Horrible
Senior Fellow at @brookings.edu. Previously Chief Economist at IIF and Chief FX Strategist at Goldman Sachs.
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Horrible
Just another unbelievably romantic moment in Frankfurt, the world's capital of romance.
Essentially the political calculus behind bsky.app/profile/robi...
Switzerland is the ultimate safe haven. As France's debt crisis escalates, capital flees the Euro zone, with people willing to accept very low yields to protect their savings. As a result, the "convenience yield" on Swiss government debt (lower right) is today the most negative it's ever been...
Well, maybe not directly with China, most of it goes through intermediaries (at least the invoices), and the EU still contributes a large part of the financing. bsky.app/profile/robi...
France's 30-year government bond yield is now the highest since 2008 (green). We're in a new world. COVID landed us with a global debt overhang. There's no room for big deficits now, because markets' appetite for more debt is low. The right response is to reform and cut spending. Not to cap yields.
Ironically, the ECB is much more activist on spreads now than it ever was under Draghi. Draghi's QE was bound by the capital key, which prevented skewing bond buying towards high debt countries. The capital key was dropped in 2020 under Lagarde and then the TPI was introduced in 2022...
When ECB President says she's closely monitoring France's borrowing costs, that's verbal intervention that artificially keeps yields low. That hurts Prime Minister Bayrou, who's trying to build consensus for reforms & needs a sense of crisis to do so. ECB micromanaging of yields is deeply unhelpful.
Spreads have been abnormally tight over the past year, because markets have been betting that Germany wouldn't dare confront the high debt countries given geopolitics. That was the perfect opportunity for active selling of all the periphery debt on the ECB balance sheet. But it never happens...
The EU is financing its own invasion. The hypocrisy continues, pretending to distance itself from Russia but continuing trade at almost the same level as before the full-scale invasion of Ukraine. It's madness. bsky.app/profile/robi...
That unfortunately is the right question. And you can’t even really blame Italy. In the end, it’s all about incentives. If you cap yields and switch off the warning sign from markets, politicians naturally will assume everything is fine. So it all comes back to the ECB and yield caps.
An important question - as a econ geog - is 'what did Italy do with that?'. The answer is simple: wasted every single opportunity. The last big thing was spending 20% of GDP eq. (all borrowed) in 3.5 years for subsidizing construction bonuses. Another 0.5% for 'Bonuseconomics'.
I think there's very modest reduction due to run-off as securities mature.
The Euro zone debt crisis from over a decade ago never really ended. What happened is that ECB actions brought periphery yields down, even as debt levels continued to rise. That brings us to now. The potential for contagion from France is high because debt was never brought down. Kicking the can...
The ECB as part of its various QE programs has bought huge amounts of sovereign debt, which now sits on its balance sheet. To sell this debt is unthinkable, because that would cause debt crises in highly indebted countries. So this stuff gets warehoused... robinjbrooks.substack.com/p/the-age-of...
You're right. Spreads are very low, but a common mistake people make is to see these spreads as an indication of better fundamentals. That's wrong, because the ECB has bought so much sovereign debt from the Southern part of the Euro zone, so spreads are artificially compressed.
Western Europe doesn’t want Ukraine to win, continued:
We needed secondary sanctions three years ago 👇
hoeveel komt van oorsprong uit het westen ? wat gaat er naar china wat voor die tijd niet naar china ging ?
No doubt there’s a bit of that, but monthly exports from China to Kyrgyzstan of $2.5 bn aren’t about price effects. Kyrgyz GDP is only $20 bn. These kind of numbers and the kind of increases we see in the value data across all of Central Asia and elsewhere can only come from volumes.
More than a decade after the ECB began QE sovereign bond buying, all these bonds are still on its balance sheet. This isn't about monetary policy transmission. It's permanent warehousing of gov't debt and thus monetary financing. The ECB's role in sovereign bond markets must end. Enough of this...
China's exports to Kyrgyzstan, Kazakhstan, Belarus and Uzbekistan are off the charts. The bulk of this stuff is transshipments to Russia. The EU should stop any and all development aid to these transshipment hubs as part of the 19th sanctions package...
China's exports to Kyrgyzstan (black) are running at $2.5 bn every month according to IMF data. Kyrgyzstan's GDP is only $20 bn, so to think this stuff is going anywhere near Kyrgyzstan (blue) is fantastical thinking. This stuff obviously goes to Russia. China is by far Putin's biggest enabler...
Every major advanced economy has seen its export to Russia fall, even with all the transshipments via Central Asia and Turkey. But not Italy. Italy's trade with Russia (top left chart) looks like it's increased lots since the invasion. This just has to stop. What are you doing?
Left chart shows direct EU exports to Russia (red) and indirect exports to Russia via Central Asia (blue). Right chart shows the same for the US. You have to wonder what the EU's endgame is. Export numbers are down a bit, but the EU still trades massively with the enemy. Are we really this greedy?
Lessons from 3 years of Russia sanctions: (i) financial sanctions don't work on current account surplus countries; (ii) you need to hit exports, which the G7 cap does; (iii) enforcement of the G7 cap was terrible, which is mainly about poor EU governance... robinjbrooks.substack.com/p/lessons-fr...
Yes, will post tomorrow!
Shame on Germany or Italy! @robin-j-brooks.bsky.social Do you have numbers as well for Switzerland?
Thank you for sharing this. That’s downright shameful for Germany and its industry.
Germany and Italy say they export lots of goods to Kyrgyzstan (black), but Kyrgyz import data (blue) show little arriving from either. Kyrgyzstan is just what it says on the invoice. This stuff obviously goes to Russia. Poland & Lithuania stopped this racket. Why won't Germany and Italy do the same?
A few years ago, I said that Brazil was transforming itself into an agricultural and commodity super power. That's still true. Brazil's trade surpluses in agriculture (orange) and oil (red) are as massive as ever. It's just the import pick-up (blue) that's reduced the overall surplus (black)...
Almost 4 years after Russia's invasion of Ukraine, Germany and France continue to stagnate. If you say lots of stuff about how bad Putin is, but are too scared to do anything to actually hurt Russia - not delivering Taurus & not enforcing sanctions - you get what you deserve. You reap what you sow.
When I was a kid, "Geier Sturzflug" had a huge hit called "Bruttosozialprodukt," which was about Germans uniting to boost GDP. Germany needs a hit like that now. Net exports (purple) have been a drag on growth ever since COVID. Fiscal stimulus won't fix that. Only a much weaker Euro can do that...
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Markets are pulling back on Dollar short positions. That's happening for commodity currencies like the Australian Dollar (orange) and Canadian Dollar (pink), while Dollar shorts remain huge against the Euro (blue) and Yen (red). The Dollar short thesis is starting to crumble...
Where is the tariff inflation shock? Inflation this year (purple) is tracking higher than it has at this point in the year in 2023 and 2024, so inflation has certainly picked up. But there just isn't a major inflation shock from tariffs, even with a Dollar that's fallen a lot. Totally bizarre...
It's like seeing a German bundeskanzler supporting more sanctions while all the while doing absolutely nothing to stop German companies purposefully circumventing current sanctions. God, we are so bloody weak. bsky.app/profile/robi...
There's no sign of US recession. The Citi data surprise index for the US is in positive territory (black) and mine is neutral (blue). It's certainly the case that data aren't super strong, but they also don't remotely look recessionary. That's really surprising given how much tariffs are up...
Things that are weird in 2025: (i) the Dollar is down even though tariffs should have pushed it up; (ii) there's no risk premium in Treasury yields, despite huge deficits; (iii) there's no tariff inflation shock; (iv) there's no supply chain disruptions... robinjbrooks.substack.com/p/things-tha...
Here's this morning's live stream on Stablecoins with @davidbeckworth.bsky.social who runs the Macro Musings podcast at the Mercatus Center at GMU. We debate if Stablecoins can boost demand for Dollars and thus could boost Dollar hegemony still further... robinjbrooks.substack.com/p/live-strea...
Given the magnitude of what that speech implied, it likely had some backing from Germany's Merkel (we don't know for sure). That speech overruled the Wolfgang Schäuble camp in Germany, which insisted on structural reforms in Italy and Spain in return for financial help. Merkel gave up basically...
We've basically had a game of chicken between low-debt countries in the North of the Euro zone and high-debt countries in the South. That stand-off ended with Draghi saying in 2012 that the ECB would do "whatever it takes" to defend the Euro. That speech tied the Euro to debt. That was the mistake.
The biggest mistake the Euro zone made is to allow the high-debt South to tie survival of the Euro to "solidarity" for its debt overhangs. That's incentivized reckless fiscal policy and will only end when the Euro zone allows defaults in places that refuse to pursue responsible fiscal policies...
Where are the bond market vigilantes? I get asked this all the time on the US given all the pressure on the Fed. Here's the thing. The vigilantes are out there, it's just that there's so many trouble spots (France, UK, Japan, Italy) that the US still looks good on a relative basis...
The US Census Bureau publishes monthly data on estimated duties paid on imports. Those data put the effective tariff on China at 45% in June 2025 (red) versus 15% on the rest of the world (blue). The overall average tariff rate (black) is around 20%. Huge... robinjbrooks.substack.com/p/what-are-e...
from what i know not too well. the sanctions on russia dont work when all the countrys still trade with russia via third parties bsky.app/profile/robi...
Today I met Lithuania's amazing new Ambassador to the US - Gediminas Varvuolis - to discuss the sanctions work @econharris.bsky.social and I are doing at @brookings.edu. Lithuania is such a terrific force for good in the EU. I'm a huge admirer. Thanks for all your tireless work and welcome to DC...
Lol. Have a look at this. Massive circumvention of sanctions without any consequences. The EU remains a joke. bsky.app/profile/robi...
The ECB at various points has intervened in bond markets to cap yields, most recently in 2022. That's produced an equilibrium - no surprise - where high debt countries run wide fiscal deficits because they can. France is a symptom. The ECB is the disease... robinjbrooks.substack.com/p/france-is-...
bsky.app/profile/robi...
US sanctions on Russian oil tankers are so much more effective than EU ones because the threat of secondary sanctions scares people away from accepting delivery by sanctioned ships. The fact that the EU is now considering them is another important step in the right direction. Better late than never.
China's direct exports to Russia (red) have plateaued, but transshipments to Russia via Central Asia and the Caucasus (blue) are way up. China is just rerouting more stuff via third countries for plausible deniability. It remains the single biggest enabler of Russia's invasion of Ukraine...
There's first signs of contagion from France to Italy and flight to safety into German Bunds. Italy is the Euro zone Achilles heel. Without it, ECB could let French yields rise, helping France get its budget under control. But that's not possible with Italy always teetering on the brink of crisis...
How can the French gov't push through unpopular fiscal consolidation? It needs higher yields & a sense of crisis to do that, but that's hard given the ECB track record of capping yields when they rise. The Euro zone needs to rethink the ECB role in bond markets. Yield caps enable bad fiscal policy.
Between what's happening with the Fed and the crisis over fiscal consolidation in France, we're seeing the perfect storm that's driving long-term yields higher. The rise in long-term yields is all the more notable because central banks have been cutting rates, which should pull long yields down...
Thanks very much.
@robin-j-brooks.bsky.social loved the big picture! podcasts.apple.com/us/podcast/m...
In 2018, the Fed and Chair Powell came under heavy criticism by Trump during his first term. What followed was the "mid-cycle adjustment," a 75 bps easing cycle. The Fed has pivoted dovish before under pressure from Trump and that's where markets look now for the Fed to fold again. Fiscal dominance.
The Dollar is back up to where it was before Powell's Jackson Hole speech, ignoring Lisa Cook headlines. That doesn't mean markets aren't pricing Trump dominance of the Fed. They are. They're pricing more and more rate cuts, just like they did in 2018/9... robinjbrooks.substack.com/p/trump-domi...
Following my EU "Wall of Shame" post this weekend, I got a lot of requests to add countries. This "Wall of Shame" adds the Baltics, Sweden, Finland and France. Countries in orange have cracked down on transshipments to Russia via Kyrgyzstan. Countries in blue keep looking the other way for 3 years.
This week is a great lens on how bonkers the Euro zone has become. France tries to get its debt under control. That's messy and so it gets treated as a fiscal basket case. Italy has much higher debt and long ago gave up trying to bring that down. Yet Italy gets celebrated as a model student. Nuts...
We're seeing a perfect storm in global bond markets: (i) high debt levels mean countries must abandon the status quo and pursue fiscal consolidation, which is difficult (France); (ii) elsewhere, politicians lean on central banks to bring yields down (Italy, US). The result: long-term yields rise...
Powell gives a dovish speech on Friday and the Dollar craters. Lisa Cook headlines hit last night and USD barely moves. Markets just don't focus on politics and central banks unless things get really bad like they did in Turkey in 2021. We're heading in that direction, but we're not close yet...
When gov't debt rises to high levels, politicians lean on their central banks to cut rates. It's that way with Italy and the ECB in the Euro zone, and it's that way with Trump and the Fed in the US. Nothing good comes from this. Certainly not lower yields... robinjbrooks.substack.com/p/president-...
Is this supposed to be surprising?
sanction circumvention ((
:'(
Can the ECB just let French yields rise? Of course not, because an Italy blow-up is always just around the corner for the Euro zone. Sharply higher French yields would cause immediate contagion to Italy. The ECB has proven again and again that it protects Italy. All roads lead to Rome as they say.
After the invasion of Ukraine, EU exports of cars to Russia fell around €1 bn. Around the same time, EU exports of cars to Turkey rose by more than that and EU exports to the UAE and Kazakhstan also surged. So EU exports of cars to Russia likely never really fell. Doing business with the enemy...
The Dollar has been on a rising trend since July 2. Periodic setbacks like payrolls revisions on Aug 1, CPI on Aug 12 and Powell's Jackson Hole speech on Aug 22 hit USD, but after each of these it starts rising again. This is important. Markets just aren't that negative on the Dollar anymore...
Germany and Italy are at the heart of the transshipment racket of Western goods to Russia. Direct exports to Russia (red) and transshipments (blue) are tiny versus total exports. There's an asymmetry. Russia needs to buy this stuff much more than Germany or Italy need to sell it. So just stop this.
Powell's Jackson Hole speech was unequivocally dovish, because he dismissed fears that tariff price hikes might turn into broader inflation. Last week's flash PMIs for August validate that view. Upward pressure on output prices (blue) continues to fade... robinjbrooks.substack.com/p/us-tariff-...
When it's so shockingly easy to get around economic sanctions, are they even sanctions?
It's beyond shameful that so many EU countries have still not stopped these exports to Russia after more than 3 years of war.
I think there’s a degree of corruption at worst and complacency at best all across the EU. Only exceptions are Scandinavia, the Baltics and Poland.
Italy's gov't bond yield has disconnected from fundamentals. It's fallen even as yields for places with lower debt (like the UK or France) are up. Time for the ECB to activate TPI and use it to sell Italian debt. That'll realign Italian yields with fundamentals. Oh, that's not what TPI was made for?
It's actually not possible to drive a truck from Germany to Kyrgyzstan without passing through Russia. So no surprise that much of what Germany says gets exported to Kyrgyzstan (black) never actually gets there (blue). Kyrgyzstan is just what gets written on the invoice. Stuff never goes there...
There's nothing inevitable about all the transshipments from EU countries to Russia via places like Kyrgyzstan. The US (orange) and UK (green) shut this stuff down, so the fact that transshipments continue for Germany (black) and Italy (purple) is because governments implicitly support them...
Great piece by @wallacetim.bsky.social in @telegraphnews.bsky.social on Russia's war economy, parts of which are booming. The EU can end that at a moment's notice by shutting down Putin's shadow fleet in the Baltic. That'll cause deep financial crisis in Russia. www.telegraph.co.uk/business/202...
Brilliant @bloomberg.com piece by @johnauthers.bsky.social on "who lost Europe." The EU has kicked the can for far too long on everything from massive debt overhangs in Italy and Spain to Russia sanctions. Deep reforms and debt write-downs are needed to fix the EU. www.bloomberg.com/opinion/arti...
The world is struggling with a post-COVID debt hangover. The world's leading central banks have all been cutting policy rates, but this global easing cycle isn't pulling down long-term bond yields (red). Fiscal space is finite and we're running out of it... robinjbrooks.substack.com/p/the-global...
Jag var i Georgien häromåret och såg den oändliga kön med tusentals lastbilar på väg mot ryska gränsen. Man var onekligen nyfiken på vad som fanns i dem... Många europeiska länders export till grannländer till Ryssland har boomat efter invasionen 2022.
This is the million $ question. There's so many EU think tankers on here - all of them touting how the EU is rising - but you never hear a peep from them on this. It makes you wonder. There's a de facto cone of silence around this stuff and also the role the EU played in growth of the shadow fleet.
The EU "Wall of Shame"
The longer the EU tries to hush up things like this, the less credible it becomes as a geopolitical force on the global stage. The current set of EU leaders are doing huge damage to the standing of the EU by turning a blind eye to the free-for-all of greed that's happening right under their noses...
Market pricing for Fed cuts through end-2026 went from 124 bps before yesterday's Powell speech to 136 bps after (black). That takes us back to early April when the chaos of reciprocal tariffs caused markets to price similarly big cuts. Hard to see how market pricing can get more dovish than this...
An interesting regularity is emerging for the Dollar. Payrolls revisions (Aug 1), CPI (Aug 12) and Powell's Jackson Hole speech drag the Dollar down, but each low after one of these hits is higher than the one before and the Dollar then resumes its rise. It's starting to look like USD has bottomed.
Central banks are in a global easing cycle. What's unusual is that long-term gov't bond yields are rising at the same time. 30-year yield (red) is rising everywhere, even for a huge safe haven like Switzerland. After the debt splurge of COVID, we have a global debt overhang...
Live stream on whether Stablecoins will help or hurt Dollar hegemony, with @davidbeckworth.bsky.social, Senior Research Fellow at Mercatus at @georgemasonu.bsky.social, on Friday (August 29) at 9 am (ET). Picture is from David's great substack note on Stablecoins... open.substack.com/live-stream/...
Yesterday's Powell speech was unequivocally dovish. It played down inflation risks, while emphasizing labor market uncertainty. Cuts priced through 2026 went from 124 to 136 bps and USD fell. But USD will now resume its climb, like after payrolls and CPI. robinjbrooks.substack.com/p/jackson-ho...
You're clearly a man of style and substance! Hopefully you have better hair...
Exiting the Holland Tunnel into NY to drop my beautiful and amazing @annikacbrooks.bsky.social off at @nyusternmkt.bsky.social for her sophomore year. I’m so incredibly proud. But also a bit heartbroken…
Pre-Powell, markets priced 125 bps in cuts through 2026, with 50 bps priced for 2025 and 75 bps for 2026. Post-Powell, there's still 125 bps priced, but markets brought forward cuts into 2025 (57) vs 2026 (68). For the Dollar to fall, overall cuts must rise. That didn't happen...
The EU "Wall of Shame:" more than 3 years after the invasion of Ukraine, Western goods continue to flow through Kyrgyzstan (and many other places) on their way to Russia. This is all well known in Brussels, yet nothing happens. No more photo ops. No more sanctions packages. Just end this...
If you're wondering if Powell's speech is dovish, you're missing the forest for the trees. In 2019, after withering criticism from Trump, the Fed did its "mid-cycle adjustment," an easing cycle of 75 bps. This is all a repeat. The Fed will cut in September... www.federalreserve.gov/newsevents/s...
South Korea's exports to Kyrgyzstan in July 2025 are up 3100% from before Russia invaded Ukraine. This stuff is just so endlessly pathetic. Is there no end to Western greed that we feed the enemy while claiming to stand united with Ukraine against the invader? Come on...
Could someone please ring up the ECB and ask it to activate TPI? Irrational markets have driven Italian and Greek yields well below what fundamentals justify and this is now mucking up transmission of monetary policy, as both countries get ever more delusional about the need for debt reduction...
Trump wants low interest rates and for that reason keeps telling the Fed to cut. But long-term Treasury yields are up this year, even as markets price more and more rate cuts. Badgering the Fed to cut doesn't give you low rates. It may do the opposite... robinjbrooks.substack.com/p/fed-rate-c...
More important than ever for the US to join EU & UK sanctions on Russia's shadow fleet. US sanctions shut down Russian oil tankers (red), which is something EU (orange) & UK (pink) sanctions just can't match. Latest @brookings.edu blog with @econharris.bsky.social. www.brookings.edu/articles/an-...
I know. I was there. I watched fund managers rush out of the hall in the Ronald Reagan center here in DC to get back to their hotel rooms, not to mention all the journalists who got frantic right around the "you have 3 days" remark. This was the turning point. The BoE could have buckled. It didn't.