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by winston » Thu Sep 21, 2017 12:20 pm
Over the next 10 years, the U.S. government is on course to spend $10 trillion it doesn’t have.
It has also committed to a further $80 trillion in entitlements for which it has no known source.
by winston » Sat Jan 27, 2018 7:03 am
There’s no history of going 100 years or 25 years without a recession. So I suspect we’ll have a recession sometime soon.
But it could be pushed out now by two or three years. I think the tax cut probably will push it out for another year or so.”
by winston » Wed Mar 07, 2018 8:40 am
by winston » Thu Mar 22, 2018 8:23 am
by winston » Sat May 05, 2018 9:07 am
When you’ve got $68 trillion in debt (the current U.S. total)… it is very risky.
The U.S. economy has been going up for 106 months, edging into second place among the longest-lasting expansions of all time.
Since 1879, there have been 28 recessions and (obviously) 29 recoveries. The average recovery lasted 41 months. So we’re driving way over the legal limit.
What are the odds of an accident? We’re not a mathematician, but we put them at approximately 100% sometime during the next three years.
by winston » Fri May 25, 2018 10:20 am
by winston » Thu Jun 14, 2018 9:15 am
by winston » Sun Sep 30, 2018 8:30 am
The high level of asset prices today mirrors the earlier trend in house prices that preceded the 2008 crash; both mispricings reflect long periods of very low real interest rates caused by Federal Reserve policy.
Now that interest rates are rising, equity prices will fall, dragging down household wealth, consumer spending and economic activity.
Rising inflation will further increase the long-term interest rate as investors demand compensation for their loss of purchasing power.
And as annual federal spending deficits explode over the coming decade, it will take ever-higher long-term interest rates to get bond buyers to absorb the debt. It wouldn’t be surprising to see the yield on 10-year Treasurys exceed 5%, with the resulting real yield rising from zero today to more than 2%.
As short and long-term interest rates normalise, equity prices are also likely to return to historic price-to-earnings (P/E) ratios. If the P/E ratio of the S&P 500 regresses to its historical average, 40% below today’s level, US$10 trillion of household wealth would be wiped out.
The past relationship between household wealth and consumer spending suggests such a decline would reduce annual spending by about US$400bil, shrinking gross domestic product by 2%. Add in the effects on business investment, and this spending crunch would push the economy into recession.
Most recessions are short and shallow, with an average of less than a year between the start of the downturn and the beginning of the recovery. That’s because the Fed usually responds to recessions by cutting the federal-funds rate substantially.
But if one hits in the next few years, the Fed will not have enough room to cut rates, as the fed-funds rate is expected to rise to only 3% by 2020.
There also won’t be much room for a major fiscal intervention. Federal deficits are expected to exceed US$1 trillion annually in the coming years, and publicly held federal debt is predicted to rise from 75% of GDP to nearly 100% by the decade’s end.
by winston » Tue Oct 23, 2018 5:41 am
The annual federal deficit is set to once again cross $1 trillion — yes, the same threshold that drove so many tea partiers nuts (and rightly so) back in 2009-2013.
Debt service is the fastest growing major item in the federal budget, estimated at $390 billion for next year, and expected to close in on the $1-trillion mark within a decade.
by winston » Mon Jan 14, 2019 2:04 pm
An estimated 553,000 people experienced homelessness in 2018.
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