Christopher Wynne is an American businessman based in Moscow. His company, PJ Western, owns and operates PapaJohn’s Pizza locations throughout Russia. His companies employ more than 9,000 people in the country, which hopefully serves as a reminder of who will suffer from attempts by foreign nations to make ‘Russia’ pay for the sins of its ruler.
What’s remarkable about the 45-year-old entrepreneur is where the funding for his businesses comes from. According to New York Timesbackers include future Washington Capitals Hall of Fame hockey star Alex Ovechkin, Russian private equity firm Baring Vostok, as well as a Finnish private equity operation by the name of CapMan.
There have been all manner of businesses and businessmen in Moscow and across Russia since the happy dissolution of the Soviet Union in the 1990s, which alone makes mention of the sources of financing of Wynne rather monotonous. Imagine that until Russia invaded Ukraine, US investment banking giants Goldman Sachs and Morgan Stanley could claim substantial business activity in Russia. The two announced a withdrawal last week, but it’s not unreasonable to assume their exits will be short-lived.
What is useful about Wynne’s PJ financing Western and Russian finance more broadly is that it once again illustrates the global nature of capital. It knows no borders. Where money is treated well (and sometimes where it is do not treated well so that capital commitments are met with impressive rates of return) drives capital flows.
This is worth keeping in mind, because monetarist philosophers like Berenberg Capital Markets Senior Economist Mickey Levy speak so predictably about what the Federal Reserve should do about inflation. . When it comes to interest rates and access to capital, it seems like we’re all central planners now. Members of the right who were clearly swayed by the mostly liberal views of the late Milton Friedman also clearly embrace his central bank membership as capital allocation. Which means Levy isn’t alone in calling on the Fed to “raise rates and remove the accommodative monetary policy that is fueling underlying inflation and rising inflation expectations.” Please think about Levy’s expressed desires in terms of Wynne.
In doing so, try to remember that the United States is not an autarkic island of economic activity as Levy’s models would have you believe. Assuming the Fed can reduce banks’ access to credit through which it projects its hugely overstated influence, banks represent only a small, diminishing portion of total credit, not just in the United States, but around the world. . Stated fundamentally precisely because it is fundamental, what the Fed takes will be compensated by market participants around the world. Good heavens, assuming that the Fed’s rate machinations actually translate into more expensive credit (unlikely, but let’s pretend), that would just mean that central bank actions would create bigger margins for investors. domestic and global capital providers.
But wait, can’t the Fed reduce the so-called “money supply” inside the banks by selling interest-bearing assets to the banks? Not really. The Fed buys highly marketable and liquid securities from banks, and by extension sells highly marketable and liquid securities to banks when its objective is to reduce their lending. That’s why the whole fiddle is so meaningless. While banks find intriguing lending opportunities, there is a large, liquid market for the securities on their books.
All of this is a reminder that the Fed cannot reduce the availability of money and credit where everyone will be treated well. Finance is lucrative. Money and credit follow opportunity. Levy’s purported solutions to what he sees as inflation will achieve far less than nothing. Nor a reversal of what Levy desires. In other words, the Fed cannot stimulate what is not economically viable. Assuming a lack of credible financing options in and around the US, Fed tinkering will not alter this truth. Basically, markets work. While economists continue to try to make markets behave as they wish, reality still sets in. The Fed can’t make Palo Alto a penny poorer or East St. Louis rich a penny.
All of this raises a question: if the Fed can’t cut credit, how can it dampen inflationary pressures? It’s a useful question. The answer is that credit is produced in the real economy. We borrow money for what it can be exchanged. Unless producers around the world stop going to work, credit will still be plentiful where it is treated well.
Which brings us to inflation. Leave it to politicians and economists to attribute inflation to loans. What joke. Why on earth would deferred consumption from one part that is transferred to another cause inflation? To find the inflation in moving resources from a set of hands to better hands in the short term to redefine the word. That’s what Levy does. Leave it to economists to blame finance, as opposed to government, for inflation.
The economist also fears that a “stock of personal savings” of more than 2,000 billion dollars will add to inflationary pressures. Translated, Levy fears a so-called “savings glut”. A non-economist named Henry Hazlitt once marveled that even the ignorant could fear too much saving, but Levy does. Since he is doing it, he wants the Fed to act. Back to reality, savings by its very name never sit idle. Levy would have readers believe that $2 trillion sat idle only to suddenly emerge so that prices skyrocket. Inflation driven by demand! No, and no.
First, no act of saving ever subtracts from demand. Second, demand does not cause inflation in the first place. This is so because all expenses are trade-offs. If our spending suddenly becomes focused on plane tickets, so that demand exceeds supply and prices go up, it just means we have less money for other goods and services.
Inflation is a devaluation of currency. Which means that it is always and everywhere a political choice made by government. And since this is a political choice, the solution to what some see as inflation is a stronger, more stable dollar. No more no less. If the Treasury wants a stronger, more stable dollar, all it has to do is communicate it. The markets will comply. Indeed, if the markets are not “fighting” an outsourced branch of Congress and the Treasury (ie the Fed), they will certainly not get the Treasury back on the issue of a more credible dollar.