Saturday, November 7, 2020

Trapped

The following from Hoisington Capital Management's (home of revered macro thinker Lacy Hunt) latest must-read quarterly newsletter should sound very familiar to clients and regular readers:   emphasis mine...

1) A very powerful secular downdraft has occurred in major measures of economic performance. 

2) The U.S. is caught in a debt trap, a term originated by the Bank for International Settlements. A condition where too much debt weakens growth, which elicits a policy response that creates more debt that results in even more disappointing business conditions. 

3) The secular decline in economic conditions and the debt trap preclude the textbook conditions for powerful monetary policy measures to stimulate economic activity. Further, debt financed fiscal programs only boost the economy in the very short-run, but ultimately reduce growth. 

4) The secular deterioration in economic growth has created a condition of excess resources and disinflation. 

5) The workings of the Fisher equation, which have brought Treasury bond yields lower, have been reinforced by a sharp decline in the marginal revenue product of debt. 

Secular Erosion: Real per capita GDP, employment, population and productivity have all exhibited pronounced secular deterioration. From 1980 through 2019, real GDP per capita grew 1.7% per annum, sharply lower than 3.1% in the prior forty years, 1940-1979...

With regard to #4, recall in my latest video where I said that a number of macro thinkers (Hunt being one of them) whom I have great respect for disagree with the notion that inflation stands a decent chance of showing itself in the years to come. My view, as I mentioned, is that they perhaps don't adequately appreciate the effects of the rapid money supply growth, via the trillions in government borrowing and spending, that's yet to come.

And, jibing with #5, as well as the bolded paragraph above, here's from our own must-read ­čśÄ October 7th weekly message:
The economy will be relying on debt growth far more than productivity in the decades to come. In fact, that pretty much describes U.S. economic growth all the way back to the early 80s:
Reinforcing that last point, to quote the source of 4 of today's featured charts: "The relevance of debt growth versus economic growth is all too evident. When debt issuance exploded under the Obama administration, and accelerated under President Trump, it has taken an ever-increasing amount of debt to generate $1 of economic growth":
Have a nice weekend! 
Marty

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