Transcription
Hello everyone. Today we are going to talk about a topic that I find absolutely crucial. Understanding why central banks can create a severe crisis with a completely wrong interest rate policy based on an analysis of the economy and monetary markets that has nothing to do with what actually causes inflation. We are going to talk about all of it. Central banks always make mistakes with monetary policy when they exclusively focus on headline inflation data. Moreover, what we have realized in recent years is that the chain of errors by central banks has been brutal. Let's not forget that in 2021, central banks maintained a gigantic monetary expansion with very low interest rates despite the economy recovering very strongly, leading to a completely out-of-control inflation level. First, they told you there was no risk of inflation, then they told you inflation was transitory, and finally, they told you it was sticky. And then, when citizens had already suffered accumulated inflation of over 25%, they decided to raise rates, further harming families and businesses. This is absolutely key. Why? Because when a central bank's actions are solely oriented towards raising rates and not reducing excess liquidity, which is what generates that inflation, then what happens? It harms families and businesses while simultaneously maintaining the state's bubble. Governments continue to spend uncontrollably, perpetuating inflation by printing money with that increase in public spending. Furthermore, if interest rates rise, governments are not concerned because they transfer it to consumers and taxpayers. So, what happens? Therefore, when central banks do what they have been doing since 2021, which is to prioritize liquidity, meaning incentivizing and perpetuating the sovereign bond bubble, and at the same time, when they supposedly become tough on controlling inflation by raising rates, the effect is doubly negative for families and businesses that suffer persistent inflation and also the rise in rates, which means higher debt costs, higher credit costs, but also, in many cases, access to credit, while states, governments around the world continue to spend uncontrollably. In fact, they present themselves as the solution to reduce inflation with spending programs, which is ridiculous. Why? Because when programs like Build Back Better or the Inflation Reduction Act are presented, inflation is not reduced; it is perpetuated because the government is actually increasing the amount of money in the system. All of this is very important for understanding where we are and where we are going. And this is especially relevant in the environment we are seeing, where this Bloomberg chart shows us the interest rates of the European Central Bank and the Federal Reserve, and inflation in the United States. What have we seen? A rebound in inflation that comes exclusively from transient and temporary factors, such as oil prices. That is, the energy component accounts for more than 70% of that inflation increase. It is very important to keep this in mind for a very relevant reason. Raising rates at this moment would mean that in addition to paying a higher price for gasoline, due to a war that is already correcting oil and gasoline prices, it would not only generate a negative effect for businesses and families but also an extremely negative effect that could lead to a crisis. If we look at oil prices, they are already falling, they are already falling, and furthermore, the futures curve shows how this disinflation is very significant. The European Central Bank has raised rates when oil prices and freight costs were already falling by 11%. Important. We have seen this sharp drop in oil prices reflected immediately in gasoline prices. But it is also interesting to see how the curve has reduced not only in the front part but also in the longer part, showing a very rapid disinflation in oil prices, so rapid that in less than a month, futures contracts can be made at levels below $70 per barrel, and the price of West Texas Intermediate has fallen to levels close to $76.5. Very important. And why is this so important? Because the Federal Reserve is still giving the impression that rates will be raised, which would have no justification because if we look at the data, which is ultimately what the Federal Reserve should do, inflation data shows that the US CPI, the CPI, shows that the main factor for its rise has been energy, and energy is already correcting. Of course, in the process of disinflation of energy prices, an essential and very relevant factor is the agreement between Iran and the United States. And we were talking earlier about inflation in the United States. This Bloomberg chart shows it very clearly. Here you see all the components, and the energy component. Clearly, the energy component is the most relevant and the one that has most affected the price increase. The moment you remove that energy component, which, I repeat, is already falling, therefore, it is not a matter of waiting for something in the future, it is already falling and has had a sharp drop in the last week. When you remove the energy component, it is perfectly clear that inflation in the United States has not risen, it has not risen in essential components. Therefore, raising rates makes no sense. I will repeat it so you can see it clearly. Adding energy, indeed, there is a rebound in inflation. Removing energy. There has been no increase in inflation since February. In fact, if you look at it, inflation has been completely under control for more than a year and a half. All of this is very important for citizens. The Federal Reserve cannot fall into the error that the European Central Bank has fallen into. A European Central Bank that has raised rates in an economy, that of the eurozone, which is already in stagnation, and what the Federal Reserve cannot do is push the United States into stagnation when, according to the latest estimates, it is growing at 3% annualized according to the Federal Reserve of Atlanta. Therefore, there is a very important danger that central banks, due to another monetary policy error, will generate a crisis again instead of carrying out a process where policy is moderated, but certainly not putting families and businesses in danger. This is an absolutely key element for all of you to understand. Raising rates while maintaining excess liquidity and facilitating states to borrow continuously and uncontrollably, spend as much as they want, and increase the deficit as much as they want, then it is not a restrictive policy nor one that aims at price control. The Federal Reserve kept interest rates unchanged for the fourth consecutive time, leaving the target range between 3.5% and 3.75% in a unanimous decision by the Federal Open Market Committee. This is very important because it dismantles two mistaken narratives at once. The first mistaken narrative was that the US economy was going to collapse rapidly and force the Fed to cut rates urgently. The second was that the fight against inflation was already completely won and that there was no cost in precipitating monetary easing. The Federal Reserve has said no to both ideas, and there is an error if it presents an idea that it will raise rates. As we were discussing earlier, when it keeps rates in clearly positive territory, the monetary authority is sending a message that the economy is solid enough to withstand a relatively tough monetary policy and that inflation is sufficiently contained to not have to raise rates. This is key for any serious analyst. It is relatively good news. Why do I say it is good news? Because a Federal Reserve that keeps rates steady is not announcing that everything is perfect; it is saying something more realistic. Growth is holding up, employment has not collapsed, and inflation has not spiraled out of control or reached unsustainable levels. So, the Central Bank will not repeat past mistakes. And here there is a crucial nuance for the message. Maintaining positive rates is not bad news in itself; on the contrary, it is proof of relative normality, of a solid economy that can afford to have rates when inflation is contained in the underlying part, while there is a temporary effect from energy. We are going to move on to talk about Cuba because what has happened there is extraordinary and deserves attention. The Cuban dictatorship has approved 176 economic and social measures described by numerous media outlets as the largest liberalization of the economy in decades. We are not talking about a cosmetic adjustment; we are talking about decisions that clearly break with essential pillars of the Cuban communist model. This is very important because among those measures are the partial opening of the financial system to private banking, private exchange houses, the expansion of space for small and micro-enterprises, the elimination of the previous worker limit, the opening of foreign trade to private operators and cooperatives, greater acceptance of partial dollarization, more space for foreign investment, and significant changes in agriculture, subsidies, and business organization. Now, the decisive question is, why is Cuba changing so radically now? The answer is quite obvious. The analysis is unquestionable. These reforms come amid growing pressure from Washington and President Trump, and the threat of further tightening of US policy, and more importantly, the risk of the regime's demise. And the regime reacts by trying to survive at any cost, meaning it tries to use the economy to perpetuate itself. Historically, Castrism resorted to more repression and more communism when it faced pressure from the United States. Current US pressure is very different because it is not pressure that shows an intention for Cuba's economy to do poorly, but rather pressure that shows that the dictators and the dictatorial regime of Cuba have been stealing from Cubans. And here we connect with Venezuela because although the situation is different, the pattern is very similar. In Venezuela, there are accumulating signs of restructuring, flexibility, and changes in economic focus that undeniably break with the most closed stage of Madurismo. And it is important to explain it precisely to avoid exaggeration or understatement. It cannot be said that Venezuela has completely abandoned the authoritarian system, but it can be said that the Trump administration is forcing Chavismo to eliminate many of the measures that were destroying the economy and repressing citizens. All of this under the tutelage of the United States, which is forcing the regime to change its policy by more than 180 degrees. And we arrive at the memorandum of understanding between the United States and Iran. And this is very important for dismantling the media noise, which has been enormous and maintains completely shameful propaganda. The key is this: a memorandum of understanding is not a final agreement. A memorandum of understanding is not a final agreement nor a capitulation. The United States has not handed over a single cent to Iran, nor will it advance a single cent to Iran in advance. Moreover, if Iran complies with everything required within the memorandum, Iran will at most receive part of the money it has frozen, its own money. That is, the United States will not put a single cent into Iran; if anything, and if everything is complied with regarding the nuclear program, regarding hostilities, and regarding Hormuz, then Iran would receive some of its own frozen money. This is very different from the propaganda that the Democratic Party has spread all week. You saw tweets, you saw posts on X where it read, "Trump gave $300 billion to Iran." Lies, lies, lies. Trump did not give $300 billion to Iran. Trump has not invested a single cent in Iran, nor will he. When we talk about this memorandum of understanding, we must understand that it is not a final agreement and that everything in the memorandum of understanding is subject to compliance with the commitments on Hormuz, on nuclear issues, and on hostilities in the region. This idea is decisive because much propaganda has wanted to sell the memorandum as a concession by Trump to Tehran, as if the United States had handed over billions, resources, legitimacy, and immediate relief in exchange for vague promises. And the analyzed content points to the exact opposite. The memorandum keeps the pressure lever in the hands of the United States because the lifting or easing of sanctions is not activated by the signing of the memorandum of understanding nor during the first 60 days, but only if verifiable milestones related to the unimpeded opening of the Strait of Hormuz, enriched uranium, the nuclear program, and the cessation of hostilities are met. This means that time always runs in favor of Washington and not Tehran. Iran must demonstrate if it truly wants to move towards lasting peace, if it wants to move towards de-escalation and verifiable openness, or if it only intends to gain time, financial oxygen, and tactical space. And if it does the latter, it will achieve nothing because you cannot forget that Iran has the highest inflation since World War II, a collapsed economy, a completely devastated currency, and of course, plummeting exports. And this is why this topic fits perfectly with the rest of what we have discussed. President Trump, in strategic, political, and fiscal matters, both in terms of pressure on the Federal Reserve and pressure on partners and regional regimes, is always sending a similar message: discipline, prudence, pressure, and conditionality. The United States does not give away credibility prematurely; it does not lift pressure before verifying results. If we combine what is happening with the Fed, Cuba, Venezuela, and Iran, the same structural lesson emerges. Political narratives can be sustained for a long time, but reality, the economy, energy, currency, finance, and incentives always end up imposing reality. The Fed maintains good rates for solid growth and also knows that inflation is temporary. The state, the United States, President Trump, and the administration continue to implement policies that keep other prices contained. Cuba, on the other hand, partially liberalizes because it discovers that price controls and central planning do not work, do not fill shelves, nor generate foreign currency, and it does so under pressure from Trump. Venezuela is moving towards more capitalist, free-market measures because the model of monetary destruction and productive asphyxiation also cannot be sustained, and it does this also under pressure from President Trump. And Iran accepts a conditional memorandum because even an aggressive and extractive regime like Iran's understands that the weight of economic and strategic pressure is enormous when the alternative is much worse. And this is also happening due to pressure from President Trump. All these cases show the same thing. Reality cannot be abolished by decree. Productivity cannot be replaced by propaganda. Sound currency cannot be substituted by political voluntarism, and it cannot be pretended that economic repression will produce wealth. The new world economic order, now in its fourth edition. Don't miss it. Thank you all very much. You will like the new world economic order. The central message, therefore, in a single line, would be this. We are entering a stage where economic facts and pressure from the United States are recovering freedom in the world, exposing ideological discourse, and showing through pragmatic policy that structural changes can be made solidly. In the United States, the economy is growing at 3% according to the Federal Reserve of Atlanta. The Fed is keeping rates steady because there is still a very powerful economy that does not need a monetary stimulus environment. Very important. At the same time, in Cuba, the regime finally capitulates and approves 176 liberalizing measures because President Trump's pressure has led it to recognize that communism always fails. In Venezuela, also due to President Trump's pressure, the government is forced to introduce pragmatism, review assets, and implement liberalizing measures and freedom for citizens. And in Iran, the memorandum of understanding does not represent a surrender by Washington, but a formula for negotiating from strength with control, with verification, and with the ability to reverse any concession. If there is no compliance, everything is connected. Monetary discipline matters, economic freedom matters, incentives matter, energy matters, and geopolitics matters, but from pragmatism, from realism, right? Not from ideology and maximalisms. That is why we are not just talking about news; we are talking about structural changes where truth is imposing itself, where freedom is imposing itself, advancing in the world. And all of this is very, very positive. Freedom is advancing, and that truth is very simple. Without economic freedom, without credible currency, without respect for investment, and without correct incentives, there is no prosperity. There can be propaganda, there can be fear, there can be repression, there can be excuses, but not prosperity. Prosperity is only achieved with economic freedom, and freedom is advancing thanks to the pressure from the Trump administration. Don't be fooled.