a massive transfer of wealth from savers to the indebted.
Readers may say that what needs to happen is to tax the rich and corporations and all will be

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The G7 Cap on Russian Oil Is a Subsidy to China

December 10, 2022

There are many mistakes in the G7 agreement to put a cap on Russian oil. The first one is that it does not hurt Russia at all. The agreed cap, at $60 a barrel, is higher than the current Urals price, above the five-year average of the quoted price and higher than Rosneft’s average netback price.
According to Reuters, “the G7 price cap will allow non-EU countries to continue importing seaborne Russian crude oil, but it will prohibit shipping, insurance, and re-insurance companies from handling cargoes of Russian crude around the globe, unless it is sold for less than the price cap”. This means that China will be able to purchase more Russian oil at a large discount while the Russian state-owned oil giant will continue to make a very healthy 16% return on average

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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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