Domino Effect

Domino Effect

Roll out the obligatory caveat(s). "The full economic effects of the COVID-19 pandemic cannot be quantified in the income and outlays estimate because the impacts are generally embedded in source data and cannot be separately identified", the BEA reminded you on Friday, while reporting personal spending and income data for June. Spending rose a slightly better-than-expected 5.6% for the month, coming off a record jump in May catalyzed by stimulus payments and pent-up demand. Things get dice
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5 thoughts on “Domino Effect

  1. I can never seem to come up with a nice way to say this …not in the age of political correctness…. Had the Fed not taken actions it did arguably the system would have imploded…immediately if not sooner.. The actions it took were a eleventh hour to stave off the same maybe 6-8 months later… After years of unwise choices in Taxes, geopolitics , trade , race relations and whatever else (you name it) the proverbial ‘chickens are home to roost ‘…… I am probably old fashioned , a simplifier by nature but not always incorrect ….The responses to the last 3-4 months which were driven by philosophies strictly Hubris driven and outdated in the Geopolitical sense are perhaps not without predictable consequences even if not acceptable by the powers that are now entrenched…

  2. The W shape, based on QoQ data that is essentially irrelevant in this context, is fast becoming the base case. In reference to the “patriotic duty” of spending, the big question in my mind is around the increasing potential for a balance sheet recession, a la Richard Koo. We already know that the FED has become ineffectual at stimulating the real economy. But, if politicians continue this fuckery with the public and fully break the bonds of trust, the result may be that fiscal stimulus also finds itself ineffectual, in an every-man-for-themselves type of dynamic where fiscal stimulus ends up being horded into savings to the greatest extent possible.

  3. I should add that the FED being incredibly effective at inflating absurd asset bubbles actually feeds into this dynamic, creating an environment where is it impossible to get ahead or build any real wealth without hording cash, however it is obtained (including via fiscal stimulus) into savings.

  4. The case for “We are turning Japanese” for any number of years always pointed to the fact that the Japanese were savers owning their own debt and we wouldn’t. COVID has changed spending/saving. To what effect?

    Cash cards negative interest rate, spend it or lose it. Call it Patriot cash. All balances go to zero in 4 months. The idea of helicopter money has been around for years. None of the braintrust ever thought how to best do it.

    1. Central bank issued (or underwritten) digital currencies (or digital cards) are coming, perhaps with some of these types of restrictions to stimulate consumption. But they can’t do it on all cash without breaking the monetary system, and so it won’t be a solution to this problem if we find ourselves in it.

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