Recent Posts

Wednesday, June 7, 2023

Status Report: Summer Lull

I have been relatively productive writing recently — but not writing for my online articles. I am currently filling out as well as hacking and slashing my inflation book manuscript. Since it is largely not new content (although the previous Cantillon Effect primer was), no easy way to put it up on my website. Meanwhile, I am about to be hit with various distractions, and so I might not have much new content until August or so.

Friday, June 2, 2023

Primer: The Cantillon Effect

The Cantillon Effect is the label applied to a process described in Richard Cantillon’s , «Essai sur la nature du commerce en général», published in 1755. (One English translation of the title is “An Essay on Economic Theory.”) The basic premise is that an initial inflow of money will raise prices as the original recipients of the money spend it, which will then raise other prices as the “new money” enters others’ hands.

Wednesday, May 31, 2023

CEA MMT Panel Post-Mortem

I participated in a “Yay/boo for MMT!” debate Zoom panel for the annual Canadian Economist Association conference. I do not think I said anything outrageously stupid or got anyone raging mad at me, so I beat my expectations going into it.

(I do not know if these panels will be publicly available after the end of the conference.)

Monday, May 29, 2023

U.S. Breakeven Inflation Comments

I just refreshed my favourite U.S. breakeven inflation chart (above), and I was surprised by how placid pricing has been. This article gives a few observations regarding the implications of TIPS pricing.

Background note: the breakeven inflation rate is the inflation rate that results in an inflation-linked bond — TIPS in the U.S. market — having the same total return as a conventional bond. If we assume that there are no risk premia, then it can be interpreted as “what the market is pricing in for inflation.” I have a free online primer here, as well as a book on the subject.

(As an aside, I often run into people who argue that “breakeven inflation has nothing to do with inflation/inflation forecasts.” I discuss this topic in greater depth in my book, but the premise that inflation breakevens have nothing to do with inflation only makes sense from a very short term trading perspective — long-term valuation is based on the breakeven rate versus realised inflation.)

The top panel shows the 10-year breakeven inflation rate. Although it scooted upwards after the pandemic, it is below where is was pre-Financial Crisis, and roughly in line with the immediate post-crisis period. (Breakevens fell at the end of the 2010s due to persistent misses of the inflation target to the downside.) Despite all the barrels of virtual ink being dumped on the topic of inflation, there is pretty much no inflation risk premium in pricing.

The bottom panel shows forward breakeven inflation: the 5-year rate starting 5 years in the future. (The 10-year breakeven inflation rate is (roughly) the average of the 5-year spot rate — not shown — and that forward rate.) It is actually lower than its “usual” level pre-2014, and did not really budge after recovering from its post-recession dip. (My uninformed guess is that the forward rate was depressed because inflation bulls bid up the front breakevens — because they were the most affected by an inflation shock — while inflation bears would have focussed more on long-dated breakevens, with the forward being mechanically depressed as a result.)

Since I am not offering investment advice, all I can observe is the following.

  • Since it looks like one would need a magnifying glass to find an inflation risk premium, TIPS do seem like a “non-expensive” inflation hedge. (I use “non-expensive” since they do not look cheap.) Might be less painful than short duration positions (if one were inclined to do that).

  • Breakeven volatility is way more boring than I would have expected based on the recent movements in inflation. The undershoot during the recession was not too surprising given negative oil prices and expectations of another lost decade, but the response to the inflation spike was restrained.

  • The “message for the economy” is that market pricing suggests that either inflation reverts on its own, or the Fed is expected to break something bigger than a few hapless regional banks if inflation does not in fact revert.

Otherwise, I am preparing for a video panel on MMT at the Canadian Economics Association 2023 Conference on Tuesday. (One needs to pay the conference fee to see the panel.) I have also been puttering around with my inflation book. I have a couple draft sections that I might put up in the coming days/weeks.

Email subscription: Go to 

(c) Brian Romanchuk 2023

Thursday, May 25, 2023

Degrowth Versus Sustainability

I was on the “Steve Keen and Friends Livestream” very recently, and one of the topics that came up is “Degrowth.” I had earlier made some comment about degrowth on Twitter and noted that I found it hard to find a good explanation of what “degrowth” really meant. A few helpful people sent me the article “What does degrowth mean? A few points of clarification” by Jason Hickel.

Tuesday, May 23, 2023

Pleading The Fifth On The Fourteenth

I am currently working on another article, but given the clamour about the debt ceiling, I just want to repeat my stance that I guess a “last minute” deal will be done. I do not expect any unilateral moves to invalidate the debt ceiling ahead of that proverbial last minute. My feeling is that announcing the intention to use any such mechanism is effectively an announcement of an unwillingness to negotiate, which looks bad. Beyond that, I do not see any reason to waste any more of my readers’ time with my takes on that matter.

(I hope to deliver that other article tomorrow.)

Friday, May 19, 2023

On Steve Keen & Friends Livestream

I will be on the Steve Keen & Friend Livestream tomorrow (May 20) at 12 noon Eastern Standard Time. (Link to the stream above.) There is no set topic, but I guess there will be a discussion of the state of macro theory.