Aging Populations = Inevitable Slow GDP Growth?

Last month Eric Basmajian published “Why Demographics Matter More Than Anything (For The Long Term)” on the financial site Seeking Alpha. He predicts that that the developed world plus China face a future of low economic growth (regardless of policy machinations) due simply to demographics. His key points:

Demographics are the most important factor for long-term analysis.

The young and old age cohorts negatively impact economic growth.

The prime-age population (25-64) drives the bulk of economic activity.

The world’s major economies are suffering from lower population growth and an older population.

Over the long run, the world’s major economies will have worse economic growth, which will negatively impact pro-cyclical asset prices (like stocks).

I will paste in some of his supporting charts. First, the labor force is more or less proportional to the 25-64 age cohort (U.S. data shown) :

…and GDP growth trends with labor force growth:

Also, on the consumption side, that is highest with the 25-54 age group:

And so,

Younger people are a drag on economic growth and older people are a drag on economic growth… The prime-age population is the segment that drives economic activity, so if the share of population that is 25-54 is shrinking, which it is, then you’re going to have more people that are a negative force than a positive force:

Once the working-age population growth flips negative, an economy is doomed…. Working age population growth in Japan flipped negative in the 1990s, and they moved to negative interest rates, QE, and they have never been able to stop. The economy is too weak.

After 2009, the working-age population in Europe flipped negative, and they moved to negative rates and QE, and they haven’t been able to stop. Even now, as the US is raising rates, Europe is struggling to catch up and has already abandoned most of its tightening plans.

In 2015, China’s working-age population flipped negative, and they’ve had problems ever since. They devalued their currency in 2015 and tried one more time to inflate a property bubble, but it didn’t work, and now they’re having to manage the deflation of an asset bubble that the population cannot support.

The US is in better shape than everyone else, but we’re not looking at robust growth levels in this prime-age population.

In conclusion, “ The real growth rate in most developed nations is collapsing because of those two factors, worsening demographics, and increased debt burdens.    In the US, as a result of the demographic trends I just outlined plus a rising debt burden, real GDP per capita can barely sustain 1% increases over the long run compared to 2.5% in the 60s, 70s, and 80s.”

That is pretty much where Basmajian leaves it. No actionable advice (besides subscribing to his financial newsletter). What isn’t addressed is whether productivity (production per worker) can somehow be accelerated. Also, one of his charts (which I did not copy here) showed a big trend down in 25-64 age fraction in the US population in the 1950’s-1960’s (as hangover from the Depression?), and yet these were decades of strong GDP growth. So these demographic trends are not the whole story, but his analysis is sobering.

On the Spreading of Monkeypox

New York City has become the second major U.S. city after San  Francisco to declare a state of emergency due to the rise of monkeypox cases: “New York City is currently the epicenter of the outbreak, and we estimate that approximately 150,000 New Yorkers may currently be at risk for monkeypox exposure.”

With the country and the world still feeling the economic/social/personal effects of one pandemic, is there another one on the way? I don’t know, having no special training in epidemiology, but have tried to peruse some reliable sources to find out what I could, and share this information for your examination. I will paste in a general page from a UC Davis article, then conclude with a CDC snip on transmission details.

It seems that monkeypox typically takes pretty close physical contact (especially with skin, body fluids, or e.g. towels/clothing)  to spread, with having multiple romantic partners being a high risk factor. This is the opposite of COVID transmission, where just being in the same room puts you at high risk. However, as with COVID, someone can be contagious in the early stages before they show obvious symptoms. Based on all this, my guess is that monkeypox will not spread in the general population very much, but it will spread significantly in some groups and locales. But that is just my guess.


From UC Davis “Monkeypox: What you need to know about this rare virus:

What are the signs and symptoms of monkeypox? At what point is it infectious?

Monkeypox starts with fever, then general body aches, malaise, and muscle aches. with the first symptoms are similar to influenza. Those usually precede the development of a rash. You have probably seen photos of the rash. It’s really hard to miss. It starts as macules, which are flat lesions. Then it forms a firm nodule. From there, it becomes a blister, then a pustule (a blister containing pus) and then it scabs over.

According to the Centers for Disease Control and Prevention (CDC), the incubation period (The time from infection to symptoms) for monkeypox is usually 7 to 14 days, but it can range from 5 to 21 days.

People may be contagious at the early signs of fever and stay infectious through the rash until the skin scabs and heals over.

How is it transmitted?

Monkeypox is transmitted through close person-to-person contact with lesions, body fluids and respiratory droplets, and through contaminated materials such as clothing or bedding.  [[ see more on transmission below]]

Can you die from monkeypox? 

Most people with monkeypox will recover on their own. But 5% of people with monkeypox die. It appears that the current strain causes less severe disease. The mortality rate is about 1% with the current strain….

What are the treatments for monkeypox? Is there a vaccine for monkeypox?

The smallpox vaccine has some cross protection against monkeypox. The vaccine is being made available through public health for people who have had contact with confirmed or suspected cases of monkeypox. If the vaccine is given within four days of exposure, it protects about 85% of the time. Even if the vaccine is given up to two weeks after exposure, it may modify the disease, making it less severe. 

In addition, there are some antivirals and immunoglobulins that are available to treat monkeypox.

Is there a way to test for monkeypox?

If a health care provider suspects that a patient has been exposed to monkeypox, they can get a sample of a lesion and send it to the state for testing. If it turns out positive, the result will be confirmed at the CDC.


From CDC “How It Spreads”:

Monkeypox spreads in a few ways.

  • Monkeypox can spread to anyone through close, personal, often skin-to-skin contact, including:
    • Direct contact with monkeypox rash, scabs, or body fluids from a person with monkeypox.
    • Touching objects, fabrics (clothing, bedding, or towels), and surfaces that have been used by someone with monkeypox.
    • Contact with respiratory secretions.
  • This direct contact can happen during intimate contact, including:
    • Oral, anal, and vaginal sex or touching the genitals  or anus of a person with monkeypox.
    • Hugging, massage, and kissing.
    • Prolonged face-to-face contact.
    • Touching fabrics and objects during sex that were used by a person with monkeypox and that have not been disinfected, such as bedding, towels, fetish gear, and sex toys.
  • A pregnant person can spread the virus to their fetus through the placenta.

A person with monkeypox can spread it to others from the time symptoms start until the rash has fully healed and a fresh layer of skin has formed. The illness typically lasts 2-4 weeks.

Is the Bottom Quartile Already in Recession?

I heard on a radio interview that spending by the bottom quartile is way down in 2022, while it is holding up merrily for the upper two quartiles. My mind jumped to the thesis:

“Hmm, the bottom quartile probably (proportionately) felt the benefit of the three COVID stimulus packages more, plus they would have benefited more, proportionately, from the enhanced 2020-2021 unemployment benefits, which (I gathered from anecdotal observations) often paid them more for staying home than they used to receive for working. But…by 2022, all that extra money may be running out.”

I spent some time poking around the internet, trying to find some pre-made figures or tables to support or disprove this thesis. What I found tended to support it, but this is not rigorous data-mining. So, for what it is worth, here are some  charts.

First, about the spending in 2022. This chart indicates that discretionary service spending by the bottom 40% income cohort is indeed down sharply in  2022, and now sits a little lower than a  year ago, while the upper 20% cohort is spending actually more than a year ago.  Spending by the middle 40% trended up in 2H 2021, then back down in 1H 2022, to end about even over the past 12 months:

Discretionary service consumption by income cohort. (I don’t what the units are for the y-axis, but presumably they show the trends). Source: Earnest Research, as of June 30, 2022, as reproduced by Blackrock.

And what about 2020-2021? The next two charts indicate (a) that consumer spending was HIGHER in 2021 that it was pre-COVID for the bottom income quartile, even though (b) their employment in 2021 remained some 20% LOWER than pre-COVID. Looks to me like a lot of spending of stimmie checks was going on in 2021, but (see above) that money has run out in 2022.

Some reader here may have access to a more consistent data set, so I am happy to see this thesis tested further.

Consumer Spending by Income Quartile (Showing higher spending by bottom quartile following stimulus checks and enhanced unemployment payments in 2020-2021)  Source: The Economic Impacts of COVID-19: Evidence from a New Public Database Built Using Private Sector Data, Stepner et al. (2022).

Employment Changes by Wage Quartile ( Showing employment for the bottom quartile in most of 2021 was some 20% lower that pre-COVID)  Source: The Economic Impacts of COVID-19: Evidence from a New Public Database Built Using Private Sector Data, Stepner et al. (2022)   

A Logarithmic Map of the Entire Universe, from Earth to Edge

Pablo Budassi has created a logarithmic map of the entire known universe, that shows the distances and relative sizes of objects above the earth’s surface. I think you will find it a worthwhile use of your 30 seconds of attention to click on the link below, scroll to the bottom to start down at the earth’s surface (the image quality at the link is much better than I can convey in these snips here):

And  then scroll your way up and up, through planets and stars to galaxies (not every star and every galaxy is shown, of course) and galaxy clusters:

And out through galaxy superclusters, to the very edge of the observable universe:

The scale of distances and sizes keeps getting larger and larger by factors of ten (i.e.,  logarithmically) as you go up. Here is the link:

I am awed by the sheer sizes of things compared to familiar earth-scale objects. We know that our observable universe has not existed forever; presumably whatever caused this vast universe is incomprehensibly vaster. [1]

I am also impressed that humans are able to figure all this out; it is not obvious to the naked eye. An enormous amount of collective brainpower over the years  has gone into making instruments (including space-based telescopes) to collect data at many electromagnetic frequencies and to figure out what it all means.

Bonus: In case you haven’t seen them already, here is a link to compelling infrared images from the newly-deployed $10 billion Webb space telescope (your tax dollars at work):

[1] I don’t want to distract from the sheer visual enjoyment of this graphic with a controversial discussion of what is responsible for bringing our universe into existence. All I will say here is that it did not come from “nothing”, as a certain dishonest physicist is fond of claiming. See the “Thinking About the Existence and Attributes of God” section of Christian Apologetics Insights from David Geisler, Ray Ciervo, and Prem Isaac [2020 NCCA, 9], including footnotes 1 and 2, for a brief discussion of these issues, and implications for a nonmaterial sustainer of physical reality.

The Great Crypto Market Meltdown of 2022

Ah, the delicious crypto bubble of 2021. Major cryptocurrencies like Bitcoin and Ethereum more than tripled in value. Every week, some new coin would get minted, letting early adopters 10X their money in a month.  Decentralized finance (DeFi) based on blockchain technology was The Next Big Thing. Move over, stodgy old Bank of America.

That was then, this is now. The chart below of Bitcoin price serves as a proxy for the fortunes of the whole sector:

Source   [the year 2021 is marked in highlighter].

This has the smell of a bubble bursting. First, why did crypto soar in 2021? I think COVID gets some credit for that. Most adults in the developed world sat home for many months in 2020-2021, and in countries like the U.S. were handed thousands of dollars of stimulus money,  in addition to giant unemployment checks. Much of that money went to buying “stuff” on Amazon, but much of it went into financial assets like stocks and crypto. Something like  half of men in the United States between the ages of 18 and 49 dabbled in crypto. As you saw your friends making money effortlessly, classic tulip bulb FOMO set it.

All bubbles end eventually. Crypto has imploded from a $ 3 trillion market to a $ 1 trillion dollar market in just a few months. That is two trillion (with a “t”) gone.  If Bitcoin were the only significant factor in the crypto universe,  the latest bust would be a fairly trivial matter. Since Bitcoin goes up and Bitcoin goes down, that is nothing new. But part of the hype of 2021 was all the breathless commentary on how DeFi would sweep the world and Change Everything. No more centralized banking controlled by old men in suits – – power to the people! And in fact, a whole industry of lending and borrowing in the crypto world has sprung up. That is where some more consequential problems have shown up.

Warren Buffet is known for the saying, “When the tide goes out, you find out who is swimming naked.” The rapid fall in crypto valuations has set off a cascade of failures in DeFi.  A key event was the implosion of the Luna/Terra (un!)stablecoin, in April-May 2022, which we wrote about here. A more widespread problem has been the unwinding of the crypto lending/borrowing system. Various firms loaned out the coin holdings of their customers to parties that wanted to trade (speculate) with them, and who were willing to pay something like 4-9% interest for get ahold of these coins. The parties doing the lending thought they were keeping themselves safe by requiring excess collateral for these loans.

 Oversimplified example: I will lend you $100 (real dollars) if you deposit $140 of Dogecoin with me. If Dogecoin falls in value to close to $100, I would require more collateral from you within say ten days, or else I would sell your Dogecoin into the market and get my $100 back (and you eat the $40 loss). The big problem comes if Dogecoin falls so fast that by the contracted grace period ends, its value is down to $80. Now I as well as you realize losses, and widespread panic ensues. Now, if I have been lending out your Dogecoin to yet more parties who (it turns out) can’t pay me back in full, I am doubly hosed. And now the solid customers start withdrawing their funds/coins from these firms, and we have an old-fashioned bank run. It doesn’t help that Celsius Network froze customers’ accounts last month, so they could not withdraw the coins they had deposited. That sort of thing really gets clients nervous.

And so a number of significant DeFi firms are going bust, and calls get louder for more government regulation, which is largely antithetical to the whole DeFi enterprise. I will paste below a summary of this carnage, and then in the interests of full disclosure, tell how it has affected me personally:

The crypto and the DeFi industry boomed over the past few years but the recent crypto crash has plundered the fortunes of several crypto companies. The following crypto companies have recently encountered financial difficulties:


Business Today broke the news on Monday that Vauld, the Singapore-based crypto lending and investment firm operating in India announced that it has halted withdrawals and deposits for its more than 8,00,000 clients. Vauld’s CEO Darshan Bathija said in a blog post that unstable market circumstances had created “financial challenges” for the company. The CEO also announced that investors had withdrawn over $197 million in the past few months.

Terraform Labs

Terraform Labs was the company that had triggered the recent crypto crash. They created the algorithmic stablecoin TerraUSD which de-pegged from the US Dollar and led to the crash of Terra Luna another token of the ecosystem causing massive panic and sell off in the crypto markets.

Terra co-founder Do Kwon announced a “recovery plan” in May that included infusion of additional funding and the rebuilding of TerraUSD so that it is backed by reserves rather than depending on an algorithm to maintain its 1:1 dollar peg.

Voyager Digital

On July 6, the American crypto lender disclosed that it had filed for bankruptcy. In its Chapter 11 bankruptcy petition, Voyager stated that it had over 1,00,000 creditors, assets between $1 billion and $10 billion in value, and liabilities in the same range.

Three Arrows Capital (3AC)

The Singapore-based cryptocurrency hedge firm went bankrupt on June 29, just two days after receiving a notice of default on a crypto loan from lender Voyager Digital for failing to make payments on an approximately $650 million crypto loan. The company filed a petition for protection from its creditors under Chapter 15 of the United States’ bankruptcy code on July 1. This section of the code permits overseas debtors to safeguard their U.S.-based assets.

Celsius Network

Celsius Network also suspended withdrawals and transfers last month due to “extreme” market conditions. They also hired consultants in preparation for a future bankruptcy filing. The American-Israeli business reportedly disclosed on July 4 that a quarter of its workers had been let go.

Babel Finance

The Hong Kong-based cryptocurrency lender stated on June 17 that it had temporarily halted crypto-asset withdrawals as it scrambled to reimburse consumers. According to the company, “Babel Finance is suffering unprecedented liquidity issues due to the current market situation,” emphasising the severe volatility of the market for cryptocurrencies.


In a blog post published on Thursday, CoinFLEX’s CEO Mark Lamb announced that the company would temporarily halt withdrawals due to “extreme market conditions” and uncertainty about a certain counterparty. The company is facing serious financial troubles and there seems to be no way out.

My Confessions

Briefly — I bought into Bitcoin and Ethereum in the form of the funds GBTC and ETHE towards the end of 2020. As crypto started to unwind this year, I sold out of ETHE to de-risk, coming out a little ahead there. I decided to hang in with the Bitcoin fund, riding it up, and now down, down, down. I am so far in the red on this one that I am just going to hold it indefinitely, hoping for some recovery someday.

I bought into Voyager (see above, it has recently crashed and burned) and sold half after it doubled, and the rest at about breakeven price, so came out ahead there. Another, similar firm, Galaxy Digital, I bought has also plummeted to near zero. I got out of that, but waited too long and lost about 30% there.

Readers with exquisite memories might recall that I wrote an article some months back here on EWED touting the DeFi model as a great way to earn interest to keep up with inflation: “Earning Steady 9% Interest in My New Crypto Account.”  I chose BlockFi rather than Celsius Network to put my funds in for this, since Celsius (an offshore enterprise) seemed a little shady, whereas BlockFi made a point of being audited and compliant with U.S. regulations. Good choice, in light of Celsius’ recent freeze on customer withdrawals.

Now, even solid firms like BlockFi are hurting. Customers spooked by all the other crypto drama are withdrawing assets “just to be on the safe side.”  BlockFi is seeking cash infusions from white knight Sam Bankman-Fried to stay afloat. The 30-year old crypto billionaire looks to be able to acquire the firm for pennies on the dollar, wiping out the initial (private) investors in BlockFi.  I am one of these BlockFi customers withdrawing funds (half of my deposit there) – – just to be on the safe side.

Three Tips for More Effective Learning, from Andrew Watson

I just ran across a short article [1] summarizing a talk with some techniques on learning more efficiently, which seemed worth sharing here. It may be something for professors to pass along to their students.

The speaker was Andrew Watson, who is an expert on learning and the brain, and currently a teacher at the Loomis Chaffee School in Connecticut. He noted three key ways that students (and adults) can work with the ways the brain learns information. The last two points are good but well known, while the first point was not something I have seen emphasized much:

( 1 ) Retrieve information while studying:

To study better, students should focus on the idea of retrieval rather than review. Trying to recall information before looking back at it produces more remembering than simply reading it through again. He suggested creating flash cards and using visual hints and clues as effect retrieval techniques.

( 2 ) Change the environment to avoid distractions:

The environment in which someone studies also affects how well they retain information because the human brain works best when it focuses on one activity at a time.

(My comment: That is absolutely true for me, I can’t stand any distraction when I am studying or writing, but I know people who claim they study more effectively with a TV show or music going in the background…I wonder what academic studies show about that.)

( 3 ) Bolster your health:

The brain, like the rest of the body, benefits from a healthy lifestyle, including eating well and exercising regularly. Ample sleep helps the brain to process and solidify information absorbed during the day. If homework is everything that helps a person learn and if sleep help you learn, then sleep is a part of homework.

[1] “Brain Hacks for Brainiacs” in the Loomis Chaffee Magazine, Spring 2022, page 13.

Shifts in Labor Participation: The Great Resignation Becomes the Great Reshuffling

More than 47 million workers quit their jobs in 2021, in what has become known as The Great Resignation. However, many of these workers are getting re-hired elsewhere. Hiring rates have outpaced quit rates since November, 2020.

The U.S. Chamber of Commerce has published some statistics on this reshuffling of the labor force, which I will reproduce here.  As shown in the chart below, quit rates in leisure and hospitality  (which require in-person attendance and pay lower salaries) were enormous. However, the recent hiring rates have been even higher in this area, so the shortage of labor there is only moderate.

When taking a look at the labor shortage across different industries, the transportation, health care and social assistance, and the accommodation and food sectors have had the highest numbers of job openings.

But yet, despite the high number of job openings, transportation and the health care and social assistance sectors have maintained relatively low quit rates. The food sector, on the other hand, struggles to retain workers and has experienced consistently high quit rates.

I am not sure I understand exactly what the following chart represents, but it was deemed important:

I think the % of yellow is the ratio of unemployed persons with experience in the field (i.e., who could readily participate) to the total job openings in that field. E.g., “…if every unemployed person with experience in the durable goods manufacturing industry were employed, the industry would only fill 65% of the vacant jobs.” These are interesting data, although I’d be even more interested in seeing  numbers on unfilled job openings as fraction of total (filled and unfilled) job openings to give a better idea on how much each industry is hurting for labor. Anyway, here is some of the commentary from the article:

It is interesting to look at labor force participation across different industries. Some have a shortage of labor, while others have a surplus of workers. For example, durable goods manufacturing, wholesale and retail trade, and education and health services have a labor shortage—these industries have more unfilled job openings than unemployed workers with experience in their respective industry. Even if every unemployed person with experience in the durable goods manufacturing industry were employed, the industry would only fill 65% of the vacant jobs.

Conversely, in the transportation, construction, and mining industries, there is a labor surplus. There are more unemployed workers with experience in their respective industry than there are open jobs.

The manufacturing industry faced a major setback after losing roughly 1.4 million jobs at the onset of the pandemic. Since then, the industry has struggled to hire entry level and skilled workers alike.

And finally:

Some industries have been less impacted by labor shortages but are grappling with how to deal with the rise of remote work. For example, the rise of remote work might explain why there has been less “reshuffling” in business and professional services.

The NFT Market Is Mushrooming – Why??

Saturday Night Live fans were introduced to Non-Fungible Tokens (NFTs) a year ago with this skit. Most people know that an NFT is a digital ownership certificate of some asset. That could be a physical asset, or a purely digital asset, like a crude graphic of an ape wearing a sailor’s hat which people are willing to pay hundreds of thousands or millions of dollars for.

The NFT market volume exploded in the second half of 2021:

On-line chain transactions as tracked by DappRadar. Source: Schwab.

The global NFT market is projected to grow from $1.9 billion in 2021 to $5.1 billion by 2028, an annual growth rate of some 18%.

But, why??? Why would people plunk down millions of dollars for just a certificate of ownership of something which may not be particularly beautiful or functional? It is just not something that would ever occur to me.

Part of the answer must be that there are a lot of people who have a lot of money that they don’t really need. This may be a function of the ever-increasing income inequality, but we will not go down that rabbit hole. But still, assuming some 30-something has 50 grand that he doesn’t need  — why spend it on an NFT?

I did a real quick search on this topic. The most common reason appears to be the same reason many people buy rare coins or rare wines or other “collectibles” – they hope that someone else will pay them a higher price in the future. There also seems to be a sense of participating in some “community”, e.g., of Bored Ape Yacht Club aficionados. Much of it comes down to the psychology of what others will pay for something, which can be often explained in hindsight, but can be hard to predict if some asset class has not yet become “hot”.

It turns out that there are some other nuances to NFTs beside just hoping some “greater fool” will pay you more for the ownership of your ape drawing five years from now. I will conclude by pasting in some excerpts from an article on the Hyperglade blog, which frames the discussion partly in terms of the familiar economic concept of scarcity:

The key value proposition that NFTs often claim is scarcity. NFTs, as their name suggests, are each inherently unique on the blockchain, i.e. they can be attributed to a specific ‘hash’ or ID. But scarcity alone doesn’t drive value – it has to be a ‘scarcity’ that people want. 

One of the first types of scarcity that people want is exclusivity. Exclusivity in this context means something that is very rare and has attributes of originality. Long before NFTs existed, collectibles took center stage in this arena. For example, trading cards, comic books, and antique toys were very valuable due to their scarcity and history associated with them. For example, the Captain America Comics No. 1, from 1941 sold for over $3 million! The NFT equivalent of this would be Jack Dorsey’s first tweet, which went for $2.9 million. Jack’s tweet illustrates the quintessential NFT qualities; distinct historical moment, a special creator, and only one of them. 

Collectible NFTs come in many forms (in image, audio, or video formats), but the primary category is art (e.g. the Beeple NFT), followed by music, and sports moments (e.g. NBA top shot). Subsequently, given the depth of the cultural penetration of the content involved, collectibles are the most popular reason for investing in NFTs. According to’s NFT survey of ~30,000 polled users, 47% of those who own NFTs bought them for collectible value. Their primary motive – to be able to ‘flip’ (sell) at a higher price.

Access to a Network

More recently however, is the emergence of NFT collections that empower communities. These collections give holders access to special privileges, primarily access to special cryptocurrency related services and benefits (e.g. higher investment rates). For example, The famous Bored Ape Yacht club holders get to attend special events, E.g. in October 2021, members celebrated annual Ape Fest in New York City, Bright Moments Gallery.

Assets in virtual worlds and gaming

If you haven’t heard of them already, Virtual digital worlds are computer-simulated environments in which users roam around using their personal avatars. So NFTs neatly solve the problem of immutable land ownership. And depending on the demand, access and foot-traffic to certain places in these simulated world prices for virtual lands have skyrocketed. For example, even the cheapest land in decentraland exceeds $10,000. In a very similar way, web 3.0 games are expanding the use case by digitizing in-game assets so that they can be physically owned by players on the blockchain. In-game assets can include characters, cards, skins, etc. a list of which you can find here.

Raging Inflation, Spiking Rates, Plunging Stocks, Oh, My!

It has been such a volatile couple of days in the markets that you hardly know where to focus.  Friday’s inflation print was 8.6% (year/year), higher than expected and the highest in forty years, showing (yet again) that the Fed’s “transitory inflation” line was always just fantasy. Despite its glacial, foot-dragging pace of response to date, the Fed will need to raise short-rates (which they directly control) faster and farther than earlier planned. The Fed does not directly control long-term rates, but they influence them by buying and selling bonds on the open markets. For years, they have been buying bonds (driving interest rates lower), but they will have to stop that and maybe go the other way, being net sellers of bonds.  This will make financing government deficits much more difficult.

Anyway, both short and long term rates have gone vertical in the past few days as markets price in all this, reaching levels not seen since the aftermath of the 2008 Global Financial Crisis:

Rates of U. S. 1-Year Bills. From Wolf Richter.

Rates of U. S. 10-Year Notes. From Wolf Richter.

Mortgage rates will likely march even further upward, increasing the monthly payments for most homeowners. At some point, this will deflate the housing market. Some of today’s eager new homebuyers who paid over asking price, assuming that housing only goes up, may be in for a rude awakening.

It seems like the only way to tamp down inflation is old-fashioned demand destruction. Stock market participants are starting to price in the dreaded R-word (recession). The plunging stock market has been in the news the last few days. Yes, it has dropped a lot, but shown on a five-year chart below it may not be so apocalyptic. It is dropping from ridiculously over-optimistic market highs at the end of 2021.  We are still slightly above the pre-COVID peak:

S&P 500 Index. From Seeking Alpha.

If you are young and working, you should see lower prices as a buying opportunity. If you are making regular contributions to a savings plan in stocks (dollar cost averaging), your dollars are buying you more stocks. If you feel you must DO something, you could always rebalance your portfolio, shifting some funds into stocks from something else, to maintain a say 70/30 stock/bond portfolio. Peace…

Economic Underpinnings of the Renaissance in Northern Italy

The Renaissance in northern Italy was a period between roughly 1350 and 1550 (definitions vary) when a proto-modern outlook and culture and economy replaced  feudal medieval society. We all know about the great artistic and literary and scientific advances made at this time and place. I got curious about the economics behind all this. It is clear that the cities of northern Italy, such as Florence, were extremely prosperous, otherwise they could not have funded all these artists and architects.

It has jokingly been said, “Ah, I don’t see what is so great about Shakespeare – – all he did was string together a bunch of famous quotes.”  Well, since I know little about all this, what I will do here is mainly string together a bunch of relevant quotes.  Let the citations begin….

This blurb from “helenlo-weebly” (?) gives a good overview, noting the  importance of trade and the shift from rural barter to an urban money economy:

Trade brought many new ideas and goods to Europe.  A bustling economy created prosperous cities and new classes of people who had enough money to support art and learning.  Italian city-states like Venice and Genoa were located on the trade routes that linked the rest of western Europe with the East.  Both these city-states became bustling trading centers.  Trading ships brought goods to England, Scandinavia, and present-day Russia.  Towns  along trading routes provided inns and other services for traveling merchants.

          The increase of trade led to a new kind of economy.  During the middle ages people traded goods for other goods.  During the Renaissance people began using coins to buy goods which created a money economy.  Moneychangers were needed to covert one type of currency into another.  Therefore, many craftspeople, merchants, and bankers became more important i society.  Crafts people produced goods that merchants traded all over Europe.  Bankers exchanged currency, loaned money, and financed their own business. 

         Some merchants and bankers grew very rich.  They could afford to help make their cities more beautiful.  Many became patrons and provided new buildings and art; they helped found universities.  This led many city-states to become a flourishing educational and cultural center. notes  technical advances in ship construction, and the rise of Florentine bankers:
Genoa and Venice also made advancements in shipbuilding allowing ships to sail all year long and the increased the volume of goods that could be transported (accelerated speed)…Florentine merchants and bankers acquired control of papal banking (acting as tax collectors).

Brewminate  notes the rise of modern commercial infrastructure (which depends on law and order, with contracts being honored) and the virtuous cycle of trade and urban craftsmanship promoting each other. Also, the economic and social impact of the Black Death (which is a huge topic of itself):

The Crusades had built lasting trade links to the Levant, and the Fourth Crusade had done much to destroy the Byzantine Empire as a commercial rival to Venice and Genoa. Thus, while northern Italy was not richer in resources than many other parts of Europe, its level of development, stimulated by trade, allowed it to prosper. Florence became one of the wealthiest cities of the region…

In the thirteenth century, Europe in general was experiencing an economic boom. The city-states of Italy expanded greatly during this period and grew in power to become de factofully independent of the Holy Roman Empire. During this period, the modern commercial infrastructure developed, with joint stock companies, an international banking system, a systematized foreign exchange market, insurance, and government debt. Florence became the center of this financial industry and the gold florin became the main currency of international trade.

The decline of feudalism and the rise of cities influenced each other; for example, the demand for luxury goods led to an increase in trade, which led to greater numbers of tradesmen becoming wealthy, who, in turn, demanded more luxury goods…

The Black Death [in the fourteen century] wiped out a third of Europe’s population, and the new smaller population was much wealthier, better fed, and had more surplus money to spend on luxury goods like art and architecture.

What motivated the newly rich urban elites to so assiduously patronize the arts? According to, it was largely a desire to assert one’s status and to curry favor with the local citizens:

The New Elites such as the De Medici used spectacles and display to assert themselves in society and to demonstrate their wealth. Wealthy members of the urban elite and the aristocracy were always keen to demonstrate their status. This need to publicize and affirm one’s status led to the patronage of great artists and writers to provide displays and exhibit the wealth and power of the elite. This need for others’ recognition was vital in the Renaissance, which led to the lavish patronage of the period. This led to a great deal of competition to patronize the best artists and writers.

And there you have it.