The false sense of security that comes with economic models and regressions applied to a completely different environment.
The total level of government debt outstanding is different. The market demand for coupon issuance is different. The fiscal deficits at a level unseen before excluding war times. Geopolitical situation is different. Employment is different. Wage growth is different. The list goes on and on. It’s different not only in the USA but worldwide.
Probably the honest take is that nobody really knows and that inflation is not the inevitable conclusion like most pundits want us to believe. I personally think impact on growth will dwarf inflationary impulse but there are massive fat tails on both sides. This is not 2016.
The fiscal deficits further enhance the ability of consumers to weather storms. When the government spends 100 into the economy and takes back 90, that 10 must go somewhere. Broadly, it ends up in the private sector.
The big "if" is whether things remain the same. Looking at what we've seen with TFP growth, I have a hard time seeing it as a large drag on GDP. However, I always reserve the right to be wrong.
TFP will reduce the cost per unit of output, increase the competitive advantage of the USA, and expand the overall output of the economy.
So, I personally believe this will help reduce the impact on both growth and inflation.
The false sense of security that comes with economic models and regressions applied to a completely different environment.
The total level of government debt outstanding is different. The market demand for coupon issuance is different. The fiscal deficits at a level unseen before excluding war times. Geopolitical situation is different. Employment is different. Wage growth is different. The list goes on and on. It’s different not only in the USA but worldwide.
Probably the honest take is that nobody really knows and that inflation is not the inevitable conclusion like most pundits want us to believe. I personally think impact on growth will dwarf inflationary impulse but there are massive fat tails on both sides. This is not 2016.
The fiscal deficits further enhance the ability of consumers to weather storms. When the government spends 100 into the economy and takes back 90, that 10 must go somewhere. Broadly, it ends up in the private sector.
The big "if" is whether things remain the same. Looking at what we've seen with TFP growth, I have a hard time seeing it as a large drag on GDP. However, I always reserve the right to be wrong.
TFP will reduce the cost per unit of output, increase the competitive advantage of the USA, and expand the overall output of the economy.
So, I personally believe this will help reduce the impact on both growth and inflation.
Great article