Recently I boarded a 787 Dreamliner to fly home for Christmas.
Actually, I flew north first, to Warsaw, on a regular city-hopping jet. I couldn’t resist a nice lunch in my favorite restaurant, which is located just across the Royal Palace, on the greatest boulevard in the city (it is called Krakowskie Przedmiescie, and you have to be Polish to say it properly). I met there with a pilot I know, he was getting ready to fly to Los Angeles that afternoon. He calls LAX the best airport in the world for landing and taking off, and I am sure he likes hanging out in the warm climate too. “The ‘Dreams’ are great, you know”, he said, “they go to a higher altitude than the rest of them, less traffic.” “So?” “You get a better route, it’s like having your own highway.” “Can you walk my dog before you go to the airport?” he asked before getting into a taxi. “Like, to where?” “Don’t worry, the dog knows what to do.” So I was sitting on a bench in the Park Szczesliwicki (good one, no?) checking news and the dog was chasing birds from the bushes. What caught my eye was that the central bank of Sweden, the Riksbank, has thrown in the towel on negative interest rates, and has become the first central bank in history to do so. One of the motives for raising it, is household indebtedness which is among the highest in the world – exceeding 190% of disposable income — in part due to the low and negative interest rate environment that caused Swedes to borrow with reckless abandon. This comes at a time when the European Central Bank is undertaking a “policy review,” as it is facing a wall of resistance against negative interest rates from the finance ministers of Eurozone member states because of the damage they do to the banking system and pension funds. The ECB’s policy review will likely produce a NIRP-exit strategy, and the re-pricing in the bond market will be significant (interest rates move opposite to bond prices). The ECB will have to find a creative way to wag the dog and divert market’s attention to something new and shiny. In a piece of news that hints at a reason of the liquidity shortage, Wall Street Journal wrote that billions of dollars in cash are vanishing from circulation. “Banks are issuing more notes than ever and yet they seem to be disappearing off the face of the earth. Central banks don’t know where they have gone, or why. The puzzle is especially perplexing since societies and companies are going cashless, given the boom in payments by cards and cellphone apps. A Federal Reserve report from 2016 says that 75% of all $100 notes ever printed have left the US. At the same time, gold hoarding has declined in many regions because dealers have to report who the buyers are, which defeats the purpose of hoarding to begin with. And the US of A doesn’t even want the dollar to be the reserve currency of the world - they want to manage the economy based on domestic considerations. They also want a weaker dollar, but managing it down is a tricky proposition, since it negatively impacts foreign investments in the US, which is not very well understood. The international trade numbers are not reliable, because they’re not filtered through currency movements. If a currency moves 20% over two years, they’re yelling at each other – “you have a surplus! we have a deficit!”. Meanwhile it’s all in the currency fluctuations. Enough of that and time to give the sparrows a break. I got the dog back on the leash, walked him home and took the long flight west on the ‘Dream’, flying high.
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AuthorTom Kubiak is the author of The Traveler Archives
February 2021
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