Finally getting around to publishing some monetary policy articles
In 2018 and 2019 I travelled a lot for work. Because I was working doing consulting and training work in tech I had to travel around a lot. It feels almost surreal to say it but many clients back then were exceedingly against any sort of remote work and paying for someone to fly long distances was the norm.
I remember talking to a client in 2019 to arrange something for early 2020 about the possibility of doing a remote session, travelling across the country by plane was a rather large hassle for something relatively minor. They were not happy at the suggestion, I remember them commenting about how "we are a respectable company, we don't do any of this teleconferencing crap if things are important". Fast forward to 2021 and that same company is attempting to sell off almost all of its commercial real estate and has hastily moved all its staff to remote-only work. Unsurprisingly this isn't going so well for them, effectively managing remote work is entirely different to an in-office-only culture. With all the other people also going to remote work there's an enormous glut of commercial real estate office space that nobody wants to buy at inflated prices. Amazing how much can change in a couple of years.
Around that time in 2019 when I was lining up that job we were starting to see the crisis in the repo market develop. A colleague of mine said he was worried a recession was coming and that it would impact our work. He was on to something, something noticeable did change in 2019, another friend of mine who is very switched but who worked in another industry was saying in late 2019 he thought the ASX was massively overpriced and that it would be a good opportunity to short a whole bunch of things. I had this feeling that something had changed but I didn't really understand exactly what. I remember at the time saying something along the lines of "well we are doing high end consulting work in tech and engineering, we will probably be OK through a downturn even if the economy gets hit".
Both those friends of mine did end up doing just fine during 2020 but other people I knew who weren't in such highly demanded industries did it tough, very tough. In the end it was the Covid travel restrictions that ended up completely killing the work I was doing at the time. While a pandemic was a growing risk it wasn't one I was thinking about at all for the most part, occasionally in the past I'd consider pandemics when there were stories about various health issues. The first one I remember as being a distinct possibility of being a pandemic that might impact me directly was SARS in 2003, then later with MERS in 2012, Ebola and Zika in 2015 when they came up. A friend of mine bought this huge amount of cans of a Sarsaparilla drink that prominently had "SARS" written on the cans at a steep discount, we found this quite funny at the time, but SARS was mostly contained. It seems there's very little humor these days though which really scares me a lot more than anything to do with finance if truth be told. Ebola and Zika felt more distant for some reason. Thankfully none of those turned into major pandemics though, I'm sure all of those would have been an enormous mess if they did turn into pandemics. For many people, including myself, the notion of a pandemic was completely off the radar though in 2019.
It is important to explicitly note that all this uncertainty about the state of the economy was coming up before Covid was a thing. While many people I met were in a state of euphoria with their investing and saw no potential downside risks, many people I knew with more knowledge of the markets were starting to think things were getting towards a top. Systematic problems existed that were not resolved in the repo markets though I didn't really understand why that mattered. The yield curve inverted sometime in there as well, another thing I wasn't in a position to understand fully because a full understanding requires understanding modern money. News of Covid triggered an enormous market collapse fairly quickly once that news started spreading broadly. I remember thinking that it would be a good idea to short some stuff but I didn't know what the best instruments to do so would be. Eventually I had a few CFD positions against a few indexes that did very well at first, but then something interesting happened, the economic situation in the real economy started to worsen but yet the markets didn't drop. I lost back some of the gains on those positions and I decided to getting out of the markets entirely. I knew there was something I wasn't understanding and I wasn't willing to risk any of my money until I got a better understanding. I had no idea just how deep of a rabbit hole this would turn into.
2020 was a shit year really. And really I don't think there's any other way of putting it. Sure some people made the best of it and picked up things, but other people didn't and many sadly didn't make it. I think 2021 continues to be a shit year for a lot of people and this is something I think deserves an article of its own, there is no "V shaped recovery" for most people and record equity markets numbers just isn't comfort to all the people that have lost their jobs and are struggling. I feel for the people who have lost their jobs who are now having to hear about "how good the economy is" when really the economy isn't going great.
I had work at the beginning of 2020 but not for a good chunk of the middle of the year. I remember when lockdown #1 lifted that there was this sense of positivity that quickly came back, you'd notice it in the streets. I had some job interviews lined up and a few contracts that were set to go in the immediate future. This was unfortunately short lived since we had an especially harsh lockdown to deal with a second wave of Covid. All the leads got put on the back burner and companies just stopped hiring. Cases got back to zero eventually but the sentiment in the economy, and more broadly, had well and truly cratered by this point. The end of 2020 we had a reopening in Melbourne but sentiment never really returned, people were exhausted and just didn't have confidence that the situation would be better in the future. Much of the rest of the country, having not been through a long and brutal second lockdown like Melbourne, had a very different picture of the state of things at the start of 2021. I think there was some noticeable cultural divergence that started emerging between the states in Australia as a result of this in late 2020 early 2021. While Sydney has now been hit by a crappy Covid wave there's still states in Australia that are Covid free.
During this second lockdown I was out of work for the first time since getting back to Australia. It was exceedingly hard to line up new work during this time because there wasn't any easy ability to meet up with people and businesses were extremely reluctant to hire anyone. The huge number of transfer payments made many economic indicators look far more healthy than they actually were. There were frequent headlines about labor shortages, but things in this space are not at all what they seem on the surface, something I have an upcoming article about. Sure there were some disruptions to foreign travel that impacted areas like fruit picking by cutting off the supply of exploitable backpackers to work on precarious visas but there was a lot more going on than just this.
Given that my skills are typically in especially high demand it was interesting to have a few months to just do some research and look into things without any deadlines or outside influences. It was a pity that the backdrop for this was so dark but I decided to try to make the most of it anyway. Many of these questions about the state of the economy that I had first started to consider in 2019 I revisited and looked at in more depth. I started writing and in the process was doing a lot of research. This research at first created far more new questions than it answered. In particular I started to find that many things didn't work the way I initially thought. I also noticed that the main narratives about the market tended to be very simplistic and often just outright wrong. I started reading a lot of books, articles and blog posts.
I kept writing and researching but many of these articles didn't get published at the time. I felt as though the more I learned the more I felt I needed to learn. Critical things in early drafts turned out to be entirely wrong, assumptions and misconceptions slowly being uncovered as time went on. The article about if quantitative easing is inflationary took me many months of research to write, something that seemed like it would be a simple situation turned out to be very complex. It turns out that a group of concepts require understanding what money money actually is. These concepts are very hard to understand properly without digging deep into investigating what constitutes money itself in these modern systems and how it is used in practice. I felt like I started to finally arrive at a mental model that was good enough to actually start to understand some of the isolated aspects of the markets, a bigger picture understanding however took a lot longer to form. While I know the trend right now is to just blog any old crap I thought that adding to the poor quality information in these areas would help nobody. Generally speaking if I think something is crap I don't publish it, because things are read more than they are written knowingly publishing crap is just an act of selfish contempt towards the readers. Much of what motivated me was to try to figure out what was really going on and I've tried as much as possible to remain true to that goal in my writing.
This post is part 1 of the "MonetaryPolicy" series: