Economics usually suffers from a painful deficiency: not like biologists, physicists, psychologists, and different scientists, economists are usually unable to conduct experiments. For instance, Christine Lagarde isn’t going to boost or decrease the ECB’s key rate of interest simply in order that we are able to higher calibrate our econometric fashions. This makes economics troublesome, but additionally thrilling. Generally, nonetheless, probability offers us with conditions which can be fairly near an experiment. One which we may hardly have imagined higher for testing our theories, Commerzbank’s Head of FX and Commodity Analysis Ulrich Leuchtmann notes.
Belief in US Greenback and Treasuries is in danger
“If the US president had been proper in his earlier principle that international exporters bear the tax burden of US import tariffs, then when new tariffs are imposed, the costs of imports ought to fall by precisely the identical quantity because the tariff charge. On Friday, the Bureau of Labor Statistics revealed import costs for April, i.e., for a interval largely after ‘Liberation Day,’ the day on which the US president considerably raised import tariffs. And lo and behold: import costs didn’t fall. In truth, they rose very barely in April: by 0.1%.”
“Individuals nonetheless ask me what commerce coverage plan this US administration is pursuing. I’m firmly satisfied that it has no plan. There are just a few obscure preconceptions (‘tariffs are good’), drastic measures primarily based on them (“Liberation Day”), after which abrupt changes when disastrous penalties grow to be obvious right here and there—as rational observers may have foreseen.”
“There’s a rising danger that measures will finally be taken whose penalties are irreversible. US authorities bonds are a ‘secure haven’ as a result of everybody can belief that everybody else considers them a ‘secure haven.’ As soon as this belief is misplaced, it won’t return shortly. The identical applies to the greenback’s standing because the world’s reserve foreign money. And to confidence within the independence of the Fed. In all circumstances, there are tipping factors past which there isn’t any going again to the established order ante.”
