***** denotes well-worth reading in full at source (even if excerpted extensively here)
Economic and Market Fare:
Today, we lowered the policy interest rate by 25 basis points, bringing it to 2.75%.
The Canadian economy ended 2024 in good shape. Inflation has been close to the 2% target since last summer. Substantial cuts to our policy rate through the second half of last year boosted household spending and economic growth.
However, in recent months, the pervasive uncertainty created by continuously changing US tariff threats has shaken business and consumer confidence. This is restraining household spending intentions and businesses’ plans to hire and invest.
Against this backdrop, and with inflation near the 2% target, Governing Council decided to reduce the policy rate a further 25 basis points.
Looking ahead, the trade conflict with the United States can be expected to weigh on economic activity, while also increasing prices and inflation. Governing Council will proceed carefully with any further changes to our policy rate given the need to assess both the upward pressures on inflation from higher costs and the downward pressures from weaker demand.
Let me expand on these key considerations.
Economic data since our January Monetary Policy Report (MPR) suggests the Canadian economy ended 2024 on a stronger footing than we expected. Past interest rate cuts have boosted consumer spending and business investment, increasing domestic demand in the fourth quarter by a robust 5.6%. Overall, GDP grew 2.6% in the fourth quarter after upwardly revised growth of 2.2% in the third quarter. This growth path is considerably stronger than we were expecting based on the information we had in January. ............................
Let me wrap up.
We ended 2024 on a solid economic footing. But we’re now facing a new crisis. Depending on the extent and duration of new US tariffs, the economic impact could be severe. The uncertainty alone is already causing harm.
Monetary policy cannot offset the impacts of a trade war. What it can and must do is ensure that higher prices do not lead to ongoing inflation. The focus of Governing Council will be on assessing the timing and strength of both the downward pressure on inflation from a weaker economy and the upward pressure from higher costs.
As always, the Bank will be guided by our monetary policy framework and our commitment to maintain price stability over time.
It’s still a long way to the top if you mark to market.
............ And finally: I really dislike the word “correction,” and particularly the notion that it means a 10% fall from peak to trough. That 10% number is arbitrary. If the market was massively overvalued in the first place, a 10% drawdown won’t correct it. The word implies that the market is now correct, which is a dangerous assumption. To take one measure that admittedly makes this market look particularly expensive, the S&P 500 still trades at a higher multiple of sales than at the top of the dot-com bubble in 2000. That multiple may or may not prove to be justified, but there’s no obvious reason to believe that US stocks are now “correctly” valued:
The market has fallen fast, looks oversold on many measures, and may well be ready to bounce. But we should attach minimal significance to the fact that its fall is now in double figures. It really doesn’t matter.
Capital inflows could be the Trump administration’s next target
This month, many investors feel dazed and confused. No wonder: as the US government flirts with another shutdown and President Donald Trump intensifies his trade war, indices of economic uncertainty have skyrocketed above even the 2020 pandemic or the global financial crisis of 2008.
But the uncertainty could get worse. For amid all the tariff shocks, there is another question hovering: could Trump’s assault on free trade lead to attacks on free capital flows too? Might tariffs on goods be a prelude to tariffs on money? ............................
But Trump is also eager to use all available tools to bolster his leverage on the world stage. And Pettis’s ideas seem to be influential among some advisers, such as Treasury secretary Scott Bessent, Stephen Miran, the chair of the Council of Economic Advisers, and Vance.
This trio appears minded to reset global trade and finance, via a putative Mar-a-Lago accord, although their ambitions are on a grander scale than the 1985 Plaza accord. The latter “merely” weakened the dollar via joint currency intervention but Miran’s vision of a Mar-a-Lago accord includes a possible US debt restructuring too, which would force some holders of Treasuries to swap them for perpetual bonds. ....................
“[The trio’s] ultimate goal isn’t a series of bilateral [trade] deals but a fundamental restructuring of the rules governing global trade and finance [to remove] distorted capital flows,” says McNair. “Whether this approach succeeds remains to be seen, but the strategy itself is more coherent and far-reaching than most observers recognise.” .............
Either way, the key point to understand is that a shift in economic philosophy is emerging that is potentially as profound as the rethinking unleashed by John Maynard Keynes after the second world war or that pushed by neoliberals in the 1980s. ......
Strategy I: Trump Turmoil 2.0.
We haven’t had to change our subjective probabilities for our three alternative economic scenarios for quite some time. We are doing so today and may have to do so more frequently in coming months or even coming weeks in reaction to the volatile nature of policymaking under President Donald Trump. The initial animal spirits of Trump 2.0 have been trumped by the uncertainty unleashed by Trump Turmoil 2.0. The administration has been in office for less than two months. The whirlwind of tariffs imposed on America’s major trading partners, federal job cuts implemented by the DOGE Boys, and the upending of the world order have been head spinning.
We held off changing our probabilities because we expected that the master of the art of the deal was going to get a deal with Canada and Mexico that would allow him to declare victory and bury his threat to impose 25% tariffs on America’s only two neighbors and biggest trading partners. ................
Now that Trump has started a trade war, it could escalate. Or it could de-escalate. Either way, uncertainty has increased significantly, as evidenced by the sharp decline in stock prices ............
Considering the above, we are recalibrating our subjective probabilities for our three scenarios:
(1) Roaring 2020s (55%, unchanged). Our subjective probability of our base case remains the same at 55%. We are assuming that the trade war doesn’t escalate. We are continuing to bet on the resilience of the economy and on a technology-driven boost in the growth rate of both productivity and real GDP.
In this scenario, the economy continues to grow, a tariff-related spike in inflation proves transitory, and the stock market remains choppy during the first half of the year, with the S&P 500 remaining below its February 19 record high. The index resumes its climb in record-high territory during the second half of the year, reaching 7000 by year-end .................
(2) Meltup/meltdown (10%, down from 25%). .....................
(3) Bearish bucket (35%, up from 20%). Over the past three years, we’ve assigned a 20% subjective probability to the various prospects that could go wrong for the economy, resulting in a recession and a bear market for stocks. We are raising it to 35% ....................
Bubble Fare:
How a Promising Technology Became a Tool for Elites and Financial Manipulation
This post criticizes cryptocurrency as a negative reflection of the world’s increasing corruption and material “solidification”. It outlines three increasingly subtle methods of analyzing the space: first, as revolutionary technology; second, as a fraud-ridden space, notably with Tether; and third, as a controlled system used by elites to test technologies for central bank digital currencies. It argues that the crypto fraud will eventually be offloaded onto the public, leading to even higher inflation as the West shifts toward a more controlled, manipulative system that consolidates power and erodes freedom. It is a follow up to a 2023 post criticizing crypto. ....................
Tweet of the Week:
“The easy thing for us to have done, would have been to come in and just keep this massive spending going. But it’s unsustainable. Could we have kept it going for another 4 years? Yea maybe, but you’re risking financial calamity down the road.”
Quotes of the Week:
Delwiche: Equal-weight S&P 500 is 10% off its 2025 peak and only 10% above its 2022 peak.
Sharp: Headlines blamed yesterday’s crash on Trump. It’s the tariffs! But I have a much simpler explanation: U.S. stocks have never been so overvalued. With stocks trading at nosebleed valuations, almost anything could catalyze a crash. Sure, tariffs played a role, but the underlying problem is the bubble itself. American stocks are priced for perfection, so anything less than that is bound to disappoint.
Millard: The U.S. exceptionalism trade has been experiencing major turbulence over the past two weeks as policy uncertainty (namely tariff announcements) rose sharply at the intersection of a budding economic growth scare and crowded investor positioning. Tech and momentum have been at the center of the carnage, as investors rotate their exposures elsewhere.
Steve: Stocks are RICH. Bonds are a safety valve. Still. And those suggesting the death of 60/40 (or opting for some other model) have been doing so for as long as I can remember…
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(not just) for the ESG crowd:
In his latest book, one of my favorite authors argues that solving hunger requires more than producing more food.
In the introduction to his latest book, How to Feed the World, Vaclav Smil writes that “numbers are the antidote to wishful thinking.” That one line captures why I’ve been such a devoted reader of this curmudgeonly Canada-based Czech academic for so many years. Across his decades of research and writing, Vaclav has tackled some of the biggest questions in energy, agriculture, and public health—not by making grand predictions, but by breaking down complex problems into measurable data.
Now, in How to Feed the World, Vaclav applies that same approach to one of the most pressing issues of our time: ensuring that everyone has enough nutritious food to eat. Many discussions about feeding the world focus on increasing agricultural productivity through improved seeds, healthier soils, better farming practices, and more productive livestock (all priorities for the Gates Foundation). Vaclav, however, insists we already produce more than enough food to feed the world. The real challenge, he says, is what happens after the food is grown. ..........
U.S. B.S.:
America's Hidden Transformation
What if the America you pledge allegiance to isn't the one running the show? This investigation examines how America's governance system fundamentally transformed since 1871 through a documented pattern of legal, financial, and administrative changes. The evidence reveals a gradual shift from constitutional principles toward corporate-style management structures - not through a single event, but through an accumulation of incremental changes spanning generations that have quietly restructured the relationship between citizens and government.
This analysis prioritizes primary sources, identifies patterns across multiple domains rather than isolated events, and examines timeline correlations - particularly noting how crises often preceded centralization initiatives. By examining primary sources including Congressional records, Treasury documents, Supreme Court decisions, and international agreements, we identify how:
- Legal language and frameworks evolved from natural rights toward commercial principles
- Financial sovereignty transferred incrementally from elected representatives to banking interests
- Administrative systems increasingly mediated the relationship between citizens and government
This evidence prompts a fundamental reexamination of modern sovereignty, citizenship, and consent in ways that transcend traditional political divisions ..................................................................
Geopolitical Fare:
.................... What poses a threat to you is the political status quo which robs your country of riches and resources to inflict military violence on innocent people overseas while strangling your civil rights and poisoning your planet. What poses a threat to you are the oligarchs and empire managers who uphold this status quo which is driving our species to authoritarian dystopia and extinction via environmental disaster or nuclear annihilation.
They want you blaming your problems on anyone else besides the actual source of your problems. They prefer to get you freaking out about their primary targets — the disobedient groups and nations they want to destroy to advance the interests of the empire — but if they can’t accomplish that then they’re happy to get you hating powerless groups who pose no real threat to you. Anything they can do to keep your eyes off your real oppressors: the billionaires, bankers, media barons, intelligence agencies, warmongers, ecocidal capitalists, military-industrial complex plutocrats, and all the empire lackeys in your official elected government. .....................
A collapsing world order, market chaos, trade wars, and recession fears—JPMorgan Chase put it bluntly: last week delivered “a year’s worth of economic turbulence.”
Some blame Trump. Others see it as the inevitable unraveling of long-building trends. Many still hope it’s just a rough patch, that normalcy will return.
Don’t count on it. This isn’t a correction—it’s a transformation.
We are in the midst of a global upheaval rivaling the aftermath of the World Wars, the Great Depression, decolonization, and the oil shocks of the 1970s. Some mourn the world they knew; others welcome the dawn of something new. ......................
.......... Geopolitics is the wildcard. Markets just got a preview of the new world order—Trump’s shake-up, Europe rewriting the rules, and a fight for natural resources and defense. The old system is unraveling, and the reset will be painful.
Most still don’t see it yet—the financial and political shift that started with Covid and Ukraine is speeding up. Trump’s U.S. overhaul, rising global tensions, and Europe’s costly rearmament point to economic and political upheaval on a scale we haven’t seen in decades. Brace for impact. ............
Every day brings a new barrage of announcements by US President Donald Trump and billionaire bigot buddy Elon Musk. Working on the basis that, if they throw enough shit at the wall, some of it will stick, Trump and Musk are creating pandemonium in Washington, DC.
But while all may seem to be chaos in the halls of power, there is a thread of logic behind it all. Trump is ripping up accepted political norms at home and the liberal world order abroad because, in his view, they have failed to secure American supremacy. Trump’s package of measures, taken together, constitutes a strategy to break America from its cycle of relative decline and come out on top.
Trump’s program is squarely aimed at China. China’s rise to world power status is an existential threat to US hegemony, and Trump's program is the latest attempt to hold China down and assert US global power. ..........
The US is resetting, but not how the world expected
Donald Trump’s return to the White House is shaping up to be nothing short of a political revolution. The new administration is rapidly dismantling the old order, purging the ruling elite, reshaping both domestic and foreign policy, and cementing changes that will be difficult to reverse – even if his opponents regain power in future elections.
For Trump, as for all revolutionaries, the priority is to break the existing system and consolidate radical transformations. Many of the principles that guided US policy for decades – sometimes for over a century – are being deliberately discarded. Washington’s global strategy, long built on expansive military, diplomatic, and financial influence, is being rewritten to serve Trump’s domestic political needs.
For the past 100 years, the US has functioned as a global empire. Unlike traditional empires built on territorial expansion, the American empire extended its reach through financial dominance, military alliances, and ideological influence. This model, however, has become increasingly unsustainable. Since the late 1990s, the costs of maintaining global hegemony have exceeded the benefits, fueling discontent both at home and abroad.
Trump and his allies seek to end this ‘liberal empire’ and return America to a more self-reliant, mercantilist model – one reminiscent of the late 19th and early 20th centuries under President William McKinley. Trump has openly praised this era, viewing it as the golden age of US prosperity, before the country took on the burdens of global leadership.
Donald Trump has suddenly remembered a long-forgotten president – and for good reason
Read more Donald Trump has suddenly remembered a long-forgotten president – and for good reason
Under this vision, America will reduce unproductive foreign expenditures and refocus on its natural advantages: Vast resources, an advanced industrial base, and the world’s most valuable consumer market. Rather than policing the world, Washington will wield its economic power more aggressively to secure trade advantages. However, the transition to this model carries significant risks, particularly in a highly globalized economy. .............
“There are decades where nothing happens; and there are weeks where decades happen”
This statement is—wrong-ish.
For decades various people have been predicting what is happening now: the end of the American empire, the late Imperial wars, the despair and poverty of late-imperial rentier capitalism, and the rise of China.
Indeed a lot of people (your host included) were screaming about this 30 years ago. I read my first book on the way that America was turning to Gilded Age plus inequality in 1986. Everyone who wasn’t stupid, bought or ideologically captured could see what neoliberalism would lead to. From the late 90s we yelled about sending the West’s industry to the West, but hey, it was the “End of History” and capitalism and democracy had won and it didn’t matter where industry was because “comparative advantage” was, and still is, completely misunderstood, as were the constituents of state power.
So—it’s all happening now, along with massive wildfires from climate change and it seems like for decades nothing happened, but really, it was all happening: without deliberate policy choices, these weeks wouldn’t be possible.
The key to making accurate predictions is simply asking “what must happen if the current course continues, and will the course continue.” In 2009, when Obama decided he’d rather have a couple mansions and Hollywood friends than be the next FDR, and massively increase fracking to top it off, it became clear that the course would continue and all this became inevitable. Realistically, the rise of China was locked in when they were allowed to join the WTO and climate change was locked in when Reagan tore down the solar panels on the White House roof. ...........
President Trump wants Ukraine settled, full stop. This is so that he can move ahead quickly – to normalise with Russia, and begin the ‘big picture’ project of setting a new World Order, one that will end wars and facilitate business ties.
The point here – which Europe feigns to not understand – is that the end to the Ukraine conflict simply is Trump’s ‘gateway’ to the entire rationale and platform on which he stood: The Great Reset of the Geo-Political landscape. Ukraine, simply said, is the obstacle to Trump’s pursuit of his primordial objective: The Global Reset. .................
Every day I become more grateful for the election of Donald Trump. All praise. Millions of millions of people have worked to destroy the American empire, and all failed. Donald is succeeding, speeding the process by about a decade, I’d guess.
Likewise I and many others have hated the neoliberal trade order for decades: since the late 80s in my case. It was designed to destroy countries' sovereignty, making it impossible to truly regulate investors, to run industrial policy or even, in rich nations, to keep wages up. As a Canadian, ever since the FTA Canadian manufacturing has proceeded on a slow death march, till instead of selling the US more good than the US sells us, as was historically the norm, we now buy more goods from the US than vice-versa. (The trade surplus is due to energy.)
Meanwhile Trump is essentially forcing the Europeans to take charge of their own destiny and stop doing what America says. This should have happened decades ago, and EU elites to man-up have cost Europe’s countries dearly. It’s quite likely neither NATO nor the EU itself will survive: both excellent outcomes. NATO should have been disbanded when the USSR fell. American troops may leave Europe, or at least there should be a further draw-down, also excellent. As for the EU, it has been an engine of stagnation and de-industrialization, especially since the introduction of the Euro.
The end of the Empire, the end of the “no industrial policy, no sovereignty” free trade order, possibly the end of NATO and American occupation of Europe.
Oh, the process will suck, and it will hurt. But for the first time since the US imposed its terrible neoliberal trade order on the world, there is at least a chance of most countries being able to properly manage their own economic affairs. ..........
A hundred years ago two battered and beleaguered old men, one an Italian prisoner, the other taken to wandering Irish bogs, arrived at the same fateful truth: the world around them was collapsing.
Antonio Gramsci, Marxist theorist, imprisoned member of the Italian parliament, wrote from his cell that “the old world is dying, and the new cannot be born; in this interregnum, a great variety of morbid symptoms appear.”
William Butler Yeats, a sort of mystic horrified by violence and uncertainty across his Irish homeland, saw the same future. From a cottage in County Galway he wrote “things fall apart; the center cannot hold.” What was worse, “the best lack all conviction, while the worst are full of passionate intensity.”
One a political theorist dissecting history’s brutal transitions, the other a poet divining the chaos of human nature, both foresaw the same truth—that societies don’t glide one era to the next. Sufficiently stressed they shatter, and from the wreckage, new orders struggle to emerge. A hundred years on, Gramsci and Yeats’s alarmed realizations read less like prophecy than real time commentary.
Today’s Americans grew up confident that they stood outside history’s cycles of rise and fall. Battered but buoyed by victory in World War II (and recognizing an opportunity), the United States built a powerful international system meant to foster global stability and economic growth while, naturally, serving its own interests. And, in a world laid waste by war, so it did.
For the longest time this system forestalled large-scale conflicts, allowing America and its allies to prosper.
That system has played itself out.
It was easy enough for the mighty and victorious United States to stamp its model on a war-exhausted world. Turns out, maintaining that system indefinitely in a restive world is challenging.
Gramsci speaks outside of time straight to this week that the old is dying. As a new alignment struggles to be born, just as he said: witness the morbid symptoms.
American legend still holds that the US is fundamentally different from and superior to other nations. We call it American Exceptionalism.
Exceptionalism thrived during the fleeting unipolar moment. With the Soviet collapse and the Cold War’s end, the U.S. bestrode the globe—for better and worse. But the hubris and mutations born of that era now blind us to our decline. .................
To the extent that MAGA Exceptionalism challenges authoritarianism abroad, it does so even as it accelerates America’s democratic decline. Maddening question: why can’t more people see it?
Not only can it happen here, it obviously, quite clearly and quickly is happening here. The road to ruin isn’t hypothetical; we are on it.
Exceptionalism isn’t the cause of American political decline; it’s the story we tell ourselves to avoid confronting it. Exceptionalism allows us to look at other countries with righteous indignation rather than inward, toward our own faltering institutions. It’s an excuse, a rationalization, balm for a society avoiding the truth. .....................
It didn't have to be this way.
And so, by common consent, Europe faces its gravest collective political crisis since 1945. And so, by equally common consent, its political class has never been so weak and incompetent, and so evidently out of its depth, encountering for once a problem that cannot be solved by well-judged tweets and complicated financial instruments. Socked around the face by the large wet fish of Real Life, the European political class retreats into silly games, hallucinatory fantasies and futile aggressivity. ...........
Rather, I want to go back to the core questions that animate these Essays, and made me want to start writing them in the first place. Behind all the handwaving, shouting and empty gestures, What is going on here? In other words, what are the deeper forces operating? How are the laws of politics playing themselves out? What are the various underlying stresses on the fabric of the political system? And of course, where might things reasonably go? ...........................................
.............. The Europe we had is gone, the Europe we might have had never was. Why anyone should want to defend the Europe we have, is beyond me.
The authority being used to detain and deport Mahmoud Khalil reveals--for the millionth time--the false foundations of national security.
Sci Fare:
How Columbia researchers are working to treat, prevent, and ultimately cure the world’s fastest-growing neurological disorder.
Researchers identified a gene that seems to help slow brain aging in women, and studied links between hormone therapy, menopause and Alzheimer’s.
Scientists dive into the genomes of whales, elephants, and other animal giants looking for new weapons in the fight against cancer.
I have often argued that the main reason there is no durable herd immunity to SARS-COV-2, is because we began to vaccinate everyone. We should have had herd immunity by now, but we don’t, because of the catastrophic decision to vaccinate everyone.
And so it seems only fair to me, to point it out to you when the evidence confirms this assertion ............
It’s not hard to see what’s going on here. Note how the 95% confidence intervals don’t even come close to overlapping, so it’s clearly statistically significant, not just a fluke.
If you’re vaccinated, infection recalls Spike-directed IgG antibodies, which work well against relatively similar versions of the virus, but don’t really work against genetically different versions of the virus.
If you’re unvaccinated, an infection induced training of the innate immune system, with antibodies contributing to your immunity to a far less extent. This is not perfectly able to prevent a reinfection, you’ll need to catch it a few times due to the spread of Omicron, but it’s the only sort of immunity that’s going to have any meaningful effect against more distantly related versions of the virus. ................
So good job boomers! You saved yourselves! This is really the final fuck you of the boomers. Perhaps you thought climate change was the final fuck you, or you thought the housing crisis was the final fuck you. No, they had one final fuck you left, they decided to basically destroy the brains and blood vessels of their own grandchildren, by buying themselves a few more years with a poor quality vaccine. ............... In a normal world, there would be a new Nuremburg tribunal right now for the people who pushed this vaccine. .................
Meaning, that you’re stuck with it. You’re stuck with this virus, for years, potentially decades to come, maybe for the rest of industrial civilization’s lifespan.
You triggered a positive feedback loop, of immune-system depleting antibody-facilitated waves of constant mass reinfection, even during the middle of summer in 2024 in Northern European countries, the clearest possible evidence that this virus is not behaving like a normal respiratory infection. It did not have to be like this, you did not have to vaccinate everyone against it. But you did, so now you taste the consequences. Idiots.
Other Fare:
Fun Fare:
“I guess I thought there was more humanity to unravel with J.D.”
Pics of the Week:
