What we’re reading (10/7)
“Central Banks And The Looming Financial Reckoning” (Project Syndicate). “Across the advanced economies (and in many emerging markets), risk assets, notably equity and real estate, appear to be materially overvalued, despite recent minor corrections. The only way to avoid this conclusion is to believe that long-run real interest rates today (which are negative in many cases) are at or close to their fundamental values. I suspect that both the long-run real safe interest rate and assorted risk premia are being artificially depressed by distorted beliefs and enduring bubbles, respectively. If so, today’s risk-asset valuations are utterly detached from reality.”
“You Know Who Don’t Want To End Banking As We Know It? Banks.” (Dealbreaker). “You’d have thought Gary Gensler was bad enough. Rohit Chopra in Mick Mulvaney’s seat? Even worse. The decreasing likelihood that Jay Powell will at least be around to keep an eye on their interests? Tough to take. But this communist [Saule Omarova] who wants to “end banking as we know it” as head of the most important banking regulator in the country? That is simply too much for the banks to take.”
“Why Wall Street Cheers China, Despite Growing Business Unease” (The Economist). “This year has been unsettling for Chinese business. The ruling Communist Party has gone after the private sector industry by industry. The stock markets have taken a huge hit. The country’s biggest property developer is on the verge of collapse. But for some of the biggest names on Wall Street, China’s economic prospects look rosier than ever. BlackRock, the world’s biggest asset manager, urged investors to increase their exposure to China by as much as three times.”
“Do Pandemics Normally Lead To Rising Inflation?” (The Economist). “That covid-19 might usher in a prolonged spell of high inflation would buck a historical trend. A recent paper by Dennis Bonam and Andra Smadu, two economists at the Dutch central bank, looks at the effect of pandemics on inflation and concludes that they typically lead to lower, not higher, price pressures. Using data going baIck to the 14th century, covering six European countries and 19 pandemics, the authors find that such events have historically caused inflation to fall for more than a decade, on average, yielding an inflation rate about 0.6 percentage points lower than if the pandemic had not occurred. The more prolonged and severe the outbreak, the more pronounced and persistent the negative effects on trend inflation.”
“‘I Found A Flaw In Your System, And I Took Advantage Of it.’ Florida Man Filed 745 Tax Returns In 4 Years, Collecting $235K In Bogus Refunds” (MarketWatch). “Most people dread having to file their taxes, but not Damian Barrett, authorities say. Over a four-year period, the Florida man filed 745 tax returns in 19 different states, according to the IRS. The payoff: $235,000 in tax refunds he wasn’t entitled to. Barrett, 40, who pleaded guilty in July to mail fraud, identity theft and filing false tax returns, was sentenced this week to 4 ½ years in federal prison, according to prosecutors in Oregon, where he had filed 348 returns alone.”
