Predictions About The Future

Predictions About The Future

If you're having trouble keeping track of the myriad virus relief measures either delivered/implemented or forthcoming/planned for the US economy, you'd be forgiven. Between the lingering effects of the CARES Act, the impact of the December virus relief bill, and the projected effects of Joe Biden's $1.9 trillion stimulus proposal, it's virtually impossible to make any kind of definitive statements, let alone projections, other than perhaps to note that the labor market clearly isn't healed. W
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5 thoughts on “Predictions About The Future

  1. Here’s an interesting prediction concept. The following FRED blog lays out a case for servicing Fed debt. I’m not posting the link, but it’s easy to locate. This was originally posted there November 1, 2018, but the slider allows us to see the changes with current data.

    The FRED® Blog
    How expensive is it to service the national debt?
    A battle between interest rates and growth rates

    The main point is, servicing the debt isn’t a problem:

    “Since 1960, negative debt servicing costs have occurred nearly 63 percent of the time; and the average cost of servicing debt is -0.67%. In fact, since the 1960s, the only time period in which the real interest rate was consistently greater than the growth rate of real GDP was from 1981 to 1995.”

    Nonetheless, I decided to add our pandemic debt to their chart, by using:

    Assets: Securities Held Outright: U.S. Treasury Securities: All: Wednesday Level (TREAST). The result is in the link below; maybe this is not right, maybe there are better ways to do this, if so, would love to see some ideas.

    I think this chart simply (and obviously) implies that it’s currently cheap to service the debt, but in the next several years, that cost will jump a fair amount — but, going back to a previous post I made today on spreads, the future plumbing issue probably will play out like the post GFC, why wouldn’t it. Thus, it’s likely that we have some drama, rates go up and GDP will probably increase, the economy will ease back into semi stability, then, as usual, we have slow growth and stagnation with labor — and in time, we start into the next weak cycle. Furthermore, the rich get richer and the poor get wiped out under the bus. Same story continues on …

    My Link: https://fred.stlouisfed.org/graph/?g=BfmM

    Yours with hope,

    Nostradamus

  2. Interest cost is a key to watch, which might not jump that quickly, because it is across the spectrum of Treasury liabilities which will roll off slowly and would have some sensitivity to the size of T-bills rolling off as well as other securities that are maturing against the yield to issue new debt. Here is the good news, once this asset bubble implodes, the Treasury could see the 10-year closer to 0 than 3.

  3. It’s hard to make predictions and sometimes tuff to ignorer elephants inside rooms. This is a matter of lingering doubt, grey areas and anxiety.

    The forecasted predictions and models that are built inside vacuums often, if not always fail because there’s some lingering dynamic that isn’t connected to other tea leaves or gears.

    The invisible elephant ghost that haunts me now, is the one that looks like we had a massive global generational economic shock, but no economic correction (that one might expect from a massive global generational shock).

    The central banks are replaying the GFC playbooks and stimulating everything in sight, but in that prior model, trillions were lost by investors in the stock markets and trillions lost in home values, there was a massive loss of global asset value — which was a Yuge part of the economic puzzle, i.e., the reasons yields dropped, was because of a massive flight to safety for guaranteed sovereign protection. In this epic adventure, the inverse is happening with a flight towards unlimited risk from equities.

    Maybe I’m not putting down whut up, but the last several economic corrections had economic damage that resulted in real losses, versus a synthetic stabilization strategy that ignores any downside — or upside risk. Maybe I don’t get the mechanics of how cycles work, but my gut feeling is, something’s wrong. I just posted on servicing the debt and how in theory, things should be fine, but the elephant in the room is flashing yellow.

    I think the caution comes from wondering what difference is made by investors not losing trillions, but instead, making trillions — and then glossing over the impact.

    I often think about how economic shocks are like tsunamis, which start with an underground earthquake that physically rips open the floor of the ocean, which causes a huge cascade of water to fall down — then, the shockwave of the surface water slapping together in a nonlinear impact that causes a tidal wave, which rushes to a shoreline — leveling everything in its path.

    How can we have a nonlinear economic shock, without economic impact? How can we gloss over the shock and actually harness that energy into a powerful force to invigorate a global economy? It’s as if restarting a heart with defibrillation and restarting a heart with a new rhythm.

    But, it just doesn’t feel right …

  4. Man OL,

    That’s a great observation in terms of how important each legislative battle will be (within this tribal war). One thing to watch will be news traffic and ways to gauge if there is an active interest in political news. It’s possible that many people are burned out on all news distribution — and blogs. It’s hard to imagine that people are not burned out and overly sensitive. Withdrawal may set in, but, as we’ve seen with the Texas Polar Vortex Event, a fairly straight forward weather shock is instantaneously polarizing and tribally stupid.

    Here’s a FRED take on that idea:

    Economic Policy Uncertainty Index for United States, Index, Not Seasonally Adjusted (USEPUINDXD)

    The daily news-based Economic Policy Uncertainty Index is based on newspapers in the United States.

    Then this layover:

    (a) CBOE Volatility Index: VIX, Index, Not Seasonally Adjusted (VIXCLS)
    Units: /

    (b) 10-Year Treasury Constant Maturity Rate, Percent, Not Seasonally Adjusted (DGS10)

    My chart: https://fred.stlouisfed.org/graph/?g=BgpY

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