The Capital Letter: Week of January 4

Posted By TheNewsCommenter: From “The Capital Letter: Week of January 4 | National Review”. Below is an excerpt from the article.

There was an apocryphal story that used to float around the markets that the morning after the Bolshevik coup, prices rose on the St. Petersburg exchange. Sadly, but fortunately for Mr. Market’s frequently battered reputation, it’s not true. (The exchange had been closed for quite a while.)

Quite what label to apply to Wednesday’s disgraceful “events” (an insurrection, an attempted putsch, a cosplay coup, a riot) will be discussed for a long time after the courts have passed sentence on a good number of the perpetrators. What the full political and thus, by extrapolation, economic consequences might be are also as yet (and probably for some while) unknowable, but, at a guess, they will be to push the political pendulum quite a bit to the left, something that, at some time, the markets will have to consider.

The market’s focus had returned to the reality that the Republicans’ double defeat in Georgia was going to mean effective Democratic control of the Senate, and to investors that meant another round of stimulus.  Daniel Tenreiro discussed this in yesterday’s Capital Note, which is (like all issues of the Capital Note, well worth reading—to sign up, go here). Please take a look, in particular, at what Daniel has to say about the “imperial circle,” something for which a strong dollar has historically been crucial. At the moment the dollar is . . . not strong.

The “neutral” rate of interest — the price of money set by supply and demand — has been on a downward march for decades. While the neutral rate isn’t directly observable, economists peg it at less than 1 percent.

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