For the world’s largest economy, a “no landing” is far more likely at this point than the fabled “soft landing.”
So suggested… well, so suggested the incoming US macro data, but also BofA’s Michael Hartnett who, in his latest, said Main Street and Wall Street are asking two questions: “Why save?” and “Why short?”, respectively.
The 2020s, Hartnett wrote, are “the era of big government intervention.” Whether it’s stimulus checks during a public health crisis, rebates and subsidies to cushion the blow from war-related energy volatility or student debt forgiveness as a kind of partial offset for soaring monthly housing costs, governments are running the biggest-ever non-recession deficits.
All that “fiscal excess” is creating a “Why save?” mentality on Main Street, Hartnett mused, noting that the saving rate in the US is low and consumers are still spending. He called the 42% rise in nominal GDP since the pandemic “stunning.”
The figures above are familiar. Tiresomely so. The chart on the left’s a FRED special and the figure on the right could’ve walked out of a slide deck produced by some generic conservative think tank.
I gotta tell you, folks. These weekly, passive aggressive laments for “lost” fiscal discipline are getting a little old. And they’re becoming caricatures of themselves.
This week, for example, Hartnett wrote that, “If you spent $100 every second of every day it would take you 1,966 years to equal the $6.2 trillion the US government has spent the past 12 months.” That’s a meaningless statistic. There’s no connection between government spending and household balance sheets. That’s a non sequitur. Apples to oranges. Not comparable. Indelicately: Gibberish.
If there’s anything you can accept as the gospel, God’s honest, irrefutable truth from Stephanie Kelton, it’s this: Anyone comparing the government’s budgeting and spending process to households can be summarily dismissed as disingenuous, clueless or a charlatan. Note: Those aren’t mutually exclusive, and there are plenty of people on Capitol Hill, both Republicans and Democrats, who fall into one, or all three, of those categories.
That said, I actually don’t think Hartnett’s any of those things. I think he’s a guy who writes a popular weekly at a bank, knows his audience, knows what they want to hear and, more importantly, runs out of ideas every now and again just like the rest of us, and so ends up saying the same thing he said last week. To the extent that’s a factor, God bless him. Because I can relate. Lord knows I can relate, Mike.
Hartnett included the chart above, with this brief color: “Government bonds [are] just four years into [a] secular bear market.” The implication, I guess, is that given the allegedly parlous state of fiscal policy, this bear’s got a long way to go.
On Wall Street (where Hartnett works) two decades of “big Fed intervention and monetary excess” have left traders asking “Why short?” We saw in early November that the policy “put” is in fact alive and well, and indeed we saw it during the regional banking mini-crisis too. That backstop “has delivered secular credit and equity bull markets,” both of which are late-cycle, Hartnett went on.
He also alluded to the same irony documented in “What Goes Around Comes Around.” The Fed’s Q4 pivot sowed the seeds for its own failure. “By inciting asset price inflation,” Jerome Powell “ironically [made the] pivot harder to deliver,” Hartnett wrote.
As for the simultaneous rally in the dollar, gold and crypto (which, in theory anyway, shouldn’t all be going up together), Hartnett said the synchronous move “reflect[s] a bear market in institutional trust.”
I am so tired of hearing about deficits. You pretty much only hear about them when a Democrat is in the white house. Where were these deficit hawks when reagan, w or trump with congress made big tax cuts? Crickets. I will make a modest proposal. Let’s increase capital gains taxes and income taxes for folks with 300m AGI or higher. The street and GOP will be screaming about class war and killing incentives guaranteed. But at least they will stop whining about the deficits.
And those increased taxes are already there. The passing of my wife four years ago, with no income increase, kicked me up two brackets. Capital gains do go up and investment income gets a 3.8% surtax. My SS check is docked more than $6000 a year for Medicare premiums because of my income. Trump raised taxes on all of us who saved and invested (except for himself, of course).
Looking back to the later 1970s when I started as a trader, we were facing stagflation. As well as a loss of confidence in US global leadership. “Coincidentally”, gold and silver were in demand.
History repeating itself?
Agree that Harnett’s take for the masses was disappointing — akin to if the deficit were represented by a stack of dollar bills, it would reach halfway to the moon. This immediately made me think of Kelton, before I had reached your mentioning her. She recently appeared as a guest on The Daily Show, which I was eager to see. While she desperately tried to draw the distinction between government and household finances, sadly the interview (as aired on TV) devolved into a jokey, “economics is confusing” back and forth that failed to clarify the issue much for the general publc (IMO), although the host Jordan Klepper provided a nice summary about halfway in. One point that did come across, however, was Kelton’s view that our legislators are essentially committing a fraud upon the public by likening the government’s finances to those of households. My takeaway was that the distance between politics and fraud is becoming more negligible by the day.
If allowed, here is a YouTube link to the interview. https://www.youtube.com/watch?v=1JpZZcD8C4M
The version of the interview above is NOT the same as the one that aired, which was cut down by half and much more difficult for a layperson to understand,. This longer version is much better.
A couple encouraging signs — the video has 338k views and nearly 2,000 comments, so maybe we’re getting there despite the legislators.
Long ago the Beatles asked the question, “Will you still need me, will you still feed me when I’m 64?” The answer is generally no. That’s why we save.
Have you considered renting a cottage on the Isle of Wight (if it’s not too dear)?