Christian Demeter

On Saturday the Hôtel de Ville of Limoges burned and its belfry collapsed into the fire. Inside, on the grand staircase, hung two large panels by a painter few people remember: Henri-Paul Motte. A thread on him, and on how fragile the things we inherit are. 🧵

AI may finally realize the classical economist's dream of perfect competition: myriads of atomistic firms selling indistinguishable products at marginal cost. The catch? They all rent their brains from the same three monopolies. #economics

Ces communistes sont fous.

Le gauchisme nous tue. Tout simplement. Imaginez vous qu’être actionnaire en France est un grand stigmate, comme si tu étais un vilain criminel. On vit dans l’Union soviétique, les gars !

Ils paniquent. Ils commencent à réaliser que leur petit paradis sur terre, financé par le travail des honnêtes gens, va se terminer. Il n’y aura plus d’argent et leurs mensonges et partisanats sont trop démasqués pour une majorité de Français. L’IA s’en chargera du reste. Leur petit paradis communiste arrive à échéance de l’histoire.

Title: Unpleasant Monetarist Arithmetic — Why a Central Bank Can't Win a Game of Chicken Against a Treasury The Core Idea
In 1981, Thomas Sargent and Neil Wallace showed that a central bank's power over inflation depends on what the fiscal authority does. If the government sets deficits independently and the public won't hold debt that grows faster than the economy forever, the central bank eventually has to monetize. Tight money today can therefore raise inflation tomorrow, and if expectations look forward, it can raise it today too. Why It Matters / Why It's Fascinating
The paper turned "inflation is always and everywhere a monetary phenomenon" into a conditional statement. It depends on who moves first. If monetary policy is "dominant," the Treasury must adjust surpluses to stabilize debt. If fiscal policy is "dominant," the central bank only chooses when inflation arrives, not whether. The real question of central bank independence isn't legal. It's which side blinks first. Key Facts & Insights •The mechanism: Raising rates or selling bonds to fight inflation increases interest costs and the debt stock. With fixed primary deficits, the eventual monetization needed is larger. This is the "unpleasant" part. •The context: It was published in the Minneapolis Fed's Quarterly Review just as Volcker's tightening met Reagan-era deficits. It was a warning that disinflation needed fiscal cooperation. •The formal sequel: Eric Leeper (1991) classified regimes as "active/passive" monetary and fiscal policy. That led to the Fiscal Theory of the Price Level (Sims, Woodford, Cochrane). In this theory, the price level adjusts so that the real value of debt equals the present value of future surpluses. •The r–g pivot: The arithmetic bites when the interest rate exceeds growth. During the 2010s, when r < g, debt seemed almost free. Higher rates after 2022 brought the arithmetic back. •Eurozone twist: The ECB faces many fiscal authorities. Tools like OMT (2012) and the TPI (2022) are attempts to manage fiscal dominance risk without officially conceding it. A Thought-Provoking Angle
Cochrane's provocative reading of the 2021–23 inflation is that it was largely fiscal. Transfers were financed by debt that people didn't believe would be repaid by future surpluses, so prices rose to reduce the real value of the debt. If that's right, rate hikes worked partly by signalling fiscal discipline, not by cooling demand. For a credit analyst, there's a further twist: a sovereign that can't default in its own currency doesn't eliminate credit risk. It converts it into inflation risk, a haircut paid by every nominal bondholder at once. Optional Rabbit Hole 1John Cochrane, The Fiscal Theory of the Price Level (2023), and the hard debate about whether the theory is testable or just an accounting identity. 2Sargent's "The Ends of Four Big Inflations" (1982): post-WWI hyperinflations stopped almost overnight when fiscal regimes changed credibly, with little output cost. This is the empirical companion to the arithmetic.

Vu au musée d'Orsay ce week-end. Extraordinaire, mais il faut le voir en vrai. L'espace est si immense qu'il engloutit celui qui regarde. La force du paysage, le froid, la beauté de l'hiver et le contraste subtil avec les éclats de soleil donnent une atmosphère tout à fait singulière.