5 ms·

The combination of tax repatriation, tax cuts, and large-scale deficit spending (fiscal expansion) late in the economic cycle (recessions typically happen every

The combination of tax repatriation, tax cuts, and large-scale deficit spending (fiscal expansion) late in the economic cycle (recessions typically happen every 8 years or so, and the current expansion has been going on for ~10 yrs now) while the Federal reserve is raising interest rates (monetary 'contraction') is more or less unprecedented (we've never seen it happen in modern times in the US or any other large developed economy). The risk is that fiscal policy is pouring more fuel on the fire at the precise time when the economy typically starts slowing, further inflating asset bubbles and making the Fed's job (to avoid inflation and keep employment high) much potentially harder and making it more likely a misstep will happen. Popping bubbles or slowing their formation is inherently a tricky proposition (just look at the run-up in stocks from early 2017 until now); move too aggressively and you risk sparking a liquidity crisis and plunging your economy directly into recession; move too slowly and you end up with an even larger bubble later on to deal with. This is tricky in normal times, but doing so while the other wing of government is actively stimulating the economy makes it much harder to gauge the impact of monetary policy and withdraw Fed support in a prudent and measured way.

ianai 8y ago
Just to clarify. There is no inherent business cycle. The Great Depression proved that the lows can continue on indefinitely without abatement. Laissez faire economics are dead.
- Retric 8y ago
  The buisness cycle is closer to the truth than calling economic growth a random walk. You get feedback loops which prevent a steady state.
  - ianai 8y ago
    You’re probably basing that on data benefiting from a supervisory political institution. If that data exist.
    - komali2 8y ago
      If you're about to argue that there wouldn't be business cycles or depressions if we managed to overthrow capitalism, I don't think people are going to disagree with you lol
      - simonh 8y ago
        True, in most communist systems instead you get really slow growth, with occasional pauses in growth at all alongside frequent severe shortages of essential goods.
        ianai 8y ago
        Gotta love the despotism too. I’m not a communist. Probably the market the US spread through the globe from 1945-2017 was a highlight. A pretty well buffered system, but not without it’s hard lessons and squandering of the individual wealth. There are clear examples of exploitation.
      - ianai 8y ago
        No, I’m saying that without the Fed and the federal government acting to rationally steer markets the markets will go off a cliff and not come back. Just like Bernanke said here. Regulators matter. When the government stimulates the already hot market with lax taxes and high spending it’s like pouring liquid oxygen onto a flame.
        alter_eco123 8y ago
        > I’m saying that without the Fed and the federal government acting to rationally steer markets the markets will go off a cliff and not come back. So how did markets exist at all when the Fed was created? By your logic, they would have "gone off a cliff and never come back" long before that. > When the government stimulates the already hot market with lax taxes and high spending it’s like pouring liquid oxygen onto a flame Even after all the stimulus so far? No diminishing returns, ever?
        AnimalMuppet 8y ago
- smallnamespace 8y ago
  The Great Depression itself had periodic upswings and downturns. 'This time is different' is also the mantra of every late-cycle investor buying at the peak. I started my working life right into the jaws of the Great Recession and try not to forget that lesson.
- JumpCrisscross 8y ago
  > There is no inherent business cycle Yes, there is. It's driven by individual credit cycles syncing up due to the economies of scale of financial distribution. Borrowing money fundamentally means more income today and less income (than otherwise) tomorrow. That drives cycles.
coliveira 8y ago
The so called business cycle is created by the FED itself. Left uncontrolled, the market will disconnect from reality and create bubbles that can destroy the economy, as it did in 1929. The unrecognized work of the FED is to increase the interest rates periodically to force these bubbles to pop and create a minor recession before they can collapse the economy. The real risk of this cycle is that the FED has already lost the opportunity to contain a major bubble which is already forming in the stock market.
- nimish 8y ago
  The Fed (it's short for Federal Reserve, not some acronym) was created well after business cycles first appeared. The business cycle of boom and bust is characteristic of capitalism as a system, and if anything, the elastic monetary policy that the Federal Reserve allows has softened the blows.
- mhneu 8y ago
  Real estate market too. (What is hard to know is how much laundered money props up real estate in London, NYC, Miami, etc., and if we crack down on laundering, whether it will pop the bubble. Adam Davidson and Seth Hettena have written well on how we got here and why it will be difficult to unroll.)
- dv_dt 8y ago
  This management of bubbles also seems to completely contain real wage growth.
- pascalxus 8y ago
  Yes, but they should have started increasing interest rates at least several years before they started. They kept the party going too long. And when we get the next hangover, the interest rates will already be too low to zero.
- AnimalMuppet 8y ago
  > Left uncontrolled, the market will disconnect from reality and create bubbles that can destroy the economy, as it did in 1929. And 1893, and a bunch of other times. But that might also be called the "business cycle". This nice tame business cycle that we've come to take for granted is created by the Fed; the sans-Fed business cycle was incredibly vicious.
bradyseason 8y ago
Bernanke is the fed chairman so he obviously knows something that most of us don't. But from some analysis, it seems that US will be in good shape for the next 10-20 years. US is currently in capable hands economically since it is lead by a businessman and surrounded by financial experts from wall street. (I don't approve of Trump's character). Some factors for US's continued growth: healthy demographics - due to immigration, low corporate tax rate, interest rate rising and dollar strength - attracting capital inflow, biggest economy in the world, biggest consumer market in the world, one of the most innovative for its size, balanced economy (used to be dominated by manufacturing, but now it is pretty spread out and consistent), good environment for rich to immigrate to, growing reshoring of manufacturing, leader in technologies, etc. Instead of comparing US to the yesteryears, let's compare US to other countries in the world today and see why money is going to keep flowing into US for a long time. Japan: seems to be on an upswing, the recent news of bring in 500,000 immigrants will help with the economy. Unfortunately, it still suffers from demographic decline, innovation staleness, 1.0% anemic gdp growth, competition from cheaper Asian countries for manufacturing, etc. Its paternalistic culture doesn't help to introduce women into the workforce and boost/diversify its economy. Still, a good place to live for many, and high standards of living. but not for investments. Xi Jing Ping: he is the dictator, therefore he is the country and the economy. Sadly, history has proven that a society cannot escape middle-income trap until it has transformed to a culture that promotes openness and innovation, something that a dictatorship has never shown to do. Therefore the country is dedicated to stealing IP from other countries and companies for a long time. If one looks at other dictatorships in the current era, they always exhibit faster economic growth than their democracy counterparts. However, once the easy growth is used up, the dictatorships are stuck in a decline. As evidenced by the country's 350%+ GDP to debt, 3 trillion of its 6 trillion wealth has fled to overseas, and 50% of rich wanting to leave. Also, evidenced by strict capital control, draconian rule of law, censorship, housing bubble bursting, fake GDP numbers claimed by many of its provinces, etc. The current government will try to hold on for another 10-15 years, stunting the economy. Xi Jing Ping will die, then the grab for power will throw the economy into chaos. EU: several of its nation members are suffering EU withdraw symptoms. Greece would like to leave but its economy is too small to matter. Italy however, is another story. With the 3rd biggest economy in EU, and the recent elected populist leaders, Italy will try to pile on the debt to address its anemic economy and migrants issue. EU unfortunately won't be able to do much; threaten Italy with debt reduction (currently 120% of gdp), and Italy will leave EU. Do nothing, and Italy will bring down EU's fiscal health until EU disbands. EU doesn't seem to be viable in 5 years. Emerging Market: current capital outflow indicates there are trouble brewing due to expatriation of dollar back into US. From Turkey to Argentina to Indonesia, the emerging markets are going to struggle paying back their dollar-denominated debts with the rising interest rates and stronger dollars. Flashback to 1998 Asian crisis. Disclosure: I have no stocks in play.

ianai 8y ago

Just to clarify. There is no inherent business cycle. The Great Depression proved that the lows can continue on indefinitely without abatement. Laissez faire economics are dead.

Retric 8y ago
The buisness cycle is closer to the truth than calling economic growth a random walk. You get feedback loops which prevent a steady state.
- ianai 8y ago
  You’re probably basing that on data benefiting from a supervisory political institution. If that data exist.
  - komali2 8y ago
    If you're about to argue that there wouldn't be business cycles or depressions if we managed to overthrow capitalism, I don't think people are going to disagree with you lol
    - simonh 8y ago
      True, in most communist systems instead you get really slow growth, with occasional pauses in growth at all alongside frequent severe shortages of essential goods.
      - ianai 8y ago
        Gotta love the despotism too. I’m not a communist. Probably the market the US spread through the globe from 1945-2017 was a highlight. A pretty well buffered system, but not without it’s hard lessons and squandering of the individual wealth. There are clear examples of exploitation.
    - ianai 8y ago
      No, I’m saying that without the Fed and the federal government acting to rationally steer markets the markets will go off a cliff and not come back. Just like Bernanke said here. Regulators matter. When the government stimulates the already hot market with lax taxes and high spending it’s like pouring liquid oxygen onto a flame.
      - alter_eco123 8y ago
        > I’m saying that without the Fed and the federal government acting to rationally steer markets the markets will go off a cliff and not come back. So how did markets exist at all when the Fed was created? By your logic, they would have "gone off a cliff and never come back" long before that. > When the government stimulates the already hot market with lax taxes and high spending it’s like pouring liquid oxygen onto a flame Even after all the stimulus so far? No diminishing returns, ever?
      - AnimalMuppet 8y ago
smallnamespace 8y ago
The Great Depression itself had periodic upswings and downturns. 'This time is different' is also the mantra of every late-cycle investor buying at the peak. I started my working life right into the jaws of the Great Recession and try not to forget that lesson.
JumpCrisscross 8y ago
> There is no inherent business cycle Yes, there is. It's driven by individual credit cycles syncing up due to the economies of scale of financial distribution. Borrowing money fundamentally means more income today and less income (than otherwise) tomorrow. That drives cycles.

coliveira 8y ago

The so called business cycle is created by the FED itself. Left uncontrolled, the market will disconnect from reality and create bubbles that can destroy the economy, as it did in 1929. The unrecognized work of the FED is to increase the interest rates periodically to force these bubbles to pop and create a minor recession before they can collapse the economy. The real risk of this cycle is that the FED has already lost the opportunity to contain a major bubble which is already forming in the stock market.

nimish 8y ago
The Fed (it's short for Federal Reserve, not some acronym) was created well after business cycles first appeared. The business cycle of boom and bust is characteristic of capitalism as a system, and if anything, the elastic monetary policy that the Federal Reserve allows has softened the blows.
mhneu 8y ago
Real estate market too. (What is hard to know is how much laundered money props up real estate in London, NYC, Miami, etc., and if we crack down on laundering, whether it will pop the bubble. Adam Davidson and Seth Hettena have written well on how we got here and why it will be difficult to unroll.)
dv_dt 8y ago
This management of bubbles also seems to completely contain real wage growth.
pascalxus 8y ago
Yes, but they should have started increasing interest rates at least several years before they started. They kept the party going too long. And when we get the next hangover, the interest rates will already be too low to zero.
AnimalMuppet 8y ago
> Left uncontrolled, the market will disconnect from reality and create bubbles that can destroy the economy, as it did in 1929. And 1893, and a bunch of other times. But that might also be called the "business cycle". This nice tame business cycle that we've come to take for granted is created by the Fed; the sans-Fed business cycle was incredibly vicious.

bradyseason 8y ago

Bernanke is the fed chairman so he obviously knows something that most of us don't. But from some analysis, it seems that US will be in good shape for the next 10-20 years. US is currently in capable hands economically since it is lead by a businessman and surrounded by financial experts from wall street. (I don't approve of Trump's character). Some factors for US's continued growth: healthy demographics - due to immigration, low corporate tax rate, interest rate rising and dollar strength - attracting capital inflow, biggest economy in the world, biggest consumer market in the world, one of the most innovative for its size, balanced economy (used to be dominated by manufacturing, but now it is pretty spread out and consistent), good environment for rich to immigrate to, growing reshoring of manufacturing, leader in technologies, etc. Instead of comparing US to the yesteryears, let's compare US to other countries in the world today and see why money is going to keep flowing into US for a long time. Japan: seems to be on an upswing, the recent news of bring in 500,000 immigrants will help with the economy. Unfortunately, it still suffers from demographic decline, innovation staleness, 1.0% anemic gdp growth, competition from cheaper Asian countries for manufacturing, etc. Its paternalistic culture doesn't help to introduce women into the workforce and boost/diversify its economy. Still, a good place to live for many, and high standards of living. but not for investments. Xi Jing Ping: he is the dictator, therefore he is the country and the economy. Sadly, history has proven that a society cannot escape middle-income trap until it has transformed to a culture that promotes openness and innovation, something that a dictatorship has never shown to do. Therefore the country is dedicated to stealing IP from other countries and companies for a long time. If one looks at other dictatorships in the current era, they always exhibit faster economic growth than their democracy counterparts. However, once the easy growth is used up, the dictatorships are stuck in a decline. As evidenced by the country's 350%+ GDP to debt, 3 trillion of its 6 trillion wealth has fled to overseas, and 50% of rich wanting to leave. Also, evidenced by strict capital control, draconian rule of law, censorship, housing bubble bursting, fake GDP numbers claimed by many of its provinces, etc. The current government will try to hold on for another 10-15 years, stunting the economy. Xi Jing Ping will die, then the grab for power will throw the economy into chaos. EU: several of its nation members are suffering EU withdraw symptoms. Greece would like to leave but its economy is too small to matter. Italy however, is another story. With the 3rd biggest economy in EU, and the recent elected populist leaders, Italy will try to pile on the debt to address its anemic economy and migrants issue. EU unfortunately won't be able to do much; threaten Italy with debt reduction (currently 120% of gdp), and Italy will leave EU. Do nothing, and Italy will bring down EU's fiscal health until EU disbands. EU doesn't seem to be viable in 5 years. Emerging Market: current capital outflow indicates there are trouble brewing due to expatriation of dollar back into US. From Turkey to Argentina to Indonesia, the emerging markets are going to struggle paying back their dollar-denominated debts with the rising interest rates and stronger dollars. Flashback to 1998 Asian crisis. Disclosure: I have no stocks in play.