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The United States Is Fighting Inflation With History

Fed chief Jerome Powell wants the world to understand his present decisions are guided by past traumas. At the annual gathering of central bankers and economists in Jackson Hole, Wyoming, this year, all eyes were on U.S. Federal Reserve Chair Jerome Powell. Last year at the Jackson Hole conference, Powell had announced a new era in economic policy. This was premised on the assumption that we were in an era of low inflation. The Fed would, in the future, target average inflation, offsetting periods of low inflation below 2 percent per year with periods of more rapid price increase. Today, that world seems very remote. Inflation in the United States is running at more than 8 percent, the most rapid rate since the 1970s. Given this extraordinary turnaround, Powell needed to signal that the Fed was serious about stopping inflation. How to make the case? Jackson Hole is a meeting of central bankers and economists. But in making his stand, Powell invoked neither economic theory nor econometrics. Instead, he summoned history. He gave a speech

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The World Is Seeing How the Dollar Really Works

By raising interest rates, the Federal Reserve strengthened the U.S. currency—and revealed its centrality to global order. 2022 has been a year of dollar power—power that manifests itself in both overt and subtler forms. In the spring, the financial sanctions slapped on Russia’s Central Bank following Russian President Vladimir Putin’s invasion of Ukraine demonstrated the extent of U.S. financial sway, especially when it is exerted in cooperation with America’s European partners. If you export far more than you import and thus hold really large foreign exchange reserves—like Russia’s $500 billion—there really is nowhere else to hold them other than dollars or euros. If it comes to a confrontation, that puts you at the mercy of the financial authorities of the United States and its alliance partners. NATO reveals itself to be a financial power. Russia has, so far, ridden out the storm, but to do so it has had to close its financial system to the outside world. Its imports have been squeezed to barely more than half their pre-crisis level. When the sanctions were

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The 1970s Weren’t What You Think

Yes, fiscal and monetary policy seemed stuck for too long in expansionary mode. But the era also saw the rebalancing of the world economy. Some historical analogies are playful. Some require elaborate academic justification. Others are native to our world. The lessons learned from them are so ubiquitous as to be part of our intellectual furniture. They are built into our very institutions. The European Union, for instance, repeatedly invokes the need to avoid anything that resembles the violent European politics of the first half of the 20th century. NATO abides as an organization dedicated to, in the words of its first secretary-general, keeping “the Russians out, the Americans in, and the Germans down”—all three imperatives learned from the experience of the early 20th century. For economic policy, there are two such formative moments. One is the Great Depression of the 1930s, from which we learned the lesson not to allow aggregate demand, the money supply, or global trade to implode. Those lessons informed economic policy in response to the crises of 2008 and 2020.

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Ones & Tooze: Can Ukraine Win the War Yet Lose Their Economy?

In this episode hosts Cameron Abadi and Adam Tooze take a look at how Ukraine’s war against Russia is straining the country’s finances and the increasing pressure the US and EU will face to save the country from financial collapse. In the second segment, in the wake of the passing of Queen Elizabeth II, the two examine the UK’s financial relationship with its monarchy and

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Chartbook #150: Why “cheap Russian gas” was a strategic snare but not the secret to German export success. 

Right now German grand strategy is in the crosshairs of criticism. Germany is faulted for having appeased Putin. It is faulted for having neglected the Bundeswehr and on top of that, the Federal Republic is facing an energy crisis like none other in its history. Gas deliveries from Russia have been severely curtailed if not halted altogether, exposing the dependence of German energy consumers –

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The second coming of Nato

In November 2019, from the salon doré of the Élysée Palace, where Charles de Gaulle once held court, Emmanuel Macron warned his fellow Europeans that Nato, the transatlantic alliance that had secured Europe since 1949, was on the point of “brain death”. President Donald Trump’s administration, to the horror of America’s own soldiers, had just unilaterally withdrawn support from the Kurdish forces in northern Syria,

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It’s Africa’s Century—for Better or Worse

Asia gets the attention, but the real economic revolution is the inevitable growth of an overlooked continent. In the coming decades, we face a revolutionary shift in the balance of world affairs—and it is likely not the one you are thinking of. Since the 1990s, the idea that we might be entering an “Asian century” has preoccupied and disorientated the West. However, once we take

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After the Zeitenwende: Jürgen Habermas and Germany’s new identity crisis

Vladimir Putin’s invasion of Ukraine has upended world politics and nowhere more so than in Germany. Addressing an emergency session of the Bundestag on 27 February, German chancellor Olaf Scholz declared a Zeitenwende, a turning point in history. Russia’s attack on Ukraine meant Europe and Germany had entered a new age. But what direction is history turning in? Scholz promised to raise Germany’s defence spending

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Sign up below for Adam’s bi-weekly newsletter, which includes economic data, images, & stories that matter.

at the mic
on bookshelves

Look out for Adam’s next book, Carbon, out in 2023.

on air

Discussion with Wolfgang Schäuble

WEF 2020: Why Protests Are An Integral Part Of Democracy

GZERO World with Ian Bremmer – Is a 2nd Great Depression Coming?

on record
on the blog