https://www.cnbc.com/2026/11/12/in-policy-switch-fed-says-it...
Fundamentally, due to structural demographics, we have arrived at a capital shortage period after a long capital surplus period [1]; there will be, for long into the future, more projects chasing a shrinking supply of capital. This will continue to push interest rates up, which will also drive asset prices down (real estate, private equity, etc).
Tangentially, about a year ago, I predicted that the Fed could beat on the economy all it wants with higher rates and this would not cause mass unemployment, because the world is rapidly aging and how fast workers are retiring out of the labor force [2]. This thesis appears to have been proven accurate, but more time is required to make the thesis more durable.
[1] https://www.apollo.com/wealth/insights-news/insights/daily-s...
Doesn't increasing interest rates reduce demand though? So they can't print more oil, but they can reduce the attractiveness of investments that will require oil, thus indirectly driving prices down?
https://www.rbc.com/en/economics/us-analysis/us-featured-ana...
https://www.cnbc.com/make-it/2026/03/06/e-shaped-economy-rep...
https://www.axios.com/2026/01/22/jobs-stock-market-rich-amer...
I didn't know this. I wonder if the concavity is symmetric between an increase and decrease in wealth...
In the US, the economy is passing increased money and energy costs to consumers. In China and other countries, they are rapidly electrifying light and heavy vehicles. Different responses to similar economic signals.
So maybe elastic or inelastic isn't a binary, but somewhat closer to a step function
Reducing our reliance on oil would be a very sensible response. Unfortunately, I don't think it is one our current government would consider.
Raising rates makes credit more expensive. That cools down growth. That, in turn, eases resource demand (as a function of the resource intensity of GDP).
Practically speaking, higher rates today would mean less borrowing to build datacenters. (And new homes, et cetera.) Which would mean those marginal resources going to other uses. Which would ease price pressure.
> there will be, for long into the future, more projects chasing a shrinking supply of capital
Capital is priced in rates. Too many projects chasing too little capital will drive rates up until the capital markets balance.
And current spreads indicate a surplus of capital [1]. That's why we're seeing e.g. multi-trillion dollar IPOs.
[1] https://www.macrotrends.net/3229/us-high-yield-bond-spread
This is only true if the cost of capital is a functional constraint. If the constraint is elsewhere (in this case: sourcing GPUs, bringing online energy resources) it will not have any significant effect.
When the expected return is very high because the captured resource is perceived to be monopolistic, this lever does practically nothing. Unless they raise it so much they destroy everything else.
Then there are not, by definition, "more projects chasing a shrinking supply of capital."
It can be true if it is a subset of “more projects”, if the decision mechanism works outside a market, or if that capital is accessible via mechanisms within the market which are not directly linked to borrowing rates, such as where the cost of capital was locked in years ago. Rates are not a panacea.
> This is supply-side inflation. You can still bring down inflation with rates by cooling demand. (Less free cash in the economy means less spending on AI means less demand for GPUs.) The downside is it costs you more output than in a balanced economy.
You said the same thing I said, just euphemistically. This is like saying you can rid your house of insects with a flamethrower.
Sure. Now do the next project that's going to lock itself in today.
> Rates are not a panacea
Nobody argued as much. Just that the effect has size and meaningful magnitude.
> You said the same thing I said, just euphemistically
No, I didn't. In an economy where private investment dominates consumption, you can reduce output and thus inflation without touching consumption, i.e. without impacting household budgets. You're giving up future jobs. But barring a large influx of new workers, something America doesn't have a problem with right now, unemployment will stay steady.
It's like chemotherapy: it works, but it destroys so much of the rest of your body in the meantime that sometimes you wonder if the pain is worth the gain.
Trump & Congress have access to much less painful means to lower inflation, but they've refused to act.
Reducing the deficit. Credit changes how private money is made through the monetary system. Fiscal policy directly creates and destroys dollars in the economy–it's fare more powerful.
Just households. The inverse of what Germany did.
Say a system had X capacity and 100% utilization. Now someone wants to build a data center that consumes 0.1X power. Demand is now 1.1X and to prevent the system from going over capacity 0.1X of pre-existing demand has to be destroyed.
Subsidizing other users makes the problem worse because they will increase their energy usage in response to the lower prices.
Every household gets X gallons of water a month at a regulated rate. After that, everyone competes equally.
Regulation and increased taxes/fees just make everything more obtuse and expensive, not better or simpler.
But you're right, we could also solve this problem very simply, without gradiated utility rates, by taxing the crap out of corporate profits and redistributing them to everyone else. This would punish corps who aren't building data centers, but if you don't mind turning the whole country into an AI server farm, I guess that would work too.
Money does, in fact, create generating capacity, as expensive, idling energy sources are turned up.
2016's $585bn DoD budget [1] bought what $817bn does today [2]. 2027's NDAA requests $1.1 trillion [3]. On top of like $100bn–on par with Saudi Arabia's military budget–we gave to ICE.
I'd generally consider myself a defence hawk. I think we should support Ukraine. I value our commitments to Korea and Taiwan. But what in the actual fuck are we doing blowing an already-bloated deficit on checks notes a WW2 battleship.
[1] https://dodcio.defense.gov/Portals/0/Documents/Library/2016%...
[2] https://www.bls.gov/data/inflation_calculator.htm
[3] https://comptroller.war.gov/Portals/45/Documents/defbudget/F...
Or taxes raised. I'm personally a fan of adding a few and then doubling all tax brackets.
Changing stupid energy policy that is propping up oil demand.
When China is selling batteries and solar below cost or at tiny profit, the federal government is effectively giving the subsidy to other countries.
When wind is the cheapest with the highest ROI we should be doing more of it.
I don't know if the new Congress is going to be able to put a stop to this.
Do some positives. Work with Congress to arrive at a sane resolution to the US economy's persistent reliance on undocumented labor. (The policy of deporting all immigrants, legal or not, is inflationary.) Implement a healthcare backstop policy to guarantee access to healthcare for all citizens. (Health insurance premium inflation is running around 2x+ overall inflation.)
There are a lot of options.
Rates can be raised, and demand cooled, without raising unemployment.
Sort of [1]. Labor-force participation stayed flat until federal lay-offs and tariffs hit [2].
The problem is it requires the economists to realise they've dedicated their education and professional careers to the economic equivalent of the heliocentric model.
Gross private domestic investment contributed more to output growth than personal consumption expenditure in two out of the last three quarters [1].
Reduce marginal investment, e.g. by raising the cost of borrowing for folks building datacenters, and you that demand goes away without any major shock to current employment.
[1] https://apps.bea.gov/iTable/?reqid=19&step=2&isuri=1&categor...
That's the point. They shift their investment into Treasuries instead of buying up land and turbines and power and GPUs. Also, as the rate goes up it gets harder to make the math math. So e.g. large construction projects get paused, et cetera.
Sometimes. Sometimes it shuffles them to other work, often less resource-intensive work. There is a lot of latent demand for construction.
We have precedence for supply shocks being cooled by rate hikes without causing an unemployment spike.
Cue companies like Microsoft and Oracle laying off even more workers to make room for the higher AI budgets.
We've seen a lot of the first in 2026 -- wage increases have dropped significantly below the rate of inflation.
In the private sector. The public sector (and what I'd call non-discretionary hiring, e.g. in healthcare) makes the response a bit more inelastic.
Elaborate?
Do you mean raising taxes and cutting spending?
The levers they can pull include using diplomacy to end of the stalemate at the strait of Hormuz that is increasing energy and shipping costs. Scrapping excessive import taxes (tariffs) inflicted since "Freedom day" could help some, though prices have a ratcheting effect and retailers are likely to pocket the difference to pad their profits.
They noodle tiny decimals of percents such the financial network effects make them richer.
That’s work to them. Zero meaningful contribution. They're TV personalities who offer nothing more to humanity.
Monetary policy is where the central bank changes rates. This is effective to a point. It defuses a lot of zero-interest nonsense but the primary idea was to cool the business sector by making borrowing more expensive. Thing is, we don't really do that anymore. We don't borrow a bunch of money to build a factory to make widgets. No, we simply financialize everything. Yes, we have a ton of AI debt now but (IMHO) it's not productive output. The big product and promise of AI is labor displacement. That's going to destroy the economy.
Private equity technically borrows money but usually only temporarily. The target gets bought, restructured, a loan is taken out against the assets to pay back to investors and the corpse is spun out before the debt explodes. The problem? The market seems to be wising up to this bargain and these husks need to be kept on the books longer than desired. PE firms are having to borrow to refinance. That's another house of cards in all of this.
But what really fuels PE and all of this? Real estate. Hoarding land has become the best performing asset.
So the second lever the government has is fiscal policy, specifically taxation. Prior to the pandemic, a lot of companies were afraid to raising prices too much as they'd lose market share. An energy crisis triggered a fundamental change in corporate attitudes to raising prices and we've had a ton of raising prices simply to maintain profits or in anticipation of inflation. Pepsi now is in deep trouble because they've discovered that people don't want to pay $8 for corn chips and Walmart's generic brand is $5 and probably made by the same factory.
In the wake of the pandemic some countries introduced a windfall profits tax. Basically, predatory price-raising should be punished with at least a form of wealth redistribution. These measures were few and far between however.
As an example, because of 2020 energy crisis (caused by Trump) and Russia's invasion of Ukraine, Europe has been in a deep energy crisis for years with no end in sight. Many European governments have tried to protect consumers by subsidizing electricity. Well, these energy providers are making record profits. Why aren't they taxing the back end to pay for those subsidies? Instead, we just have a massive wealth transfer from European governments to (often private) utilities and gas producers.
But fiscal policy, particularly in the US, never gets discussed int his way. We could solve so many problems by simply having a 50% corporate tax rate. The standard objection is "they'll move overseas". Well, you can't move land overseas, particularly mines and oil wells. And the IRS is capable of tackling transfer pricing and profit shifting. Well, they would be if they weren't deliberately starved by successive governments. And if all else fails, punish companies for moving overseas with tariffs. That's what they're actually for.
So, back to your question, no, I don't think the theory is sound because we have a malignant tumor at the heart of our economy, which is land-hoarding.
Can you elaborate on this please? I find this claim interesting and probably true. But it's not clear how you reached that conclusion.
It's worth adding a little about the subprime debt crisis and the GFC. Mortgage debt is probably the most liberal in terms of collaterization rules. You can borrow so much more of the value because housing was considered "safe". So subprime loans started at a low rate but then that rate kept going up. There's more to it of course but the point I want to highlight how this was a case of complicated debt that exploded.
Private equity is really the next generation of corporate raiding. Here's how it works. You start a PE fund and raise capital for it. You then identify a target you can profit from and do what's called a leveraged buy out ("LBO"). You borrow more money against your capital and the business.
A lot of businesses have been poorly performing and they're sitting on a ton of real estate appreciation. Toys R Us was a big example of this. Toys R Us was an old company so owned a lot of its stores. But now that unrealized gain doomed them.
The PE firm will typically restructure a company into two companies: one holds the business operations. The other holds all the real estate. The first one will have binding contracts to rent from the real estate holding company.
Somewhere in all this the new owners will take a loan out against the company's assets to repay the LBO. So they've basically gotten a company for "free" and just loaded it up with debt. The financial arrangements will be complex and you may find that the rents will explode in future years, ultimately dooming the business operations. Now if you're a PE firm, you don't want to hold onto that. You want to sell it. That usually means relisting it on some exchange.
At some future point the business collapses, the PE firms often still owns the real estate and because that real estate has usually kept appreciating, it's even more profit.
So if the real estate hadn't appreciated so much, Toys R Us and many other companies simply wouldn't have been targeted this way. We killed a longstanding business that employed thousands of people so a handful of people could cash in on appreciating real estate. That's all that happened.
For this to work, somebody needs to buy the business operations half. And investors are increasingly cottoning on to this. If you can't sell it, it stays on the books and none of this works. This is where the principals in PE firms are being asked to contribute capital to keep this ball int he air until buyers can be found. Also, there are now trillions in private credit to keep this all afloat.
PE defenders will bring up Hilton and Kroger as two companies that were arguably improved by these LBOs but they are the exception.
As time has gone on, PE has gotten increasingly evil too. Now it looks for what they call "pricing power". They've invented a new term because the existing term would make what's going on obvious. It's inelastic demand. PE now loves private utilities. People need electricity. Profits are guaranteed. People also need healthcare so a PE firm will try and buy up every medical practice in an area or every vet or every trailer park.
Adam Smith:
> As soon as the land of any country has all become private property, the landlords, like all other men, love to reap where they never sowed, and demand a rent even for its natural produce
Karl Marx (quoting Adam Smith in 1844):
> Landlords, like all other men, love to reap where they never sowed
and
> The landlords,... operate a certain kind of monopoly against the tenants. The demand for their commodity, site and soil, can go on expanding indefinitely; but there is only a given, limited amount of their commodity.... The bargain struck between landlord and tenant is always advantageous to the former in the greatest possible degree.
PE is just one of many distortions that come from a system that allows people to hoard land.
>So if the real estate hadn't appreciated so much, Toys R Us and many other companies simply wouldn't have been targeted this way. We killed a longstanding business that employed thousands of people so a handful of people could cash in on appreciating real estate. That's all that happened.
Which is in "large enough to direct blame and shame their way" part a side effect of the environmentalists and zoning karens who joined forces to combat the concrete jungle. Everything they did had the side effect of increasing the value of an already built, already paved site.
It used to be 50yr ago that an aged out facility, even a clean one, was a liability. Because if you wanted to do anything there you'd have to demo it or rehab it up to modern expectations/competitiveness (note I did not say code) which would cost more than starting from nothing. Last century's liabilities are now lucrative "brownfield redevelopments".
YIMBYism is often used an excuse for rampant deregulation. I believe that private developers won't ever build our way out of this problem because that hurts profit. It takes the government as a major player to solve this problem. People will point to examples like Austin having declining rents as a direct result of supply but that doesn't really invalidate my criticism.
UK supermarkets used to engage in a practice called land banking [1]. Basically they would buy up land and do nothing with it. They were buying it to prevent competition. And if land kept going up in value there was no cost in doing it. Ultimately Aldi and Lidl came along and ate their lunch by building in less desirable but cheaper areas. But another consequence was that it restricted the supply of housing.
What YIMBY policy would prevent land banking (hoarding)? You need something and it's not even more deregulation. The cost of just holding land needs to be higher. You need some form of land value tax [2].
More than a decade ago, I remember hearing about "investors" buying up all the trailer parks and jacking up the rents (eg [3]). This is entirely parasitic behavior. Any form of ground rent on permanent structures like this should be somewhere between illegal and uneconomical. The land of the trailer parks should be co-owned by the residents, period.
This has a huge negative social cost too. Trailer parks are often the housing of last resort for many. Make it unaffordable and people end up living in cars and them ultimately the streets. So what have we achieved here other than padding the profit margins of investors? We've shifted that cost onto the government, which is just another wealth transfer from tax coffers to the wealthy.
Ten years ago, Xi Jinping quietly popped China's real estate bubble, which has been in decline ever since. He famous said [4] "Houses are for living, not for speculation". It's funny reading Western reporting on this because China's real estate recession is viewed as a negative when it's just a correction from intentional state policy.
That required government intervention in the housing market. This would never have happened with any set of incentives of private developers.
[1]: https://www.theguardian.com/business/2014/jun/26/tesco-hoard...
[2]: https://en.wikipedia.org/wiki/Land_value_tax
[3]: https://publicintegrity.org/inequality-poverty-opportunity/w...
[4]: https://en.wikipedia.org/wiki/Houses_are_for_living,_not_for...
This is not immediately ringing a bell. Are you referring to the 5-7% drop in energy demand associated with the global pandemic?
Without recounting the entire saga, OPEC tries to maintain a floor and a ceiling for oil prices. Too low and they don't make enough money. Too high and it causes political problems. They meet every 3 months to project demand and they adjust supply accordingly. Some members cheat and lie about their output but the system generally works. One thing that keeps the Gulf powers in line is military support, particularly Saudi Arabia.
When the pandemic hit in March 2020, demand cratered. Futures prices briefly went negative because producers had nowhere to store oil and nobody was buying. This is where Trump cajoled MBS into cutting supply in a 2 year deal. This superseded the normal 3 month review and adjustment process so it wasn't even necessary. This deal was huge too. It would initially cut global supply by 10%.
So then in 2021 demand roared back and prices exploded. The Biden admin obviously came in in January 2021. They quietly went to MBS to get him to rescind the deal. MBS refused.
Republicans blamed Biden even though it was a Trump deal. Democrats blamed oil companies for being greedy because they, just like the Republicans, didn't want to upset Saudi Arabia even though Biden could've absolutely threatened Saudi Arabia with the weapons the US provides.
As to why MBS refused, it's complicated and there's a lot of history but a big part of it is that Trump screwed over OPEC in 2018 and (in OPEC's view) the Obama admin screwed them over in 2015 by removing the ban on crude oil exports.
What gets me though is nobody talks about the Trump 2020 OPEC deal.
[1]: https://www.reuters.com/article/economy/special-report-trump...
[2]: https://www.reuters.com/article/business/opec-agrees-largest...
My reading of the 1000+pg Basel3 document from BiS seems to point to the weighted risk categories being fundamentally flawed (relating to valuation for those risk weighted categories, not unsurprising given the subjective value of assets), not to mention the indirect business flaws that limit new banks potentially growing the number of GSIBs, leading to concentration of risk through sieving.
AI debt seems to be supercharging the indirect stagflation indicators which started showing up a few years ago.
Most empire's above a certain size inevitably run into internal conflict from land-use issues related to rentseeking and monopoly.
For anyone confused how the fed rate could go up without a fed meeting; it cannot. The above is shorthand for market predictions of the fed rate going up.
Finance being finance, the jargon around this is fucked.
The federal funds rate–"the interest rate at which depository institutions trade federal funds (balances held at Federal Reserve Banks) with each other overnight"–is set by the market [1]. (Well, by banks. But among themselves.)
The FOMC "meets eight times a year to determine the federal funds target range." The FOMC then directs the buying and selling of securities–usually Treasuries–to encourage that market rate into their range. (The FOMC is "composed of the seven members of the Federal Reserve Board and five of the twelve Federal Reserve Bank presidents" [2]. It's a superset of the Board of Governors.)
[1] https://fred.stlouisfed.org/series/FEDFUNDS
[2] https://en.wikipedia.org/wiki/Structure_of_the_Federal_Reser...
https://blog.sentinel-team.org/p/special-report-rising-bond-...