Repo squeeze and the Fed: two additional solutions


Things the Fed can do to alleviate the potential repo squeeze (apart from the usual suspects already discussed in great detail by both saleside/buyside research and in Twittersphere):

1) hike the interest banks pay on TT&L ‘notes’ accounts from EFF-25bps to EFF, or to make it even simpler, equal to IOER. That could encourage funds to move from the TGA account back to TT&L accounts and ‘release’ reserves.

When the Fed started paying IOER, the opportunity cost for the Treasury to keep money on deposit in the banking system (TT&L accounts) rose. The Treasury thus started using the TGA at the Fed.

2) cut the fee on daily uncollateralized overdrafts from the current 50bps, adjust the net debt caps, decrease the penalty daily overdraft fee of 150bps. That could encourage better use of the existing Fed intraday liquidity option.

The Fed made major changes to its daily overdraft operations in 2011 spurred by some inexplicable desire to limit its credit exposure. This was probably on the back of political pressure from the legacy of the 2008 crisis during which the Fed indeed took massive credit risk.

Before 2011, the majority of the Fed’s daily overdrafts were uncollateralized. The new rules discouraged uncollateralized ‘repos’ by raising their fees and introducing collateralized overdrafts for free. After those changes, majority of the overdrafts became collateralized. The problem arose when during the most recent repo squeeze, the mechanics of obtaining collateral became complicated.

In any case, Fed’s action was strange given the fact that only a few months before that, in 2011, it had changed the accounting rules which pretty much ensured that the central bank can not go bankrupt (no negative equity) even in theory.

Should the Fed, actually, be providing free intraday liquidity with no collateral to eligible institutions? I think so. Because:

-that liquidity is needed for transaction (retail 24/7), not consumption or production purposes (Pfister 2018)

-the central bank can create money at zero cost, while the opportunity cost of holding money should be equal to the social cost of creating it (Friedman 1969)

-the central bank would be simply accommodating Basell III regulations

These two solutions are not groundbreaking: the Fed would be either going back to the way things were before 2007 (uncollateralized Fed daily overdrafts), or taking into account new developments (the emergence of IOER).

Trade may drive the economy, but share buybacks drive the stock market



Trade and tariffs, important as they are indeed for economic activity globally, are a sideshow when it comes to the big picture in the stock market. Yes, commodity markets may ebb and flow on trade but this is not the mercantile 19th or early 20th century. Look at the divergence between the oil majors and the price of oil this year, for example.

The big secular trends in stocks are determined by technological innovation and regulations. Their momentum is determined by net share buybacks (IPO minus share buybacks). Valuations play such a minor role that the cynic in me would probably say that they are used by clever stock analysts to give us reasons to buy their research.

We may be approaching such a turning point in US markets where the confluence of technology and regulations start to hurt stocks: 1) US is falling behind China in 5G, which is possibly the most important technological development at the moment; 2) US regulators are intent on drastically changing the business model of US tech company behemoths.

And stock market momentum may eventually be turning as well, if current trends of increased IPO supply and policy towards curbing share buybacks continue.

I am not talking about a one-off stock market correction, the way we’ve had so far since the 1980s. I am not even talking about a bear market. If these trends play out the way I described, the result will be much more structural: I expect at best the US stock market to deliver half of the total average annual return it has had so far since the 1980s, and at worst, to have a prolonged multi-decade sideways trajectory, similar to what it went through in the three decades prior.

Supply pressure likely to hit US stocks


I don’t think the stock market bulls appreciate the wave of supply that may hit the market in 2019. I know we got used to billions of dollars of share buybacks on the demand side while not paying that much attention to the supply side. Yet, IPOs in the last few years have been quietly building up. In fact, if the experts are right, 2019 could beat the IPO record issuance reached before the dotcom bust.

According to Renaissance Capital, the total value of private companies that are planning to go public in 2019 is $697Bn. They estimate that if just 15% of that value exits at IPO, that would amount to over $100Bn which would be more than the record for IPOs set in 2000.

If companies manage to get their valuations just from tech names, there is a minimum of $200bn of value in the pipeline (Lyft, Uber, AirBnb, Pinterest, Slack, Postmates). Using the 15% benchmark, see above, that would make tech IPO size in 2019 somewhat similar to 2018 when the tech sector raised $32Bn in IPOs. But the $200Bn amount is on the conservative side. That would still make the tech sector the largest one in terms of IPO issuance.

How will that play out? Will there be enough demand to offset this supply? With fewer individual retail accounts and fewer active managers than in 2000, how would passive investors react to this?

On top of that, we have the threat of more regulation, especially on the tech sector, but also on the general market with the spectre of a ban on share buybacks looming on the horizon.

Just looking at the supply – demand dynamics, it feels like we do not even need to bother with the ‘subjective fact’ of excessively high valuations and recent earnings downgrades to make a good bear case for US stocks. But I can already foresee what the bulls would say, “If you discount the data by market cap, the extreme IPO number does not look that bad”. I guess, the jury on this is still out.

What do Myanmar driving and our monetary system have in common?

Both make people’s lives unintentionally difficult and complicated by having changed the system in the 1970s but continuing to insist on following the same old rules.

In 1970, Myanmar General Me Win changed the direction of traffic in the country (literally overnight) from left to right. Such a sudden decision would have been a precarious change even in the best of circumstances, but in the case of Myanmar which, having been a British colony, traffic had been on the left with a right-hand drive steering wheel, it was truly extraordinary given that all the cars continued to be with a right-hand steering wheel!

In 1971, US President Richard Nixon ended the gold standard which had been at the core of most of the world’s monetary systems for centuries. The world truly went on fiat money. That would have been a difficult task in the best of circumstances given the previous history of fiat money. In the case of US, and most other countries, it became an impossible one given that no attempt was made to upgrade the monetary system to the new reality of fiat money.

Every country we have visited so far on our journey is unique on its own, but no country in the world is so truly unique as Myanmar when it comes to driving on the road. We spent almost a month in Myanmar and honestly it took me some time to realize that we were driving on the right side of the road but also the driver is sitting on the right side of the car! Can you imagine how hard and crazy this is? I actually can, having lived in London for two decades and frequently driven to Europe. But even that is not a good comparison as I would generally drive on well-kept highways in Europe, while in Myanmar there are no real highways, all roads are single lane and quite bad by European standards. Try overtaking under these conditions in Myanmar: when the steering wheels of cars didn’t change, people were left with relying on honks and passenger guidance when merging into a lane.

Something similar happened with our monetary system: in 1971 we finally, and for good, threw off the gold shackles but we did not change the gold standard accounting (CB reserves vs. government bonds) and continued to impose imaginary limits on government finances and money supply in general. This is as backward, inconvenient and dangerous as a right-hand drive on the right side of the road.

I started paying attention to this monetary inconsistency only after GFC’08 when it became obvious that there is something ‘not right’ with our money supply: the way the Fed was conducting QE, the way inflation did not budge, and the way no one batted an eyelid when the $700bn financial rescue plan was announced. Then I discovered Mosler, Wray and the rest of the original MMT crew. Finally, I brushed up on financial history going well beyond the Great Depression, when ‘MMT’ was last popular, to Knapp and even beyond (“Debt: the first 5,000 years”). But what convinced me most that our monetary transmission mechanism is far from optimal (just like in Myanmar, I had to spend some time on its roads to even notice the peculiarity) was that I was intimately involved in the plumbing of the financial system by trading and having exposure in the short end of the money markets, especially in the years following GFC’08.

What is extraordinary for me in both cases is that people don’t seem to be bothered and despite the obvious difficulties prefer to just get on with the existing status quo. Speaking to locals in Myanmar, there is neither appetite to change back to the previous driving system, nor to start importing left-hand driving wheel cars (even though some people have mentioned a draft law that would have a cut-off point after which only left-hand drive wheel cars would be allowed to be imported). In the case of gold-standard-monetary-system-not-fitted-to-a-fiat-world, the people in power (central bankers, prominent economists) have ridiculed any attempts to think of possible improvements.

Spin it either way you like, but equity buybacks make all the difference


There are two things we can say for sure about share buybacks:

1) based purely on equity flows, they have dominated equity markets since at least 2000

2) based purely on the reduction of share count, and assuming no increase in leverage, as is indeed the case for most of the largest share buybacks, they push up the price of shares

The verdict is out on whether they contribute to lower capital spending, and indirectly cause stagnant employment and wages. Given the supremacy of the shareholder primacy doctrine, I would be surprised if the latter does not hold (that is the whole point, in fact, even though, if every company targets lower employment costs, the cumulative effect on the economy would be lower aggregate demand, thus indirectly lower long-term company profitability), while it would be irresponsible if the former does, given that this ultimately cuts long-term profitability prospects.

Given the record amount of investor equity outflows, the record amount of company share buybacks and the near vertical rally in US equities since the beginning of the year, we can finally put to rest the hypothesis that it is share buybacks that drive primarily equity performance. This is indeed the conclusion that sell-side analysts have come to recently (see Citi, JPM, GS), based on equity flows, notwithstanding that when I was at HSBC, we came to the same conclusion three years ago. It stands to reason then that as S&P companies enter their blackout period en-masse starting next week and going into the middle of April, we should expect equities to lose some ground.

Things are a bit more nuanced though. The biggest mistake people make when analysing buybacks is that they look at the whole market and use averages. You want to understand the effect of buybacks, look at the companies doing the buybacks.

  • Only 13% of publicly listed companies engage in share buybacks.
  • Of those, the largest 20 companies constitute more than 50% of all buybacks.
  • Of those Apple alone constitutes about ¼ of the total amount bought back.

The high concentration of buybacks among very few of the largest US companies guarantees their outsize effect on US equity indices performance while at the same time plays down their effect on equity fundamentals when looking at indices averages.

One unifying feature of the companies doing share buybacks is that their share count ends up substantially reduced. This is in stark contrast to the general market where share count is more or less flat to slightly down over the last 20 years or so. Over the last 5 years, the combined share count of the 20 largest share-buyback companies decreased by 11%. But there are wide variances amongst them. The biggest buybacks naturally reduce the most the share count. For example, Apple’s share count decreased by 23% and Boeing’s (5th largest) decreased by 24%.

There are two exceptions. Broadcom authorized $12Bn in buybacks in 2018 but over the last 5 years its share count has actually risen by 71%. And Micron Technology had a $10Bn buyback programme in 2018 but its share count has increased by 16% over the last 5 years.

Another unifying feature of the companies doing share buybacks is that their share prices tend to rise over time. The causation is a lot more difficult to prove given that over the last 5 years the general stock market is also up. But still, the average share rise of those 20 companies is almost double the rise in the S&P Index over that period.

And again, there are two exceptions. Qualcomm share price has decreased by 28% over the last 5 years despite its share count down by 17%. And ConocoPhillips lost 4% of its value while its share count went down by 5% over the period.

Do share buybacks ‘cook’ the books. Difficult to say using averages even on those 20 companies. Indeed, of those 20, on average top line growth is smaller than bottom line growth but is this from reduced share count or as a result of expanding profit margins due to cost cutting, for example? One has to dig deeper into the numbers on individual basis. Apple’s and Cisco’s Revenue growth is about half its EPS growth; Intel’s, Texas Instruments’, Amgen’s equivalent is between 3x and 5x smaller; yet Qualcomm’s, United Health’s and Wells Fargo’s Revenue is about 1.5x bigger than its EPS growth rate. And still others, like PepsiCo, Pfizer and Nike, have a negative Revenue growth rate but a positive EPS one. Finally, both ConocoPhillips and Merck have negative growth rate for both top-and bottom-line numbers.

Do share buybacks happen at the expense of capital investment? Again, difficult to judge even from these 20 companies without digging into debt, FCF etc. or other specifics. On average, capital spending growth over the last 5 years is in line with Revenue growth and below EPS. But there are, of course, outliers. Qualcomm, 3M, Adobe and Cisco have a negative capital spending growth rate despite positive Revenue and ESP growth rates. Oracle and Texas Instruments have double digit capital spending growth rates despite small single digit Revenue growth rates.

A few prominent people in the markets have written in support of buybacks and playing down their role in analysing US equity performance, but having looked at the numbers again from the bottom up, I cannot help but disagree with their conclusion.

China Part Two: My TED Talk (Deep Analysis)



OK. *breathes in*

Let’s do this.

We only spent around 4 weeks in China, but by then, I had noticed some recurrent behaviour traits:

– Ill manners: rudness was pervasive. It was present mostly at train stations: I was shocked to see grown-ups fighting like children, pushing past each other to get on the carriage and to grab a seat, even before others had gotten off. So, most of the time, we ended up standing in the carriage. I watched other passengers to see if this bothered them, but they turned a blind eye whenever this happened. It must be cultural norm, I then thought.

Similarly, in the Forbidden City, Beijing, which was incredibly busy, people were always shoving past each other to take a picture. I almost dropped my phone on several occasions, which would have been a disaster, since I had just repaired it (in Xi’an😄).

– Littering: The Chinese government seems to buy into some basic environmental policy by providing lots of bins and cleaners everywhere, even on the station and running trains! Unfortunately, the citizens don’t seem to share the same environmental concerns and regularly disregard any common rules on disposing of garbage or personal fluids.

We witnessed many examples of this. A particularly amusing one, for me, was on the tube where a young boy eating a chocolate bar subtly dropped the wrapper under the seats and pushed it away with his leg. Apart us pointing and chuckling no one else seemed bothered.

Unfortunately it wasn’t just big city behavior. While descending down the Yellow Mountains a man, ignoring the bin situated right by his feet, threw a bottle deep down the cliff, left to decompose for eternity. In the same countryside experience, people were smoking in non-smoking areas (while, in smoking areas, even though there were plenty of people, no-one was smoking!).

Generally speaking it was also hard not to witness constant relieving of personal fluids. People seemed unfussy about opening their zipper and urinate whenever nature called. Also, my mum had warned me of the cultural habit of spitting and I’ve been wary since then. Once, at a cafe, after seeing a man outside the window spitting all over the ground I made sure I kept track of where it went so that, when we left, I avoided the spitwads. After that little episode, I noticed that every now and then, somebody would lean over and dispose of their saliva.

To be honest, by the time we ended up in Beijing I grew quite disgusted with the amount of people spitting and littering. It really hit me at the Beijing stadium where Coke cans and tissues were strewn across the grass.

– Aseptic nature: It looks like the Chinese government also feels responsible for taming nature to fit neatly into an health and safety proof entertainment.

This was evident in the Yellow Mountains again. All throughout the walk, we were accompanied by built-in stairs and handrails which seemed completely at odds with the idea of mountaineering. In addition, a service of a chair manually carried was offered. I mean, it would make sense if there was a real necessity but I witnessed a young child carried on the chair, while playing on his phone (and people complain that the new generation are too lazy! Maybe that’s due to the naive parents who turn their head away when their children sit on the couch, watching TV or play video games all day long) .

In the Gobi Desert we encountered a similiar approach. Planks of wood and handrail were built across some of the dunes! We, of course, took the longer and fun way up, old school, climbing up the sand, barefooted.

The Silver cave at Yuangshan, an impressive work of nature on its own right, had also been subject to the beautification process. Man-made lights were set up to make the cave seem so much more dazzling, but it felt unnatural and artificial, because it removed the sense of nature’s accomplishment and replaced it with what human civilization has made.

I reminiscented of the days where we would hike in the countryside in Britain. The most civilised works would be the gates to keep out the aggressive cows.

I personally found it hard to enjoy the works of nature when works of humanity were clearly present, begging for attention.

– Friendliness (or lack of): Overall, in China, people’s attitude towards foreigners seemed either extremely unfriendly and unhelpful oral as extremely friendly and generous. We were lucky enough to encounter some of the latter. Random people offered us their help and some taxi drivers did try their best to understand us and get us to our destination (even though they often struggled to understand the Western name of the place we wanted to go to).

China may get plenty of tourists, but we still attracted many curious locals. Once, in Dunghuan, we stopped by a restaurant owned by a family with two boys. The children, who were studying late in the night, were particularly curious and we developed a bond and had a great conversation. They even taught us how to hold chopsticks properly, which was a relief, because since then it wasn’t such a struggle to eat food.

It also became obvious to me that the Chinese have a little pet peeve about loose laces. Every now and then, my shoelaces would undo themselves and a random stranger on the street would pat me on the shoulder and gesture to my shoe. Once a man even went as far as lifting up one leg while walking to point at his own shoe (since he probably couldn’t speak English) and gesturing to me. Another time, I was playing with my sister and this woman shouted across the entire room, frantically pointing at my undone shoelaces. And no, I’m not exaggerating.

– Cuteness: Another thing that perplexed me was how the society was eager to educate children through cartoons. For instance, short clips of safety were presented on the TVs in the trains. I can see why it makes sense though, because these children are going to be the next generation – among the cluster of kids, included a future president, teacher, soldier, doctor. These were going to be people who could possibly change the course of history and the Chinese society is determined to bring the best out of them.

Moving on to Dunghuan, I spotted a cute dog on the streets. Many were present throughout our journey on the Silk Road and they were all homeless. So, I was wary about stroking it, but it was still a cute animal. We had carried on walking and then I realised the dog was following us. At some point, we were inside a shop buying breakfast and the dog was waiting outside for us. Here’s a picture to show just how adorable it was.

The dog followed us the whole way. Unfortunately that day we were leaving to go to Zhangye so it broke my heart to see the dog scampering after the car we drove away in.

I wonder if it will ever think about me.

– Spices (and crawlies): If there’s one thing that was common in China, it was spices. The pungent substances were everywhere. Almost every dish we ate had spices. Plenty of shops in the market were selling spices. What would be a lot of spice to us would be very little spice for the Chinese. In addition, in Beijing, I spotted some live baby scorpions on a stick sold as food, which totally freaked me out. Even now (writing this in Myanmar) I shudder at the mere thought of these tiny animals squirming and wiggling.

To conclude: while China does offer excellent sights and polite locals, littering, smoking and spitting is present almost everywhere and you are bound to be shoved by people, adamant to get on the train. It was an experience like no other and I wonder if I will see things differently when (and if) I return to London.

And that’s China for you, folks.

*curtains close*

Is Boeing giving too much money back to shareholders?


Has Boeing invested enough in R&D? Could investing more instead of returning money to shareholders in the form of share buybacks and dividends have prevented the faulty automated system which supposedly was the cause of the two most recent fatal crashes?

  • Boeing’s share price has risen more than 250% over the last 5 years. The DJI, of which Boeing is a part of, has risen about 60%; the S&P Index has risen about 50% during that period.
  • Boeing has bought back a total of $39Bn of shares over the last 5 years which is actually just about half of the authorized amount. The 2018 share buyback payout ratio was about 76%. The share buyback has increased by 50% over this period, and at the moment it is one of the largest among US companies.
  • As a result of the share buybacks, Boeing’s share count has been reduced from 767m in 2013 to 586m in 2018, or by about 24%.
  • Over the same period Boeing has spent about $17Bn on R&D, about half the amount spent on buybacks; R&D spending has been flat in the last 5 years.
  • Top-line revenue growth over the last 5 years is about 3% per annum which fades in comparison to share price growth, or EPS growth (see below).
  • Bottom-line EPS annual growth rate, on the other hand, is about 24%. There is no doubt that this is a consequence of decreased share count (see above) simply by logical deduction. However, it could also be as a result of reduced costs (of which employment still is the largest, see below). Either way, both causes can be seen as a temporary phenomenon and not good for the company’s long-term prospects.
  • Boeing has reduced payroll by about 10% over the last 5 years, despite total US full-time employment rising by 10% over the same period.
  • Boeing has increased its dividend by 325% over the last six years. For 2018, its dividend payout ratio was 39%, which makes the total payout ratio stand at 115%, i.e. Boeing is spending more than 100% of its earnings on shareholders payouts. This is financed pretty much all by rising FCF rather than new debt.
  • Nothing wrong with giving some FCF back to investors IF: 1) that does not jeopardize the company’s future profitability, which would be determined more by top-line rather than bottom-line growth – there is a limit how much costs can be cut; 2) that means, unintentionally, producing a defective product which not only cuts company’s profitability or causes, in extreme cases, actual physical damage to consumers. In both cases, the verdict on Boeing is still out.

To all the people who think share buybacks are the best way to utilize company’s resources, that they do not affect the company’s share price, that they do not reduce the share count and have no bearing on employment, Boeing is not your best example.

The jeepney: decentralized trust in practice

Have you ever ridden in a jeepney? Chances are that you haven’t, for even if you have visited the Philippines, unless you are a backpacker, you would have stuck to taxis. In our travels, we met expats who had lived there for years but had never been in a jeepney.

Well, you are missing on a practical lesson how decentralized trust works.

The jeepney is actually the most popular public means of transportation in the Philippines. It was originally made from the American jeeps left over from WWII. It is also the cheapest way to travel because of its open rear door design, the jeepney can pick up and drop off passengers anywhere. Having said that, it is not the safest way of transport, either mechanically (too old), or because of its seating configuration (a long bench with no seat belts, very low ceiling, combined with constant and sudden stopping).

What was fascinating for me was actually how its payment system works: it is all based on trust. Decentralized trust in fact. As it is not optimal to have a ticket collector, the jeepney driver is also tasked with collecting the money for the trip. The problem is that the entrance is all the way in the back. Not only the driver cannot collect the fare in advance, but he has to rely on other passengers to pass on the money to him. Many times he has to pass back change. The fare also depends on the destination which is shouted as the money changes hands, which adds an additional variable to keep track of. All this while driving, so obviously the driver cannot possibly follow up on all this!

But the system works. Passengers can see who has paid and who has not and they have an interest to keep its integrity in check not because of a fear of a fine (light regulation with minimal monitoring) but the realization that if it breaks, it means everyone has to take the more expensive and less convenient bus. Of course the system can also be ‘gamed’: if ‘majority’ of the passengers agree to cheat but the level/cost of cooperation is too high.

As societies become more complex it is basically suboptimal to rely on a centralized authority. An additional complication is if those societies do not have a strong institutional infrastructure, like in most of EM, or the traditional sources of authority start to be mistrusted, like in a lot of the developed world.  Decentralized trust then becomes a necessity and a prerequisite for maintaining the proper functioning of society. It seems to me that EM has the first mover advantage here and is likely to leapfrog the developed world.

Fiscal policy is next but it’s also unlikely to work

Simon Wren-Lewis wrote an interesting article yesterday The Interest Rate Lower Bound Trap and the ideas that keep us there

Unfortunately, the ideas that keep us plugging pointlessly at monetary policy are not that dissimilar to the ideas which will push us into trying fiscal policy: both of them are based on using the old industrial model of labor and capital income distribution which is much less suitable in the digital age where technology takes center stage.

What particularly caught my attention was the 3rd paragraph and this very relevant question: “If these countries really did have a zero output gap, then why is inflation below target?” Which gets to the core of the issue about how technology has possibly substantially increased potential output.

Yet, our models do not fully capture that. Perhaps that is because we continue to put too much weight on capital and labor in the production function when clearly technology has marginalized them both, the evidence being in zero rates and flat wages.

Let’s take capital.

1) there is a large corporate capital surplus;

2) digital technology does not require so much capital;

3) consumer debt is maxed out.

All three of the above lead to low demand for credit meaning low interest rates regardless/independent of monetary policy.

So, after years of zero/negative/low rates (decades in Japan) it is finally obvious that the monetary transmission mechanism is now clogged (see above). Naturally, despite all the opposition, we are probably just a recession away to switching to fiscal policy.

But as labor’s turn comes, there is no guarantee and zero evidence (see, again, Japan) that fiscal policy would work as its transmission mechanism is probably also clogged. And the reason can be found in the fact that it is easier for corporates to switch from labor to technology in automating production.

A diversion.

That’s where the debate about technological unemployment comes in. And here I am in the camp believing that this time things are different because technology is more advanced and is taking away ‘IQ’ jobs in addition to just ‘brawn’. ‘EQ” jobs are humans’ last call of resistance but maybe not for too long.

Sure, no evidence of this for now but that’s because in the initial stages, with aggregate demand low, companies will choose to focus on cost reduction by using cheaper labor (taking advantage of the threat of automation keeping a lid on wages), than higher output/higher productivity using technology.

We’ve had jobless recoveries before but post GFC’08, we’ve had a ‘wageless’ recovery – plenty of jobs but anaemic wages. Neither is particularly good for aggregate demand as individual purchasing power barely increases.

The situation is even worse now as consumer debt to disposable income keeps rising (people now need two jobs to survive).

In the short run, we could potentially see a rise in wages as the labor pool gets gradually depleted, but the switch to automation would also be faster which would push unemployment up/wages back down. In the long run, technology substitution becomes inevitable as both its cost continues to decline and its capabilities to rise.

And, by the way, we are not helping, as apparently we are also getting dumber (see “Were the Victorians cleverer than us?” by M. Woodley et all).

Diversion ends.

So, the most obvious fiscal policy stimulus is infrastructure spending. That’s much easier to get voted in given the state of our roads and bridges, etc., and the fact that there are probably already too many people shuffling papers on desk jobs working for the government.

Infrastructure spending could be the most economically beneficial option but could also contribute the least to aggregate demand if it bypasses labor due to automation: awarding a billion $ contract to a company to renovate a bridge using mostly automated machinery is hardly going to increase labor’s purchasing power.

My feeling is fiscal policy will indeed soon become the default option. Sadly, not necessarily because it would work better overall for increasing aggregate demand but simply because it has become plain obvious that monetary policy is powerless.

Instead, we need to think ‘beyond the Overton Window’. The income transmission mechanism which we have adopted since the first industrial revolution, Work->Job->Income is broken. Monetary and fiscal policy thus become redundant. We need a new model more suitable for the digital age.

Silk Road Footnote

Travelling across countries, where everything you know is different, from the language to the food, WC habits, social customs, etc., while knowing it is going to be never-ending, is overwhelming. Being always transient in each place is disorienting. Having to figure out every new encounter in terms of friends or foe, exhausting.

This trip proves to be very tiring on our emotional intelligence. I realized that in most of our daily life before, we rarely used emotional intelligence because everything is more or less a routine. Now, we have to constantly assess the situation: are people genuine, do they mean good, are we doing something inappropriate?

Saying that, I am not yet regretting our choice. Each day feels remarkable in a way that our previous daily routine, which was far from being stress-free anyhow, never was. We are also learning to adjust our expectations quicker, which, I think is improving our capacity to just relax and be… we have had especially a lot of waiting to do at borders, which was a full on training!

Most of my vivid impressions, in fact, on this trip are from crossing land (and now sea) borders because 1) they take a really long time; 2) they set your expectations for the rest of the country; 3) they are at the intersection of sometimes vastly different cultures, religions, customs; 4) they could open up new opportunities; 5) waiting at the borders gives me the time to reflect.

For me, this trip is massively going out of my comfort zone and facing my fears on all possible levels with an ultimate goal. To quote Walter Mitty: “To see the world, things dangerous to come to, to see behind walls, draw closer, to find each other, and to feel. That is the purpose of life.”