0.1% inflation for March

That's the author's description. The same exact line is on this website:
Hidden in Plain Sight By Peter J. Wallison | Used | 9781594038655 | World of Books

It's also here:
Hidden in Plain Sight - Encounter Books

And here:
https://www.aei.org/research-produc...-caused-worlds-worst-financial-crisis-happen/

 

I addressed in my prior post this author is a major proponent of bank/financial deregulation and definitely has a dog in the fight.

 

Well then you still have time to pray for a disaster.

 

You’re not still going to come here and spew your nonsense that the inflation is all supply related and transitory, are you??? I think that train has left the station.

And there were three “one time payments” totaling $3,200 each with the last two including an additional $500/child. That in addition to lowered interest rate by the Fed, and additional government spending pumped $11T in additional liquidity into the economy over about 18 months. Since you seem to be incapable or unwilling to grasp this, that is just a hair or two short of 50% of GDP in additional liquidity. So back to your contention about my ability to reason, I would say that you need to take a good look in the mirror before you question someone else’s reasoning.

 

He has stated his minor was economics in college yet his practical knowledge of economics is pretty weak. You jam 3-4 trillion into the economy, or more, it may take some time to completely flow through the system.

 

Nah, I don’t actually want that to happen. I just know it will.

 

Just out of curiousity what sort of disaster do you predict and what is going to cause it?

 

We are already starting to see it play out with the SVB and First Republic failures. Other regional banks share prices have seen dramatic pullbacks. Some down 70% to 80% from where they were coming into 2023. Massive credit crunch due to aggressive reversal of policy by the Fed to suck liquidity out of the markets. Will probably see more bank failures, which will exacerbate the crunch. We know what happens when the credit markets freeze up. Rate hikes were carried out at the fastest pace in 40 years. Bank share prices are already telling you something bad, real bad is on the horizon.

There's also a bubble in housing, while at the same time cost of credit is higher than it's been in a long time. There's a lot that must unravel.

Remember, Powell just confirmed for us yesterday their main concern is still inflation, so just like before (in the reverse), it looks like they will keep their foot on the brake pedal way past the point where it's too late.

 

I don’t have a crystal ball, so I can’t say you’re wrong, and I do suspect we will have pockets unravel here or there, but it doesn’t mean we have to have a massive undoing. Inflation appears to be stabilizing, frankly faster than I thought it would. The fed paused. Overall the economy and employment still look pretty good. Yes there will be pockets that withdraw but that’s normal.

Housing prices have cooled, but they aren’t likely to crash due to limited supply. People don’t want to sell and give up their low interest rate mortgage.

While the fed was slow to act I have supported them keeping the foot on the brake until it is obvious inflation is subdued.

 

I'm also going by historical truths that are unavoidable. We're at max employment for this cycle. We haven't seen improvement in the unemployment rate since March 2022. Hard to do when you're riding at between 3.50% - 3.70%, which historically is max employment. History shows us max employment doesn't hold on for very long, usually only a few months and in fact is always followed by a sharp uptick in unemployment that hits hard and fast.

What's interesting is that March 2022 lines up with when we saw treasury yields invert, they've remained inverted for over a year, and they are inverted badly. A yield inversion of this magnitude and which has persisted this long definitely says there is pain on the horizon.

Like you, I don't have a crystal ball, so I could completely be missing the exact causes, but I'm dead certain it will happen. It always has when we see this type of data.

 

Maybe you are right but this whole cycle was not a usual economic cycle. You had an economic slowdown due to external shutdowns and supply shocks, which artificially suppressed GDP. Followed by economic stimulus which contributed to inflation while the economy was still recovering.

The economy is pretty much back to prior trend.

Real Gross Domestic Product

While unemployment is low, part of it is due to demographics and a comparatively smaller work force, and a slightly lower labor participation rate.

Labor Force Participation Rate

So a soft landing is plausible.

 

The labor force participation rate isn't going to matter when employers decide they need to make cuts or the quarter is going to be ugly. Max employment simply doesn't hold and to your point about cycles, we didn't have a natural cycle from the expansion of 2010-2020. It was a pandemic induced downturn which was reversed in two quarters. We didn't have a true recession in 2020. We had a shutdown. In other words, we're in a 13-year expansion right now, which also exceeds the norm. Overdue to cycle.

 

At the same time the average real gdp growth over that period was just over 2.0%. Typically before you see a recession you see strong GDP growth. Instead we had more than a decade of constrained growth. Partly due to consumer deleveraging and partly due to comparative fiscal restraint for most of that period.

 

Employment is high. Savings is high. I’d be surprised if the economy doesn’t do well through Biden’s second term only to implode with whatever Republican gets elected after… as usual.

 

We had comparative fiscal restraint during that period? I'd say no. Government spending caused huge deficits. Really not much to show for it, as you said, 2% real GDP growth. We did better in the late 90's when Clinton balanced the budget, ran surpluses, working alongside Newt Gingrich and Congress. The ratio of debt held by the public to GDP, a primary measure of U.S. federal debt, fell from 47.8% in 1993 to 33.6% by 2000. Both sides have to be committed to balancing the budget.

 

I used the word comparative for a reason. Government spending generally moderated and fell as a percent of gdp after 2012, back to 20% which it has been around since 1975.

Federal Net Outlays as Percent of Gross Domestic Product


Government debt did increase as a percent to gdp for around 90 to 100%. Not great but not horrible.

U.S. Debt to GDP Ratio 1989-2023

 

You're glossing over those numbers. Perhaps they seem minuscule to you, but before 1995, we hadn't seen 20% spending as a percent of GDP since 1975. From 1995 to 2007, we didn't touch 20%. Then there was a sharp increase up to 24% and it subsided to 20% to 21% for the remaining years of what we'll call the Obama expansion years. But the growth numbers were pretty meh during the Obama expansion and we mostly just regained what we lost with the Great Recession. The important thing you're missing is that it dropped every single year President Clinton was in office. Part of that is a credit to President Clinton and the Newt-led Republicans did their part as well. 1992 was 21.18% (Bush's last year). Dropped every year through 2000 to 17.5%!! Very impressive run. We had a 4% average GDP growth during that same time frame. Again, quite impressive. Balanced budgets actually promote growth. Shedding debt actually promote growth. Who would have thought?

To your second point, 100% debt to GDP is a horrific number historically. 1992 it was 46%. Clinton and Congress got us down to 33% debt to GDP in 2000. Longest, cleanest expansion we've experienced in a long time. Then 9/11 hit and instead of doubling down on what Clinton/Newt started, we went the other direction with the wars, which weakened our position. Debt is a drag on economic growth. If nothing else, the government has to spend more money to service debt which takes money away from other coffers it could have spent on to facilitate expansion. And please don't use the WW2 example. That was an emergency like we'll probably never see again and the US ended up with an enormous windfall as a result of being the victors of the war. Even then, we didn't go bonkers with the spending in the 1950's. We conserved, got our house in order. We were responsible with our spending. Obama was not responsible with spending. Trump was NOT responsible with spending. Biden has continued the lunacy.

So yea, we're going to see some pain. You can't spend like drunken sailors unless there's a payoff like there was in 1945. It just becomes a larger and larger drag. In the short term, sure, all of Obama, Trump and Biden's spending has propped the economy up. It has never been and will never be a long-term viable solution to economic growth. Oh and by the way, debt to GDP is still running about 123% today. Considering we are out of a pandemic shutdown, why? Why do we need to add that much debt to our economy to get by? You could make a case for Covid in 2020. You could make a case for the Great Recession in 2009. But there is no pressing need to be running up debt at this pace as of today. It is highly, highly irresponsible. Not just Biden, but our Congressional leaders on both sides. It's madness and unprecedented.

 

The difference is 20 and 21% of gdp in government spending to gdp isn’t that significant. The reason is has ticked up is primarily demographics. In the mid 90s boomers were in their key earning years. Now they are retiring. Social security and Medicare, two of the biggest programs, were going to increase - it isn’t like there was some spending spree.

Don’t get me wrong - debt at 100% is much higher than I like. I don’t know that it is harmful per se, except that it gives us much less room for error if rates have to go up, like they did last year.

A contributing reason for those increasing deficits is repeated tax cuts going back to GWB. If republicans were really concerned about deficits they would stop cutting taxes.

 

Incorrect. Tax cuts generally spur more economic growth and tax revenues increased quite nicely under GWB. If Republicans are really concerned about deficits, they would stop agreeing to the spending. It's not incumbent upon you or I to pay for government's malfeasance. Like the board of a corporation, our government is responsible for adjusting expenses to meet their obligations, not the taxpayers.

 

This is just flat out false. And nonsense.

Go back and look at tax as a percent to gdp in the late Clinton years compared to Bush years. If taxes cuts always causes more government revenue then we should eliminate all taxes and taxes would go to infinity.