The US economy may not grow at all in the 4th quarter

Sleeping rough on grass in parks?

 

Yes, in the long run the stock risk premium pays off, no matter who is in the WH. The market has actually been on a phenomenal run since the great recession. It has gained a factor of 4.2. However, don't expect that to continue forever, valuations can only go so high.

I don't think we are in irrational exuberance territory yet, but we are getting close. Singing the "phenomenal Trump stock market" tune is not helping the average investor, because they worngfully think that under Trump the market can only go up, so they end up buying high and selling low.

 

That would be fine if debt growth was zero or negative. However, debt is growing at ~ 2.5x GDP growth.

If you factor in population growth at 0.6% it makes the GDP numbers even sicker when on a per capita basis.

The US economy is going backward with debt rising faster than GDP.

 

2019 is the highest year number ever to date. Thank you Donald Trump.

 

It has been in recent years as banks return little to no interest,a far cry from the 50's and 60's when banks returned 4%-5%.

 

How is an economy delivering less than 1% growth "Historically Great" ? If it was Obama in office you would be wailing to high heavens at what a bad economy it is citing anemic 1% growth.

Trump said his economic plan would deliver 5-6% growth - and he ran up the credit cards on this basis - claiming this growth would pay for some of his massive increase to the deficit.

At the beginning of 2018 the Dow was at 26500. 1500 points in 2 years = 5.6% or 2.8%/ per year. And you are jumping up and down over this ? That is no better than inflation.

Trumps policy has a fiscal disaster - just as Reaganomics was a fiscal disaster back in Reagan's day. The problem being is that in Reagan's day we had a whole lot more going for us economically - and a whole lot less debt - at least until Reagan- Bush maxed out the cards and we then faced the worst debt crisis in the modern era.

This time we are starting with a massive debt - and have nowhere to go but down. Interest rates on our debt back in Reagan's day were over 7% - Lowering this rate - since the end of Clinton's term - allowed our interest payments to be manageable. Now we have nowhere to go - the Fed is out of bullets - and we are in a rising interest rate environment.

 

2009 - 2014; the labor market was very loose and the Fed was very accommodative. It would not make sense to have 1% economic growth under those circumstances, yet we did (in fact, there were a couple of quarters when the economy contracted).

2016 - present; the labor market is very tight and the Fed is significantly less accommodative. Having negative economic growth is something we should expect (and analyst do expect), yet it hasn't happened.

So far, that is the major difference between Obama's economy and Trump's.

None of this is remotely accurate. The Fed still has plenty of tools, including the IOER and the discount window.

 

This is a good thing. If debt growth is less than GDP growth (or negative) it implies that the consumer public is deleveraging, which means they're using available resources to pay down debt rather than use it for the economy.

I don't know how you came up with these numbers...

 

It's not the direction of the trend; it's the rate of change. No one makes policy decisions (especially not the Fed) makes policy decisions because a trend is up or down. They look to see if the rate of growth is different from the same time one year prior (or N-1).

This is why the market reacts a certain way when economic data outperforms/underperforms expectations. If we only cared about which direction the trend went, we wouldn't make our own predictions at all.

 

[double post]

 

Obama was dealing with a consumer that was shell-shocked from the great recession, and who deleveraged debt for his first few years in office.

Trump is dealing with a consumer who has forgotten about the lessons of the great recession, and who is willing to take on debt to consume, as is often the case at the end of a long expansion.

Yes, indeed, those are two VERY different economic scenarios. And they have nothing to do with Trump's "magical" hand to make the economy great.

 

Not sure what your myopic focus on the labor market is all about - and what your overall point is ? You then speak about "negative growth" as if this is a good thing from an economic perspective. Do you also think negative interest rates is a good thing ?

The Fed's actions are having less and less effect = out of bullets. Sure they can use these tools - but if they no longer have much of an effect - this is a problem - and this is where we are at.

You completely talked over/ failed to address - my points with respect to "Reaganomics" -and the debt issues today as compared to back then - which were the main points in my post.

 

It's simple: The economy affects the labor market. Under poor economic conditions, unemployment rises. High unemployment is synonymous with a loose labor market. Monetary and fiscal authorities respond with monetary and fiscal stimulus, which should lower unemployment and increase economic output.

I don't know how you have arrived at this conclusion. I only stated that with significant amounts fiscal and financial accommodation has resulted in an economic contraction in 2011 and 2012. We no longer have such economic contractions.

As for negative interest rates, it's all contextual. Negative interest rates can be good if implemented correctly.

You're not saying anything remotely accurate. There is also no evidence that FOMC policy tools are losing their effectiveness. The main tool of the Federal Reserve has been in the IOER and that has been significantly effective in influencing interest rates, as you can see with the following plot:

I didn't address it because it didn't make any sense, for the following reasons:

1) Reaganomics was a policy implemented during the 80s. It really hasn't been implemented recently.

2) You say debt issues but haven't addressed what debt issues you are referring to. Maybe you can clarify.

 

I'm not sure what this has to do with anything. Consumers respond to incentives; that's never changed. Also, it's not about the consumers, it's about the accommodation fiscal and monetary authorities provided to institutions (mostly financial institutions).

You're missing the point. Trumps economic expansion is strong WITHOUT significant fiscal and monetary accommodation. You can make the argument that Obama's economy was recovering from a significant economic downturn, and that is true. However, that is when fiscal and monetary accommodation should have been most effective and it failed to do so. This is important because this wasn't simply happening in the United States; was happening everywhere and economist couldn't figure out why.

 

What's more relevant today than ever is Uncle Sam's alarming and growing NET INTEREST;

FY2019 Receipts; $3.462 trillion
FY2019 Net Interest; $376 billion
Thus, today, 11 cents of every dollar Uncle Sam collects, and within the next five years, 15 cents at current average interest rate.

For anyone's info, our current $17 trillion public debt mainly consist of Treasury Notes, (approx. 70%), and the average interest rate of said interest-bearing marketable has significantly increased since October 2016. In addition, over 50% of Uncle Sam's Treasury Notes have matured over the last three years, thus, "were mostly rolled over at higher rates"

FY2016 Net Interest; $241 billion
FY2019 Net Interest; $376 billion

 

None of this is alarming because the U.S. government will never default on any of it...

 

Got it - but the labor market is just one part of the overall economy. By all accounts - the fiscal stimulus done by the Fed - went mostly into Stock buy-backs and not into increasing industrial production.

There are many things that accounted for the economic contraction in 2011/12 .

Good luck getting folks to buy our debt at negative interest rates.

There is plenty of evidence -
The Fed Is Out of Bullets

https://www.thestreet.com/story/138...ts-and-that-is-a-good-thing-for-everyone.html

And you can find a gazillion other economic publications saying the same thing.

Clearly you don't know what Reaganomics was = Cutting taxes to corporations and engaging in massive deficit spending - aka "Trickle Down Economics" How has Trump not done this ?

Debt issues - when Reagan too over the debt was just under a Trillion dollars - after 8 years it was over 3 Trillion - and under Bush went to 4.4 Trillion. 12 years of Massive Spending.

When Clinton took over - the interest on the debt - as a ratio of income - had risen above 25%. At 30% - alarm bells go off at the IMF - the ship is taking on water faster than the ship can bail it out.

It is not that Clinton and Red Congress wanted to reign in spending and increase taxes - they had to. This coupled with rapidly increasing revenues due to a "white swan event" - the internet tech revolution - helped to get us out of trouble. Interest rates on our debt at the end of Clinton's term were still above 6% though.

Since Bush Jr - that interest rate has been reduced to roughly 2.25% - so although we have far more debt - the interest we pay on the debt had not risen much - until Trump.

One of the ways we reduced this ave interest payment was floating shorter term debt - 1yr, 2yr, 5 yr rather than 30 yr.

In 2014 - you could float 2 yr notes at less than 0.5% - This goes a long way to reducing ave interest rates. The problem however is that you now have a 2 yr note that has to be refloated in 2 years .. in late 2016 the rate had more than doubled to 1% .. when you had to refloat again in 2018 the rate was 2.5%.

The amount of interest on these notes has increased by 500%.

There is no ability to get interest rates on our debt much lower - those bullets have been used

https://www.cnbc.com/quotes/?symbol=US2Y

 

Really?
What were the tax cuts if not fiscal accommodation?
How about those interest rate cuts and the insertion of money in the repo market?

 

The Fed engages in monetary stimulus, not fiscal. Also the Fed doesn't influence industrial production; they merely influence the conditions of which it would occur.

Such as?

It's not up to "folks." If the Fed decides to pursue a Negative Interest Rate Policy (NIRP), it will be based on the economic and financial conditions that support this policy.

First of all, that's not an economic publication, that is a news publication. Secondly, you've cited an opinion piece; a very uninformed opinion piece, but it's merely an opinion piece, nonetheless. The author of the article seems to believe that it is the job of the Fed to create desired outcome, which isn't the case. It's the job to influence interest rates, not to create specific outcomes in the market.

If you understand how monetary policy works, you would understand how that article is shear nonsense.

First of all, what you are describing is NOT Reaganomics.

The only thing that has occurred was a reduction in Federal Income and Capital Gains Tax. This isn't anything close to what Reganonomics advocated.

Secondly, "Trickle Down Economics" is not a thing. That is more of a misnomer used by opponents of Supply-Side economics. No one has ever advocated it, nor implemented it.

You have done a good job of describing our fiscal history, but you haven't described how these are issues right now.

You're very much confused. The Interest rate on our debt IS lower. Remember this plot? This is the result of FOMC actions. They've used one of their many tools (specifically the IOER) to influence interest rates on the short end of the curve.

Remember those tools you claimed were "out of bullets." This is the effective of these tools: a lower 2-year Treasury note and a lower 10-year Treasury bond.

 

No "significant fiscal accommodation." We've lowered marginal tax rates, but the Government hasn't conducted at large government expenditures.

Good point. The Fed is more accommodative than it was during the beginning of the year, but that is all relative. It is still significantly less accommodative than it was 2 years ago, or even a decade ago. It has not engaged in any large scale asset purchases (yet).

 

Such as economic factors

I think you are confusing the interest rate we pay on our debt (which is set by the market) and the interest rate that the Fed sets.

In a previous post you were talking about how Fed policy is directed towards specific outcomes in the labor market - now you are contradicting yourself.

What is sheer nonsense is your contradiction -and failure to support your claims.

Then do tell us what Reaganomics was - and explain how massive deficits and corporate tax cuts was not part of "Reaganomics".

I have described how these issues are "right now". We are now in a rising interest rate environment - with respect to the interest on our debt.

I said the interest rate was lower - why are you trying to claim otherwise. You seem to think the Fed can just engage in the purchase of our debt - reducing supply thereby diminishing upward pressure on interest rates - and nothing bad will happen. The invisible hand thinks otherwise.

The tools are having less and less effect = out of bullets. Yes - we are no longer in inversion. What you completely fail to acknowledge is the fact that we were in "inversion land" to begin with - is a problem. You seem to think that the Fed is all powerful and that global demand for your debt has nothing to do with the equation.

Why don't we just buy all of our debt ? - At some point -this accumulated debt has to be re-floated on to the market = increasing supply - which will put upward pressure on interest rates. They tried to refloat some of this accumulated debt back on to the markets in 2018 - and it was a disaster = the Fed is out of Bullets.

 

What are these factors that contributed to the economic contraction?

The interest rates you pay on your debt is... (wait for it) ... influenced by the Federal Reserve. On the short-end at least. The direction of these short-term rates go on to influence long-term rates.

Not really. The Fed has two explicit mandates, maximum employment and price stability, and one implicit mandate, financial stability. That is all. It's not the job to ensure that corporate profits and asset prices are up, as your article incorrectly claims.

The Fed will engage in monetary policy actions that will help it achieve its mandate.

Okay, well here are some primers you can use to learn about the tools the Fed has at their disposal. These primers were written by Former Fed Chairman Ben Bernanke, who presided under the Financial Crisis (also considered a foremost expert on Financial Crises) and presided under the Bush and Obama White House.

What Tools Does The Fed Have Left:

Part 1: Negative Interest Rates

Part 2: Targeting Long-Term Interest Rates

Part 3: Helicopter Money

Of course, we've never had to use any of these things, because these are considered unconventional policies and the Interest on Excess Reserves works perfectly fine.

Also, if you really have time, you can watch the following video: "Are we ready for the next recession?"

https://www.brookings.edu/events/are-we-ready-for-the-next-recession/

Why did you ignore the Wikipedia citation that explains it:

https://en.wikipedia.org/wiki/Reaganomics

Reganomics has four pillars: reduce the growth of government spending, reduce the federal income tax and capital gains tax, reduce government regulation, and tighten the money supply in order to reduce inflation.

Deficits shouldn't be part of it because it involves spending reductions and income tax reductions, both of which never truly occurred during Reagan's tenure. It's not just about tax cuts.

We're not in a rising interest rate environment (yet). Historically, interest rates are still very low.

Yes, the Fed can do that. The Fed can purchase U.S. denominated debt on the secondary market with money created from nothing, thus lowering the supply and increasing the price of government Treasuries. Since price and yields have inverse relationships, yields will fall.

This has nothing to do with the invisible hand. This is just how the Fed conducts monetary policy.

I really don't know what you're talking about. There is no evidence to suggest that the Fed monetary policy tools has lost effectiveness because interest rates are still very responsive to FOMC actions.

 

When will debt become an issue for the conservatives again?



Each taxpayer owes over $186,000.00 due to uncontrolled government spending.
Is the economy doing well enough for everyone to afford to pay this back?

 

In other words, let's all keep our heads buried deeply in the sand, and keep on borrowing trillions, right?

However, "Net Interest" is a mandated expense, thus, higher the payments, less money to spend on necessities.

 

That will never be an issue for the Federal Government.