Could Telsa’s Robots Permanently Eliminate Labor Shortages?

 

Motivational experts tell us that if you have a goal you want to achieve, write it down, then it becomes better defined and “real.” They also tell us, if you tell others what you’re going to achieve, you’ll be even more likely to succeed. Elon Musk does this. He announces plans to provide something dramatic, like a Cybertruck, fully self-driving car, a colony on Mars, or a robot, years in advance; then he provides ongoing updates. Tesla’s earnings call this week provided him an opportunity to update us on the importance and status of the robot project.

 

Optimus

Optimus (Latin for “best”) is the “code-name” given to this  project at Telsa. Developing a robot to do dangerous, boring, or repetitive tasks would, in the mind of Tesla’s founder, revolutionize the economy, he believes there would not be labor shortages.   “If you think about the economy, it is — the foundation of the economy is labor,” he said. “Capital equipment is distilled labor. So what happens if you don’t actually have a labor shortage? I’m not sure what an economy even means at that point. That’s what Optimus is about, so [it’s] very important.”

Musk said Wednesday (January 26) he expects the Tesla-Bot could take years to come to market and perhaps will never become fully realized. The goal is to create a machine that can do what can now only be carried out by humans. While advances over the years in robotics have allowed a reduction in workers, there are still limitations with current machines that use existing technology.  Many more tasks will be done by robots in the future.

Elon the Showman

The Optimus robot project is the most recent example of Musk announcing his goals publicly, and with typical fanfare and showmanship. In addition to keeping himself on task, his announcing exciting Tesla (or SpaceX) products, envisioned for years into the future, helps to energize employees, excite customers, and of course, attract investors.

 

An Interesting Four-Year-Old Elon Musk Quote from The Boring Company Website The rumor that I’m secretly creating a zombie apocalypse to generate demand for flamethrowers is completely false — — Elon Musk (@elonmusk) January 28, 2018

 

The goals that Musk has in the past set out for any one of his companies, like building EVs for the masses, or reusable space-bound rockets, often require innovation that has not even been fully envisioned. For this reason, he often falls behind on many announced projects. Consumers and investors awaiting products have grown accustomed to delays that often last years. One of many examples of this was the “Autonomy Day” event in April 2019, Musk said the company would have one million autonomous “robotaxis” on the road in 2020. If you’re still waiting for a robotaxi to take you to the airport, you are many more years away from the experience.

About Optimus

The “Tesla Bot” is the “most important product” that Tesla is developing this year, said Tesla’s CEO on Wednesday’s fourth-quarter earnings call. This places it on the priority list ahead of the Cybertruck, Robotaxi, and other vehicles, including the Semi and the new Roadster. The Tesla Bot, “[it] has the potential to be more significant than the vehicle business over time.”

Take-Away

One thing that can be learned from one of the richest people in the world is how to stay motivated. The other is that failing to meet a goal, timeline, or even follow all the way through is not always important for success. Not unlike investing, where not every trade is a winner, and some securities need to be culled ahead of expectations, running an innovative business does not mean every project is a winner. Some projects need to veer in another direction because of unexpected circumstances, others halted, and others need an even higher priority than originally planned. It is presumed that the next generation of robots will help manufacturing businesses like Tesla. For this reason, a Tesla-Bot is doubly important to the company’s founder.

Paul Hoffman

Managing Editor, Channelchek

 

Suggested Reading

Tesla’s CEO Surprises Reporters with Views on Robots, Subsidies, and Longevity

Elon Musk’s Tesla Bot Raises Serious Concerns – But Probably Not The Ones You Think

Robotics and AI Are Being Tapped by Cannabis Growers

Social Skills Would Benefit Physical Skills in Robotics

 

Sources

https://www.inc.com/peter-economy/this-is-way-you-need-to-write-down-your-goals-for-faster-success.html.

https://news.yahoo.com/tesla-optimus-robot-probably-wont-be-a-big-profit-driver-wall-street-thinks-173528019.html).

https://www.boringcompany.com/not-a-flamethrower

 

Stay up to date. Follow us:

Could Telsa’s Robots Permanently Eliminate Labor Shortages?

 

Motivational experts tell us that if you have a goal you want to achieve, write it down, then it becomes better defined and “real.” They also tell us, if you tell others what you’re going to achieve, you’ll be even more likely to succeed. Elon Musk does this. He announces plans to provide something dramatic, like a Cybertruck, fully self-driving car, a colony on Mars, or a robot, years in advance; then he provides ongoing updates. Tesla’s earnings call this week provided him an opportunity to update us on the importance and status of the robot project.

 

Optimus

Optimus (Latin for “best”) is the “code-name” given to this  project at Telsa. Developing a robot to do dangerous, boring, or repetitive tasks would, in the mind of Tesla’s founder, revolutionize the economy, he believes there would not be labor shortages.   “If you think about the economy, it is — the foundation of the economy is labor,” he said. “Capital equipment is distilled labor. So what happens if you don’t actually have a labor shortage? I’m not sure what an economy even means at that point. That’s what Optimus is about, so [it’s] very important.”

Musk said Wednesday (January 26) he expects the Tesla-Bot could take years to come to market and perhaps will never become fully realized. The goal is to create a machine that can do what can now only be carried out by humans. While advances over the years in robotics have allowed a reduction in workers, there are still limitations with current machines that use existing technology.  Many more tasks will be done by robots in the future.

Elon the Showman

The Optimus robot project is the most recent example of Musk announcing his goals publicly, and with typical fanfare and showmanship. In addition to keeping himself on task, his announcing exciting Tesla (or SpaceX) products, envisioned for years into the future, helps to energize employees, excite customers, and of course, attract investors.

 

An Interesting Four-Year-Old Elon Musk Quote from The Boring Company Website The rumor that I’m secretly creating a zombie apocalypse to generate demand for flamethrowers is completely false — — Elon Musk (@elonmusk) January 28, 2018

 

The goals that Musk has in the past set out for any one of his companies, like building EVs for the masses, or reusable space-bound rockets, often require innovation that has not even been fully envisioned. For this reason, he often falls behind on many announced projects. Consumers and investors awaiting products have grown accustomed to delays that often last years. One of many examples of this was the “Autonomy Day” event in April 2019, Musk said the company would have one million autonomous “robotaxis” on the road in 2020. If you’re still waiting for a robotaxi to take you to the airport, you are many more years away from the experience.

About Optimus

The “Tesla Bot” is the “most important product” that Tesla is developing this year, said Tesla’s CEO on Wednesday’s fourth-quarter earnings call. This places it on the priority list ahead of the Cybertruck, Robotaxi, and other vehicles, including the Semi and the new Roadster. The Tesla Bot, “[it] has the potential to be more significant than the vehicle business over time.”

Take-Away

One thing that can be learned from one of the richest people in the world is how to stay motivated. The other is that failing to meet a goal, timeline, or even follow all the way through is not always important for success. Not unlike investing, where not every trade is a winner, and some securities need to be culled ahead of expectations, running an innovative business does not mean every project is a winner. Some projects need to veer in another direction because of unexpected circumstances, others halted, and others need an even higher priority than originally planned. It is presumed that the next generation of robots will help manufacturing businesses like Tesla. For this reason, a Tesla-Bot is doubly important to the company’s founder.

Paul Hoffman

Managing Editor, Channelchek

 

Suggested Reading

Tesla’s CEO Surprises Reporters with Views on Robots, Subsidies, and Longevity

Elon Musk’s Tesla Bot Raises Serious Concerns – But Probably Not The Ones You Think

Robotics and AI Are Being Tapped by Cannabis Growers

Social Skills Would Benefit Physical Skills in Robotics

 

Sources

https://www.inc.com/peter-economy/this-is-way-you-need-to-write-down-your-goals-for-faster-success.html.

https://news.yahoo.com/tesla-optimus-robot-probably-wont-be-a-big-profit-driver-wall-street-thinks-173528019.html).

https://www.boringcompany.com/not-a-flamethrower

 

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	Image Credit: Marco Verch (Flickr)

Safe Haven Comparison During Downturns, Bitcoin vs. Gold

 

The jury is still out on whether bitcoin is a safe haven portfolio holding versus more traditional assets like gold, bonds, or even real estate. The world’s first cryptocurrency would seem to meet the criteria that would make it a logical non-correlated asset. These include independence from central bank policies, being a store of value, and it has an established deep market, but it has not been put to the test. Bitcoin history is too short; there are not many data points from which to assess expected future behavior.

Correlation to Stocks

Recent history does provide some insight as to whether bitcoin or gold is more effective during extreme market weakness. The following three charts provide a helpful visual of the comparative performance of bitcoin, gold, and the S&P 500.

 

 

The chart above is of the last three months of 2018. The market sold off sharply November through December in reaction to a U.S. trade war with China, the slowdown in global economic growth, and concern that the Federal Reserve was raising interest rates too fast. The price movement shows that when the market sold off over 13% in just three months, bitcoin moved in the same direction and suffered more than three times the loss (43%). Portfolios holding assets that closely tracked the price of gold were able to mute the negative performance of the equity portion because during this period gold moved higher by more than 7%.

 

 

A little more than a year later, the markets sold off in reaction to the novel coronavirus that placed uncertainty in every aspect of people’s lives and every corner of the economy. This second chart shows that when the market sold off by more than 23% for different reasons than in 2018, bitcoin again moved in the same direction and exceeded equities losses. Gold during this time remained virtually unchanged. This provided portfolios holding the asset class less of an impact from the movement of stocks, bitcoin, or any other asset held.

 

 

The stock market started off 2022 reacting to a change of thinking on how long the Fed would keep monetary policy extremely accommodative. Through January 21^st, stocks are down 8%. Once again following in the same direction. Bitcoin has fallen by more than twice that of equities. For its part, gold is up over 1%, having the effect of providing a safe haven for equity investors that bitcoin did not provide in either this down period or any of the other two that came before it.

Take-Away

Diversifying a portfolio means that you spread risk by holding assets that move independently based on their own factors. A non-correlated portfolio doesn’t swing for home runs, it aims to win by performing more consistently over time. The question of whether bitcoin or younger cryptocurrencies help diversify a portfolio will be answered better as more experiences present themselves over time.

The statistical evidence available today suggests that gold investments as an uncorrelated asset are superior to bitcoin by a wide margin based on the very few times the market has sold off sharply since the birth of cryptocurrencies.

Paul Hoffman

Managing Editor, Channelchek

 

Suggested Reading

Will Gold Continue to Outperform in 2022?

Capturing More Performance with Gold Prices Rising

Has Bitcoin Lived Up to its Original Vision?

Cryptocurrencies in 2022, a View from Academics

 

Sources

www.koyfin.com

https://www.wellsfargo.com/financial-education/investing/why-diversify-your-portfolio/

https://www.pbs.org/newshour/economy/making-sense/6-factors-that-fueled-the-stock-market-dive-in-2018

https://www.investopedia.com/terms/s/safe-haven.asp

https://www.sciencedirect.com/science/article/pii/S1544612320304244

www.businessinsider.com/news/currencies/bitcoin-price-positively-correlated-to-stock-market-risk-asset-gold-2022-1

 

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	Image Credit: Marco Verch (Flickr)

Safe Haven Comparison During Downturns, Bitcoin vs. Gold

 

The jury is still out on whether bitcoin is a safe haven portfolio holding versus more traditional assets like gold, bonds, or even real estate. The world’s first cryptocurrency would seem to meet the criteria that would make it a logical non-correlated asset. These include independence from central bank policies, being a store of value, and it has an established deep market, but it has not been put to the test. Bitcoin history is too short; there are not many data points from which to assess expected future behavior.

Correlation to Stocks

Recent history does provide some insight as to whether bitcoin or gold is more effective during extreme market weakness. The following three charts provide a helpful visual of the comparative performance of bitcoin, gold, and the S&P 500.

 

 

The chart above is of the last three months of 2018. The market sold off sharply November through December in reaction to a U.S. trade war with China, the slowdown in global economic growth, and concern that the Federal Reserve was raising interest rates too fast. The price movement shows that when the market sold off over 13% in just three months, bitcoin moved in the same direction and suffered more than three times the loss (43%). Portfolios holding assets that closely tracked the price of gold were able to mute the negative performance of the equity portion because during this period gold moved higher by more than 7%.

 

 

A little more than a year later, the markets sold off in reaction to the novel coronavirus that placed uncertainty in every aspect of people’s lives and every corner of the economy. This second chart shows that when the market sold off by more than 23% for different reasons than in 2018, bitcoin again moved in the same direction and exceeded equities losses. Gold during this time remained virtually unchanged. This provided portfolios holding the asset class less of an impact from the movement of stocks, bitcoin, or any other asset held.

 

 

The stock market started off 2022 reacting to a change of thinking on how long the Fed would keep monetary policy extremely accommodative. Through January 21^st, stocks are down 8%. Once again following in the same direction. Bitcoin has fallen by more than twice that of equities. For its part, gold is up over 1%, having the effect of providing a safe haven for equity investors that bitcoin did not provide in either this down period or any of the other two that came before it.

Take-Away

Diversifying a portfolio means that you spread risk by holding assets that move independently based on their own factors. A non-correlated portfolio doesn’t swing for home runs, it aims to win by performing more consistently over time. The question of whether bitcoin or younger cryptocurrencies help diversify a portfolio will be answered better as more experiences present themselves over time.

The statistical evidence available today suggests that gold investments as an uncorrelated asset are superior to bitcoin by a wide margin based on the very few times the market has sold off sharply since the birth of cryptocurrencies.

Paul Hoffman

Managing Editor, Channelchek

 

Suggested Reading

Will Gold Continue to Outperform in 2022?

Capturing More Performance with Gold Prices Rising

Has Bitcoin Lived Up to its Original Vision?

Cryptocurrencies in 2022, a View from Academics

 

Sources

www.koyfin.com

https://www.wellsfargo.com/financial-education/investing/why-diversify-your-portfolio/

https://www.pbs.org/newshour/economy/making-sense/6-factors-that-fueled-the-stock-market-dive-in-2018

https://www.investopedia.com/terms/s/safe-haven.asp

https://www.sciencedirect.com/science/article/pii/S1544612320304244

www.businessinsider.com/news/currencies/bitcoin-price-positively-correlated-to-stock-market-risk-asset-gold-2022-1

 

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	Image Credit: Eric Steinhauer (Pexels)

The Federal Reserve Continues to Equivocate on Crypto

 

The Federal Reserve avoided taking a stance on whether the U.S. should establish a digital currency as legal tender in a report released Thursday (January 20).  It appears to avoid taking a solid position on crypto in general.  The long-awaited paper does, however provide insight into the agency’s thinking. It then stops short of expectations that the report may have established a timeline or roadmap for the U.S. to evolve its definition of money.

The 40-page paper that was promised to be delivered by late Summer 2021 begins with a discussion of existing forms of money, the current state of the U.S. payment system, and its relative strengths and challenges. It then provides information on the various digital assets that have emerged in recent years, including stablecoins and other cryptocurrencies. The paper then turns to central bank digital currencies (CBDC), focusing on its uses and functions; potential benefits and risks; and related policy considerations.

The Federal Reserve’s initial analysis suggests that a U.S. CBDC, if one were created,

would best serve the needs of the United States by being privacy-protected, intermediated, widely

transferable, and identity-verified. The paper expressly points out throughout that it is not intended to advance a specific policy outcome and takes no position on the ultimate desirability of a U.S. CBDC. The paper says its purpose is to foster conversation and public comment.  “The paper is not intended to advance any specific policy outcome, nor is it intended to signal that the Federal Reserve will make any imminent decisions about the appropriateness of issuing a U.S. CBDC,” the report read.

 

Source: Money and Payments: The U.S. Dollar in the Age of Digital Transformation, Federal Reserve

 

The Board of Governors of the Federal Reserve also indicated that it would not proceed with the issuance of a CBDC without clear support from the executive branch and from Congress, ideally in the form of a specific law authorizing the use. “The introduction of a CBDC would represent a highly significant innovation in American money, and with it, a range of risks and benefits,” the Fed said.

The report solicits stakeholders to provide feedback by answering 22 questions beginning on page 25 of the document. 

Some of the benefits of a CBDC that were noted in the paper include a safe and convenient form of central bank money as well as fast and inexpensive overseas payments.

As for the risks, the Fed views a central digital currency could create problems maintaining the stability of the financial system and the objectives of monetary policy.

For now, 87 countries are exploring their own CBDCs, and 14, including major economies like China and South Korea, are already in the pilot stage. Nine have already fully launched them. Earlier this month, Fed Chairman Powell spoke  and apologized for the long delay in providing this report. He suggested other monetary challenges were being prioritized ahead of digital currencies causing the delay.

Paul Hoffman

Managing Editor, Channelchek

 

Suggested Reading

Powell’s Apparent Shift on Digital Currency

Digital Currency Report from the Fed is Past Due

The First Cryptocurrency Exchange Hacked in 2022

Walmart’s Metaverse, NFT, and Crypto Plans

 

Sources

https://www.federalreserve.gov/publications/files/money-and-payments-20220120.pdf

https://www.therams.com/news/rams-place-punters-corey-bojorquez-johnny-hekker-on-reserve-covid-19-list

 

Stay up to date. Follow us:

	Image Credit: Eric Steinhauer (Pexels)

The Federal Reserve Continues to Equivocate on Crypto

 

The Federal Reserve avoided taking a stance on whether the U.S. should establish a digital currency as legal tender in a report released Thursday (January 20).  It appears to avoid taking a solid position on crypto in general.  The long-awaited paper does, however provide insight into the agency’s thinking. It then stops short of expectations that the report may have established a timeline or roadmap for the U.S. to evolve its definition of money.

The 40-page paper that was promised to be delivered by late Summer 2021 begins with a discussion of existing forms of money, the current state of the U.S. payment system, and its relative strengths and challenges. It then provides information on the various digital assets that have emerged in recent years, including stablecoins and other cryptocurrencies. The paper then turns to central bank digital currencies (CBDC), focusing on its uses and functions; potential benefits and risks; and related policy considerations.

The Federal Reserve’s initial analysis suggests that a U.S. CBDC, if one were created,

would best serve the needs of the United States by being privacy-protected, intermediated, widely

transferable, and identity-verified. The paper expressly points out throughout that it is not intended to advance a specific policy outcome and takes no position on the ultimate desirability of a U.S. CBDC. The paper says its purpose is to foster conversation and public comment.  “The paper is not intended to advance any specific policy outcome, nor is it intended to signal that the Federal Reserve will make any imminent decisions about the appropriateness of issuing a U.S. CBDC,” the report read.

 

Source: Money and Payments: The U.S. Dollar in the Age of Digital Transformation, Federal Reserve

 

The Board of Governors of the Federal Reserve also indicated that it would not proceed with the issuance of a CBDC without clear support from the executive branch and from Congress, ideally in the form of a specific law authorizing the use. “The introduction of a CBDC would represent a highly significant innovation in American money, and with it, a range of risks and benefits,” the Fed said.

The report solicits stakeholders to provide feedback by answering 22 questions beginning on page 25 of the document. 

Some of the benefits of a CBDC that were noted in the paper include a safe and convenient form of central bank money as well as fast and inexpensive overseas payments.

As for the risks, the Fed views a central digital currency could create problems maintaining the stability of the financial system and the objectives of monetary policy.

For now, 87 countries are exploring their own CBDCs, and 14, including major economies like China and South Korea, are already in the pilot stage. Nine have already fully launched them. Earlier this month, Fed Chairman Powell spoke  and apologized for the long delay in providing this report. He suggested other monetary challenges were being prioritized ahead of digital currencies causing the delay.

Paul Hoffman

Managing Editor, Channelchek

 

Suggested Reading

Powell’s Apparent Shift on Digital Currency

Digital Currency Report from the Fed is Past Due

The First Cryptocurrency Exchange Hacked in 2022

Walmart’s Metaverse, NFT, and Crypto Plans

 

Sources

https://www.federalreserve.gov/publications/files/money-and-payments-20220120.pdf

https://www.therams.com/news/rams-place-punters-corey-bojorquez-johnny-hekker-on-reserve-covid-19-list

 

Stay up to date. Follow us:

	Image Credit: Darius Siwek 

This Process of Removing Greenhouse Gases Could Have Two Great Benefits

 

David L. Chandler | MIT News Office

 

Methane is a far more potent greenhouse gas than carbon dioxide, and it has a pronounced effect within first two decades of its presence in the atmosphere. In the recent international climate negotiations in Glasgow, abatement of methane emissions was identified as a major priority in attempts to curb global climate change quickly.

A team of researchers at MIT have come up with a promising approach to controlling methane emissions and removing it from the air, using an inexpensive and abundant type of clay called zeolite. The findings are described in the journal ACS Environment Au, in a paper by doctoral student Rebecca Brenneis, Associate Professor Desiree Plata, and two others.

Although many people associate atmospheric methane with drilling and fracking for oil and natural gas, those sources only account for about 18 percent of global methane emissions, Plata says. The vast majority of emitted methane comes from such sources as slash-and-burn agriculture, dairy farming, coal and ore mining, wetlands, and melting permafrost. “A lot of the methane that comes into the atmosphere is from distributed and diffuse sources, so we started to think about how you could take that out of the atmosphere,” she says.

The answer the researchers found was something dirt cheap — in fact, a special kind of “dirt,” or clay. They used zeolite clays, a material so inexpensive that it is currently used to make cat litter. Treating the zeolite with a small amount of copper, the team found, makes the material very effective at absorbing methane from the air, even at extremely low concentrations.

The system is simple in concept, though much work remains on the engineering details. In their lab tests, tiny particles of the copper-enhanced zeolite material, similar to cat litter, were packed into a reaction tube, which was then heated from the outside as the stream of gas, with methane levels ranging from just 2 parts per million up to 2 percent concentration, flowed through the tube. That range covers everything that might exist in the atmosphere, down to subflammable levels that cannot be burned or flared directly.

The process has several advantages over other approaches to removing methane from air, Plata says. Other methods tend to use expensive catalysts such as platinum or palladium, require high temperatures of at least 600 degrees Celsius, and tend to require complex cycling between methane-rich and oxygen-rich streams, making the devices both more complicated and more risky, as methane and oxygen are highly combustible on their own and in combination.

“The 600 degrees where they run these reactors makes it almost dangerous to be around the methane,” as well as the pure oxygen, Brenneis says. “They’re solving the problem by just creating a situation where there’s going to be an explosion.” Other engineering complications also arise from the high operating temperatures. Unsurprisingly, such systems have not found much use.

As for the new process, “I think we’re still surprised at how well it works,” says Plata, who is the Gilbert W. Winslow Associate Professor of Civil and Environmental Engineering. The process seems to have its peak effectiveness at about 300 degrees Celsius, which requires far less energy for heating than other methane capture processes. It also can work at concentrations of methane lower than other methods can address, even small fractions of 1 percent, which most methods cannot remove, and does so in air rather than pure oxygen, a major advantage for real-world deployment.

The method converts the methane into carbon dioxide. That might sound like a bad thing, given the worldwide efforts to combat carbon dioxide emissions. “A lot of people hear ‘carbon dioxide’ and they panic; they say ‘that’s bad,’” Plata says. But she points out that carbon dioxide is much less impactful in the atmosphere than methane, which is about 80 times stronger as a greenhouse gas over the first 20 years, and about 25 times stronger for the first century. This effect arises from that fact that methane turns into carbon dioxide naturally over time in the atmosphere. By accelerating that process, this method would drastically reduce the near-term climate impact, she says. And, even converting half of the atmosphere’s methane to carbon dioxide would increase levels of the latter by less than 1 part per million (about 0.2 percent of today’s atmospheric carbon dioxide) while saving about 16 percent of total radiative warming.

The ideal location for such systems, the team concluded, would be in places where there is a relatively concentrated source of methane, such as dairy barns and coal mines. These sources already tend to have powerful air-handling systems in place, since a buildup of methane can be a fire, health, and explosion hazard. To surmount the outstanding engineering details, the team has just been awarded a $2 million grant from the U.S. Department of Energy to continue to develop specific equipment for methane removal in these types of locations.

“The key advantage of mining air is that we move a lot of it,” she says. “You have to pull fresh air in to enable miners to breathe, and to reduce explosion risks from enriched methane pockets. So, the volumes of air that are moved in mines are enormous.” The concentration of methane is too low to ignite, but it’s in the catalysts’ sweet spot, she says.

Adapting the technology to specific sites should be relatively straightforward. The lab setup the team used in their tests consisted of  “only a few components, and the technology you would put in a cow barn could be pretty simple as well,” Plata says. However, large volumes of gas do not flow that easily through clay, so the next phase of the research will focus on ways of structuring the clay material in a multiscale, hierarchical configuration that will aid air flow.

“We need new technologies for oxidizing methane at concentrations below those used in flares and thermal oxidizers,” says Rob Jackson, a professor of earth systems science at Stanford University, who was not involved in this work. “There isn’t a cost-effective technology today for oxidizing methane at concentrations below about 2,000 parts per million.”

Jackson adds, “Many questions remain for scaling this and all similar work: How quickly will the catalyst foul under field conditions? Can we get the required temperatures closer to ambient conditions? How scalable will such technologies be when processing large volumes of air?”

One potential major advantage of the new system is that the chemical process involved releases heat. By catalytically oxidizing the methane, in effect the process is a flame-free form of combustion. If the methane concentration is above 0.5 percent, the heat released is greater than the heat used to get the process started, and this heat could be used to generate electricity.

The team’s calculations show that “at coal mines, you could potentially generate enough heat to generate electricity at the power plant scale, which is remarkable because it means that the device could pay for itself,” Plata says. “Most air-capture solutions cost a lot of money and would never be profitable. Our technology may one day be a counterexample.”

Using the new grant money, she says, “over the next 18 months we’re aiming to demonstrate a proof of concept that this can work in the field,” where conditions can be more challenging than in the lab. Ultimately, they hope to be able to make devices that would be compatible with existing air-handling systems and could simply be an extra component added in place. “The coal mining application is meant to be at a stage that you could hand to a commercial builder or user three years from now,” Plata says.

In addition to Plata and Brenneis, the team included Yale University PhD student Eric Johnson and former MIT postdoc Wenbo Shi. The work was supported by the Gerstner Philanthropies, Vanguard Charitable Trust, the Betty Moore Inventor Fellows Program, and MIT’s Research Support Committee.

 

Suggested Reading:

ESG Indicators and How Investors Use Them

The Extreme Growth of ESG Has Bumps that Include Greenwashing

Do Mandatory Holidays Mean Less Freedom and Flexibility for Workers?

Lessons from How the Back of Inflation Finally Broke in 1982

 

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	Image Credit: Nigam Machchhar, (Pexels)

Facts About the Fed Being Hawkish

 

In my reading last week, I came across a number of articles suggesting the US Federal Reserve (The Fed) has done a 180-degree turn to a more “hawkish” stance. This would mean that they have become inflation fighters.  As a reformed “bond guy” that participated in the Treasury’s first TIPS auction, I can’t help but mourn for the old bond market, the one that seemed to trade largely on inflation expectations rather than on kitchen sink monetary resolve. Below discusses why the Fed may actually be more “Dovish” than ever before in history with inflation above 4%. The ramifications of this have implications for the US Stock and Bond markets going into the New Year.

With year-over-year U.S. inflation running at 6.8% (CPI-U) and the Fed inflation projection for 2022 at 2.6% to 2.7%, one would expect 30-year Treasuries to be yielding higher than the annual inflation rate. Instead, it’s running 500 basis points (bp) below the pace, and 50 bp below the FOMC’s seemingly optimistic projections. Does the bond market know something that undermines the most basic tenets of interest rate movement? Or, is something else impacting bond prices?

Source: https://home.treasury.gov/

  

Background

During the early summer of 2020, in response to pandemic-related stress on the economy, the Fed introduced yield curve control as one of their tools. The way this seldom-used tool works is the Fed enters the open market and buys bonds across a large period of the yield curve in order to prevent rates from rising above a pre-set level. In this way, if market demand would tend to let rates rise, the Fed is there to bid prices up (keep rates down). If bond prices (yields) of targeted maturities remain above the pre-set level, the central bank does nothing. The Fed, in this way, provides unlimited demand should bonds trade-off.

Additionally, the Fed has been implementing quantitative easing (QE) since March 2020.  The result is the Fed now holds $5.64 trillion in Treasuries out of the $22.3 trillion available U.S. Treasury debt.

Along with Treasuries the Fed also holds $2.63 trillion in government-guaranteed Mortgage-Backed Securities (MBS). These securities, which are also backed by the full faith and credit of the US, trade at a small spread to similar duration Treasuries.  

When QE got underway last year, the Fed purchased roughly $110 billion a month in MBS: $40 billion a month in new money and $70 billion to replace principal pay downs. Unlike other market participants, the Fed does not trade these securities, they get put away until they pay off. Investors need not worry if the extremely large buyer may decide to sell one day. They won’t.

Out of the $5.64 trillion of Treasuries held by the Fed, only $326 billion mature within a year. The remaining $5.31 trillion impact longer rates, in fact, $1.02 trillion mature in 5-10 years, and $1.34 trillion mature in over 10 years. With over two trillion in debt securities pulled from the five years or longer end of the market, it now holds long-dated Treasury debt equivalent to 10% of U.S. GDP.

 

Is
Tapering Tightening?

While the Fed now regularly addresses inflation in its comments and intentionally avoids the word “transitory” when referring to it, there is very little economic brake tapping being done from a monetary policy level. Instead, it continues to suppress rates by buying bonds. While the Fed is not dropping as much money into the bond markets as they had been to control yields, they are still purchasing massive amounts. Each month they are tapering their purchases by $20 billion. But still, last month the Fed took down $120 billion in government-backed bonds – $80 billion in Treasury debt and $40 billion in mortgage-backed securities. These are now securities the market doesn’t have to absorb, which keeps rates down, but it is also stimulative as these securities were purchased on the open market.  

Bond purchases are monetary policy tools used to ease rates and stimulate the economy; they are a tool used to tighten. The purchases repress rates along the entire curve and serve to reduce borrowing costs spread to Treasuries that would include everything from mortgage borrowing to junk bonds.

Take-Away

If the Fed has become an inflation fighter and is now hawkish, the stock market, particularly companies that rely on borrowing, have a lot to be concerned about. Interest rates across the entire curve have been held down for a long time. By historical measures, interest rates should be paying inflation plus a premium for uncertainty. A rapid return to historical norms would be devastating for stocks. More directly, it would be devastating for bonds.

The Federal Reserve Act mandates that the Fed conduct monetary policy “so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.” Allowing rates to seek their natural level any time soon would impact the markets, which is not mentioned as a mandate. However, “maximum employment” is one of the goals of monetary policy. Allowing the markets to sink would likely reduce employment greatly. With this, the Fed is likely to remain accommodative using all the tools necessary to maximize employment.

As long as rates are low, savers will need to search for ways to protect their money from inflation. This could keep the stock market on its upward trend.

  

Suggested Reading:

How Difficult Will it be for the Fed to Control Inflation?

Inflation Seems Persistent, What Now?

Yield Curve Control, Stock Prices, and Trust (June 2020)

The Fed is Clear that they Intend to Hold Rates Down

 

Sources:

https://www.newyorkfed.org/markets/domestic-market-operations/monetary-policy-implementation/treasury-securities/treasury-securities-operational-details

https://www.bls.gov/opub/ted/2021/consumer-prices-up-6-8-percent-for-year-ended-november-2021.htm

https://www.usinflationcalculator.com/inflation/current-inflation-rates/

https://www.sifma.org/resources/research/us-treasury-securities-statistics/

https://www.statista.com/topics/6441/quantitative-easing-in-the-us/#:~:text=The%20Federal%20Reserve%20announced%20on,as%20quantitative%20easing%20(QE)

 

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	Image Credit: Nigam Machchhar, (Pexels)

Facts About the Fed Being Hawkish

 

In my reading last week, I came across a number of articles suggesting the US Federal Reserve (The Fed) has done a 180-degree turn to a more “hawkish” stance. This would mean that they have become inflation fighters.  As a reformed “bond guy” that participated in the Treasury’s first TIPS auction, I can’t help but mourn for the old bond market, the one that seemed to trade largely on inflation expectations rather than on kitchen sink monetary resolve. Below discusses why the Fed may actually be more “Dovish” than ever before in history with inflation above 4%. The ramifications of this have implications for the US Stock and Bond markets going into the New Year.

With year-over-year U.S. inflation running at 6.8% (CPI-U) and the Fed inflation projection for 2022 at 2.6% to 2.7%, one would expect 30-year Treasuries to be yielding higher than the annual inflation rate. Instead, it’s running 500 basis points (bp) below the pace, and 50 bp below the FOMC’s seemingly optimistic projections. Does the bond market know something that undermines the most basic tenets of interest rate movement? Or, is something else impacting bond prices?

Source: https://home.treasury.gov/

  

Background

During the early summer of 2020, in response to pandemic-related stress on the economy, the Fed introduced yield curve control as one of their tools. The way this seldom-used tool works is the Fed enters the open market and buys bonds across a large period of the yield curve in order to prevent rates from rising above a pre-set level. In this way, if market demand would tend to let rates rise, the Fed is there to bid prices up (keep rates down). If bond prices (yields) of targeted maturities remain above the pre-set level, the central bank does nothing. The Fed, in this way, provides unlimited demand should bonds trade-off.

Additionally, the Fed has been implementing quantitative easing (QE) since March 2020.  The result is the Fed now holds $5.64 trillion in Treasuries out of the $22.3 trillion available U.S. Treasury debt.

Along with Treasuries the Fed also holds $2.63 trillion in government-guaranteed Mortgage-Backed Securities (MBS). These securities, which are also backed by the full faith and credit of the US, trade at a small spread to similar duration Treasuries.  

When QE got underway last year, the Fed purchased roughly $110 billion a month in MBS: $40 billion a month in new money and $70 billion to replace principal pay downs. Unlike other market participants, the Fed does not trade these securities, they get put away until they pay off. Investors need not worry if the extremely large buyer may decide to sell one day. They won’t.

Out of the $5.64 trillion of Treasuries held by the Fed, only $326 billion mature within a year. The remaining $5.31 trillion impact longer rates, in fact, $1.02 trillion mature in 5-10 years, and $1.34 trillion mature in over 10 years. With over two trillion in debt securities pulled from the five years or longer end of the market, it now holds long-dated Treasury debt equivalent to 10% of U.S. GDP.

 

Is
Tapering Tightening?

While the Fed now regularly addresses inflation in its comments and intentionally avoids the word “transitory” when referring to it, there is very little economic brake tapping being done from a monetary policy level. Instead, it continues to suppress rates by buying bonds. While the Fed is not dropping as much money into the bond markets as they had been to control yields, they are still purchasing massive amounts. Each month they are tapering their purchases by $20 billion. But still, last month the Fed took down $120 billion in government-backed bonds – $80 billion in Treasury debt and $40 billion in mortgage-backed securities. These are now securities the market doesn’t have to absorb, which keeps rates down, but it is also stimulative as these securities were purchased on the open market.  

Bond purchases are monetary policy tools used to ease rates and stimulate the economy; they are a tool used to tighten. The purchases repress rates along the entire curve and serve to reduce borrowing costs spread to Treasuries that would include everything from mortgage borrowing to junk bonds.

Take-Away

If the Fed has become an inflation fighter and is now hawkish, the stock market, particularly companies that rely on borrowing, have a lot to be concerned about. Interest rates across the entire curve have been held down for a long time. By historical measures, interest rates should be paying inflation plus a premium for uncertainty. A rapid return to historical norms would be devastating for stocks. More directly, it would be devastating for bonds.

The Federal Reserve Act mandates that the Fed conduct monetary policy “so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.” Allowing rates to seek their natural level any time soon would impact the markets, which is not mentioned as a mandate. However, “maximum employment” is one of the goals of monetary policy. Allowing the markets to sink would likely reduce employment greatly. With this, the Fed is likely to remain accommodative using all the tools necessary to maximize employment.

As long as rates are low, savers will need to search for ways to protect their money from inflation. This could keep the stock market on its upward trend.

  

Suggested Reading:

How Difficult Will it be for the Fed to Control Inflation?

Inflation Seems Persistent, What Now?

Yield Curve Control, Stock Prices, and Trust (June 2020)

The Fed is Clear that they Intend to Hold Rates Down

 

Sources:

https://www.newyorkfed.org/markets/domestic-market-operations/monetary-policy-implementation/treasury-securities/treasury-securities-operational-details

https://www.bls.gov/opub/ted/2021/consumer-prices-up-6-8-percent-for-year-ended-november-2021.htm

https://www.usinflationcalculator.com/inflation/current-inflation-rates/

https://www.sifma.org/resources/research/us-treasury-securities-statistics/

https://www.statista.com/topics/6441/quantitative-easing-in-the-us/#:~:text=The%20Federal%20Reserve%20announced%20on,as%20quantitative%20easing%20(QE)

 

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	Image Credit: Rafael Saldana (Flickr)

What is the Fed Taper? An Economist Explains How the Fed Withdraws Stimulus

 

Tapering refers to the Federal Reserve policy of unwinding the massive purchases of Treasury bonds and mortgage-backed securities it’s been making to shore up the economy during the pandemic. The unconventional monetary policy of buying assets is commonly known as quantitative easing. The Fed first adopted this policy during the 2008 financial crisis.

Normally, when a central bank wants to reduce the cost of borrowing for companies and consumers, it lowers its target short-term interest rate. But with its target rate at zero during the 2008 crisis – at the same time that there was no inflation and the economy was still hurting – the Fed was no longer able to cut rates further. And so the Fed turned to quantitative easing as a way to continue to reduce borrowing costs. When the government buys assets, their prices go up, which lowers their yield or interest rate.

The Fed again adopted this policy in March 2020 after the COVID-19 pandemic resulted in a national lockdown. By November 2021, the Fed had bought over US$4 trillion worth of Treasuries and other securities.

The U.S. central bank began tapering in November 2021, scaling back total purchases by $15 billion a month, from $120 billion to $105 billion. The Fed decided to double the pace at which it tapers on Dec. 15. Rather than $15 billion, the Fed will reduce purchases by $30 billion every month. At that pace it will no longer be purchasing new assets by early 2022.

 

Why it Matters

Growing concerns among economists that rising inflation could harm the economy are likely a big part of what led the Fed to begin tapering.

Inflation is the rate of change in the price of goods and services. The Consumer Price Index, which includes several categories of everyday items that a typical American might buy, is the measure of inflation most often reported in the media. In November 2021, it was up 6.8% from a year earlier.

By any measure, inflation is above the Fed’s target of 2%. By tapering asset purchases, the Fed may help reduce inflation – or at least slow its rise – because it is withdrawing some of the monetary stimulus that is fueling economic growth.

The reason the Fed has decided to accelerate the process is likely because it now believes inflation may be less transitory than it had hoped, at the same time that the labor market appears strong.

 

What this Means for You

Americans have enjoyed rock-bottom interest rates for the better part of the past 13 years, helping to make it cheaper to borrow money to buy cars and homes and start businesses.

Consumers and companies are already beginning to see slightly higher rates on mortgages, business loans and other types of borrowing.

In other words, the era of cheap money may finally be coming to an end. Enjoy it while it lasts.

 

This article was republished with permission from   The Conversation, a news site dedicated to sharing ideas from academic experts. It represents the research-based findings and thoughts of  Edouard Wemy Assistant Professor of Economics, Clark University

 

Suggested Reading:

Inflation Seems Persistent, What Now?

Deflation Not Inflation is Risk Says Cathie Wood

Investing in U.S. Maritime Infrastructure Spending

The Detrimental Impact of Fed Policy on Savers

 

 

 

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Tesla’s CEO Surprises Reporters with Views on Robots, Subsidies, and Longevity

 

The Wall Street Journal CEO Summit is billed as an opportunity for CEOs to exchange best practices along with honest and candid insight. Elon Musk, who spoke Monday at the summit, had previously been sharing his thoughts on Twitter leading up to the event, at times his talk surprised reporters and peers. Among his concerns for the future are low birth rates, longevity, and excessive EV subsidies.

 

Robots and Birthrates

The forward-looking Tesla CEO was giving an update on the Tesla Bot project and issued this dire warning, “If people don’t start to have more children, civilization is going to crumble. Mark my words,” Musk said. Within the context of the current labor shortage, Musk believes the Tesla Bot could be a solution. “It has the potential to be a general substitute for human labor over time. The foundation of the economy is labor. Capital equipment is essentially distilled labor. I asked a friend of mine what should we optimize for, and he said, “gross profit per employee” – fully considered so you’ve got to include the supply chain in that,” said Musk. He was also candid about their robotics saying that he doesn’t know when they will get the Bot trouble-free, but building a useful humanoid robot is already a Tesla division they are hiring for.

Musk who is the father of six children said, “I think one of the biggest risks to civilization is the low birth rate and the rapidly declining birthrate.”

 

Longevity

At the Summit Elon Musk also shared his thoughts on humans living much longer and some older workers. He said he doesn’t think people should “try to live for a super long time.” This idea is more important to him when it comes to semi-immortality, and those that make their living in politics. “I think it is important for us to die because most of the time, people don’t change their mind, they just die. If they live forever, then we might become a very ossified society where new ideas cannot succeed,” Musk said.

In recent Tweets, Musk has been vocal about age caps for holding public national office positions.

 

 

“I’m not poking fun at aging. I just am saying if we’ve got people in very important positions that have to make decisions that are critical to the security of the country, then they need to have sufficient presence of mind and cognitive ability to make those decisions well — because the whole country is depending on them,” Musk said Monday.

Spending Bill and EV Subsidies

About two-thirds of all battery-electric vehicles in the U.S. are Teslas. Over the past two years, these sales have been without the $7,500 federal tax credit. New tax federal tax credits can be as high as $12,500 on some cars. Musk said the Senate should not pass the $2 trillion Build Back Better Act. It removes the limit of 200,000 EV deliveries per manufacturer and increases the incentives but that only applies if the electric vehicles are coming from US factories that are unionized. During his response, his concerns seemed more about the high federal expenditures than anything specifically related to the treatment of his car company versus the treatment of others. “Honestly, it might be better if the bill doesn’t pass. We’ve spent so much money, the federal budget deficit is insane. It’s like $3 trillion. Federal expenditures are $7 trillion. Federal revenues are $3 trillion. If it was a company, it would be a $3 trillion dollar loss. I don’t know we should be adding to that loss. Somethings gotta give. You can’t just spend $3 trillion more than you own every year and don’t expect something bad to happen,” Musk said.

 

Take-Away

One doesn’t become a self-made billionaire and then achieve richest person-in-the-world status by thinking like everyone else. Open forums of thought like the Wall Street Journal CEO Summit help, and even short Tweets help better understand the mindsets of those in positions that are helping to shape tomorrow’s world.

 

Paul Hoffman

Managing Editor, Channelchek

 

Suggested Reading:

The Gas Tax’s History Shows How Hard it is to Fund Infrastructure Spending

With Ford’s Electric F-150 Pickup, the EV Transition Shifts into High Gear

Will Uranium, Natural Gas, and Coal be Severely Impacted by EU Taxonomy

ESG Investors May Have Missed What’s Happening with Green Chemical Companies

 

Sources:

https://ceocouncil.wsj.com/videos/

https://youtu.be/lSD_vpfikbE

https://www.yahoo.com/news/elon-musk-says-not-enough-070626755.html

Twitter
Link

 

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How Difficult Will it be for the Fed to Control Inflation?

 

The financial markets have a paradigm shift to contend with. This includes stocks, bonds, commodities, and cryptocurrency. For decades, the U.S. Central Bank was concerned with managing to avoid a deflationary spiral, any inflationary risk was minimal. The tide has turned, and those nominated and presumed to be filling the top two spots at the Fed now list inflation fighting as a priority.

Inflation’s
Impact on Market Moves

Generally speaking, in order for an investor to want to be involved in a stock or other investment it’s in part because they expect the outcome will place them even with or ahead of future price growth. Even at the most conservative end of the investment spectrum, U.S. Treasuries, and bank overnight lending rates, those involved demanded returns higher than the future expected level of inflation. When deflation was the expectation, rates below the recent inflation reports were accepted and had little difficulty attracting capital.

Yield/Inflation
Comparison

The chart below covers November 1976 through September 2021. It compares the inflation rate with overnight Fed Funds. The inflation measure used here is the conservative Trimmed PCE Inflation
Rate, which includes personal consumption expenditures (PCE) and only half the food and energy component (trimmed). This is typically lower than the consumer price index, which measures a basket of goods rather than what is actually consumed during the period. The trimmed PCE Inflation rate takes into account that people can substitute goods if one price goes up. The second line in the chart is the base overnight lending rate that banks charge each other to close out each day with the required reserves. This level is typically the lowest data point on the entire yield curve.

 

 

Even in this most conservative comparison, we see that the Fed Funds rate (green line) trades well above the inflation rate (red line). For this 45 year period, inflation averaged 3%, while the overnight interest rate averaged 4.72%. This is 58% higher. Fed funds is not a rate set by the market, it’s orchestrated through the Fed’s monetary policy. Currently, the Fed’s targeted rate is 0.00%-0.25%.  The most recent Trimmed PCE number is from September at 5.08% (the last point on chart).

Even at the high end of today’s overnight target (0.25%), inflation averaged 4.83% above Fed Funds. So while overnight interest rates have been historically 58% higher, currently, inflation is 2083% higher.

To stay within historic norms the Fed Funds target would be 7.75%-8.00%.

Plight of
the Fed

Outside of the U.S., countries are experiencing a resurgence of Covid-19. Some are responding with lockdowns and other steps that are sure to lower economic output and consumption. The U.S. has not experienced this yet, but the possibility looms over economic activity and projections for the future. The economy is not at full employment and is considered too frail for the Fed to start tapping the economic brakes. However, with inflation’s high potential to linger or grow, the Fed shouldn’t be tapping the brakes, they should be jumping on them. This, of course, presumes that reeling in inflation is among their top priorities, as they have stated.

Plight of
the Treasury

The coming month of December will bring with it a lot of give-and-take between the two parties in Congress and the U.S. Secretary of the Treasury Janet Yellen. The problem is the United States is expected to run out of cash by mid-December. Without cash, it can’t pay its bills, it can’t pay employees, and won’t be able to retain reserve currency status. It would probably even suffer a severe drop in its credit rating if it defaulted on its debts.

This debt ceiling struggle has happened before; negotiations to raise the debt ceiling are common each year. This year is a bit different because, with the advent of the pandemic, Congress voted to suspend the debt ceiling until August 1, 2021. At that time, it was reinstated to $28.5 trillion. At its most basic, it allows the U.S. Treasury to go deeper in debt. While the wrestling match will go on before passing, either a stop-gap measure or a new ceiling could cause volatility in the markets.

Another concern is the cost of the debt. Congress could pass a debt ceiling limit that impacts the amount borrowed, but the amount paid back is impacted by prevailing interest rates when issued. Should, for example, rates rise to their more historical norm of 1.75% the rate of expected inflation, the cost of servicing new debt could increase to 20 times what it is now.

Take-Away

For decades investors were unconcerned about inflation or the erosive impact on spending power. Interest rates were brought down to help prop up an economy that had been challenged at times during these years. Because inflation was low, the Fed had room to do this. The mindset of investors should begin to include inflation and the Fed using tools to fight inflation. There will be a different impact on the various asset classes; for instance, stocks are considered a good hedge against inflation, bonds prices go down as rates tick up naturally or through Fed policy implementation.

The paradigm shift toward a Fed fighting inflation will take some more time to adopt than others. What is important to note in the tricky balance all of the policy-makers are contending with. There probably won’t be abrupt or surprising moves as policy adjusts.

 

Paul Hoffman

Managing Editor, Channelchek

 

 

Suggested Reading:

The Last Time Inflation Was This High Fed Funds Were 14.5%

The Detrimental Impact of Fed Policy on Savers

Will Small Cap Stocks Outperform in 2022?

Does Insider Selling Indicate Bearishness on the Company

 

Sources:

https://home.treasury.gov/policy-issues/financial-markets-financial-institutions-and-fiscal-service/debt-limit

https://home.treasury.gov/system/files/136/Debt-Limit-Letter-to-Congress_20211119.pdf

https://www.cbo.gov/publication/57371

 

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	Image Credit: Federal Reserve (Flickr)

Since 2008, Monetary Policy Has Cost American Savers about $4 Trillion

 

 

Interest rates naturally move in the direction of the measured or expected inflation rate, plus an additional “real rate” of return to compensate for other risks. The below article was written by Alex J. Pollock, a former Deputy Director at the U.S. Treasury, and former President and CEO of the Federal Home Loan Bank of Chicago. He argues the negative real returns orchestrated by the Federal Reserve Bank since 2008 have been costly to savers and investors, he asks they be reviewed by Congress semi-annually at the scheduled Fed Monetary Policy Report. Should his thinking become more widespread, it could have significant impact on how a future Fed would conduct interest rate policy.  – Paul Hoffman, Channelchek

 

By Alex J. Pollock

With inflation running at over 6 percent and interest rates on savings near zero, the Federal Reserve is delivering a negative 6 percent real (inflation-adjusted) return on trillions of dollars in savings. This is effectively expropriating American savers’ nest eggs at the rate of 6 percent a year. It is not only a problem in 2021, however, but an ongoing monetary policy problem of long standing. The Fed has been delivering negative real returns on savings for more than a decade. It should be discussing with the legislature what it thinks about this outcome and its impacts on savers.

The effects of central bank monetary actions pervade society and transfer wealth among various groups of people—a political action. Monetary policies can cause consumer price inflations, like we now have, and asset price inflations, like those we have in equities, bonds, houses, and cryptocurrencies. They can feed bubbles, which turn into busts. They can by negative real yields push savers into equities, junk bonds, houses, and cryptocurrencies, temporarily inflating prices further while substantially increasing risk. They can take money away from conservative savers to subsidize leveraged speculators, thus encouraging speculation. They can transfer wealth from the people to the government by the inflation tax. They can punish thrift, prudence, and self-reliance.

Savings are essential to long-term economic progress and to personal and family financial well-being and responsibility. However, the Federal Reserve’s policies, and those of the government in general, have subsidized and emphasized the expansion of debt, and unfortunately appear to have forgotten savings. The original theorists of the savings and loan movement, to their credit, were clear that first you had “savings,” to make possible the “loans.” Our current unbalanced policy could be described, instead of “savings and loans,” as “loans and loans.”

As one immediate step, Congress should require the Federal Reserve to provide a formal savers impact analysis as a regular part of its Humphrey-Hawkins reports on monetary policy and targets. This savers impact analysis should quantify, discuss, and project for the future the effects of the Fed’s policies on savings and savers, so that these effects can be explicitly and fairly considered along with the other relevant factors. The critical questions include: What impact is Fed monetary policy having on savers? Who is affected? How will the Fed’s plans for monetary policy affect savings and savers going forward?

Consumer price inflation year over year as of October 2021 is running, as we are painfully aware, at 6.2 percent. For the ten months of 2021 year-to-date, the pace is even worse than that—an annualized inflation rate of 7.5 percent.

Facing that inflation, what yields are savers of all kinds, but notably including retired people and savers of modest means, getting on their savings? Basically nothing. According to the Federal Deposit Insurance Corporation’s October 18, 2021, national interest rate report, the national average interest rate on savings account was a trivial 0.06 percent. On money market deposit accounts, it was 0.08 percent; on three-month certificates of deposit, 0.06 percent; on six-month CDs, 0.09 percent; on six-month Treasury bills, 0.05 percent; and if you committed your money out to five years, a majestic CD rate of 0.27 percent. 

I estimate, as shown in the table below, that monetary policy since 2008 has cost American savers about $4 trillion. The table assumes savers can invest in six-month Treasury bills, then subtracts from their average interest rate the matching inflation rate, giving the real interest rate to the savers. This is on average quite negative for these years. I calculate the amount of savings effectively expropriated by negative real rates. Then I compare the actual real interest rates to an estimate of the normal real interest rate for each year, based on the fifty-year average of real rates from 1958 to 2007. This gives us the gap the Federal Reserve has created between the actual real rates over the years since 2008 and what would have been historically normal rates. This gap is multiplied by household savings, which shows us by arithmetic the total gap in dollars.

 

 

To repeat the answer: a $4 trillion hit to savers.

The Federal Reserve through a regular savers impact analysis should be having substantive discussions with Congress about how its monetary policy is affecting savings, what the resulting real returns to savers are, who the resulting winners and losers are, what the alternatives are, and how its plans will impact savers going forward.

After thirteen years with on average negative real returns to conservative savings, it is time to require the Federal Reserve to address its impact on savers.

 

About the Author:

Alex J. Pollock is a Senior Fellow at the Mises Institute. Previously he served as the Principal Deputy Director of the Office of Financial Research in the U.S. Treasury Department (2019-2021), Distinguished Senior Fellow at the R Street Institute (2015-2019 and 2021), Resident Fellow at the American Enterprise Institute (2004-2015), and President and CEO, Federal Home Loan Bank of Chicago (1991-2004). He is the author of Finance and Philosophy—Why We’re
Always Surprised (2018) and Boom and Bust: Financial Cycles
and Human Prosperity (2011), as well as numerous articles and Congressional testimony. Pollock is a graduate of Williams College, the University of Chicago, and Princeton University.

 

Suggested Reading:

What Infrastructure Law Does for Investors

Money Supply is Like Caffeine for Stocks

Winners and Losers with Low Interest Rates

Was the Inflation of 1982 Like Today’s?

 

The above article was written by Alex J. Pollock and republished with permission by Channelchek.  The ideas and opinions stated in the article are those of Mr. Pollock’s and do not necessarily reflect the ideas and opinions of Channelchek.  The republication of this article is not intended to be used as investment advice.  Please refer to the full Channelchek Disclosures & Disclaimers in the footer for more information.

 

Source:

https://mises.org/wire/2008-monetary-policy-has-cost-american-savers-about-4-trillion

 

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