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Chart Check (Theory Vs. Reality)

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For the history buffs...
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1 comment on “Chart Check (Theory Vs. Reality)

  1. I think that the current high level of federal deficits will change how the economy responds to fiscal stimulus. There used to be little linkage in people’s minds between the carrying capacity of the economy for federal debt and the increased deficit spending. In the new normal of >100% of GDP federal debt and the looming threat of actually having to pay non-trivial interest rates on it, I believe that people will begin to see that a dollar spent by the government on stimulus is really a dollar taken directly out of private hands making private investment decisions. We’re approaching the point where the confluence of high debt and higher interest rates are going to make the acquisition of additional debt a perilous undertaking and people will begin to factor that risk into their decisions. 4% interest on 20 Trillion is $800 BB per year. That will leave a mark. Plus, I can’t help but believe that there is a whole lot of pent up inflation from years of printing money that will hit once the economy rises above nominal growth rates.

    Hold on because this will be a rough ride despite (or because of) all of our “animal spirits” being unleashed.

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