Understanding curve flatteningLong-time readers know that I have talked for a number of years about a longer-term global convergence to zero play that I see shaping up. It first emerged during the mid-cycle slowdown in 2015 and 2016 as yield curves began to flatten. Looking through my archives, I n…

I haven’t written about Brexit in months now, largely because it has become so unpredictable that I have had nothing to say. After we saw the delay that I predicted in December, the whole affair has just had too many moving parts to know what would happen next.
But, as you know, I was in Germany an…

Real quick here on Europe as I promised yesterday to add some thoughts on Germany after my trip to CologneUS base rates are too highTake a look at this chart from Bianco Research.
Jim Bianco describes this as showing the US having the highest policy rate among developed economies for 13 months …

I was in Cologne and London last week, two places I know quite well. And as I went out, my trip down memory lane was greeted by the eternal progress of human endeavour. Whether riding the frequently behind schedule Deutsche Bahn by the former Ulrich Haberland Stadion or the S-Bahn through relatively…

I am back from my beach vacation. So, let me outline what my thinking is after a period of reflection and how it has changed or stayed the same.
I last posted more than a week ago right before I left, regarding my frustration about policymakers’ unwillingness to act directly to improve the lives of…

I am going to argue here that monetary policy is both less effective than fiscal policy, and that over-reliance on it unnecessarily politicizes monetary policy by putting unelected officials in too prominent an economic role.
I would argue that monetary policy should never be the primary macro policy driver in any economy. Yet, when you look around the world it is in almost every advanced economy. It is certainly that way in the eurozone, where interest rates are negative and the largest economy runs fiscal policy via a debt brake and a “black zero” no-deficit rule. And it’s mostly that way in the United States, where every word a Fed official utters is parsed to discern what it means for the future of the economy.
That’s no way to run an economy.

The Fed’s Overtightening
Even

Sorry for the alarmist post title. But the Fed has completely bottled it. I’ve been warning for some time that it could go this way. And now, we are in in the endgame.
First, the Fed overtightened through 2018. Then, forced at gunpoint by financial markets into a retreat this year, it has been very slow to recognize the tightening financial conditions. Now, it is so far behind the curve that a major recession is  breathing down our necks.
Let me put this all together below. And then I will tell you where I think it’s headed. By the way, this is my occasional free newsletter post. If you like what you see and what to read more, please sign up as a paying subscriber.
Before the overtightening
Let me say at the outset that this expansion has been doubted at every step of the way.

Back at the end of July, I was talking about my macro thesis. And I led off writing this:The US is the laggard in this slowing but is affected as well. From a markets perspective, that means a convergence to zero, with yield curves flattening as nominal growth rates contract.
I didn’t mention the …

The US is the cleanest shirtLast week, I was talking to Megan Greene, the former chief economist at John Hancock for an interview on the US and European economies. And she said something that resonated with me about the global growth slowdown. She quipped: "The US is the cleanest shirt in the dirty…

Yesterday, the overarching message of my post was this bit:"as we think of potential outcomes, policy error has to be a real concern here, especially in 2020 once the cumulative impact of all this takes its full measure."I don’t think the data show a recession baked into the cake. There’s no reaso…

The big story today is the potential for a currency war, emanating from the escalating trade war between the US and China. But there’s a considerable degree of data flow that I want to parse to give a more complete macro view.
Having looked at the data already though, my overriding sense here is th…

My macro viewWhat’s my overall thesis at this juncture?
It’s that the global economy is slowing and is likely to slow further before it picks up. The US is the laggard in this slowing but is affected as well. From a markets perspective, that means a convergence to zero, with yield curves flattenin…

The US Personal Income and Outlays report for June 2019 came out this morning. It showed personal income increasing 0.4% and wages and salaries increasing 0.5% last month. These are good numbers. And in conjunction with a lot of other data we have seen recently, it should put to rest worries we have seen about an imminent recession.
But, over the medium-term, it makes sense for economists to worry about a potential downturn, especially given the weakening growth we have seen in Europe, China, and Japan. The big question is this: what should policymakers do? The tried and true approach of lowering interest rates hasn’t been as effective as anticipated, either in sparking real economic growth or inflation. What gives?
Below are my thoughts on what’s happening and what I believe

The latest US GDP report was just released showing the US economy expanded at a 2.1% annualized rate in the second quarter of 2019. This was marginally better than expectations for a 1.8% increase, and significantly above the Atlanta Fed’s GDPNow indicator that was showing 1.3%.
The numbers are good
While these numbers may be revised down somewhat in future releases, they are still much higher than one would expect in an economy where the yield curve is partially inverted and the Fed is expected to cut interest rates later in the month. And the consumer numbers were particularly good, with consumer spending rising at a 4.3% annualized pace in the quarter.
I like the real final sales figure that excludes trade and inventory to get a read of the core message the data is sending.

Quick note here before I get into the post: I am going to start posting these pieces on both Credit Writedowns and Patreon to flesh out who is getting all of the emails. If you are only getting one of these, please email me and I will look into what is going on. Now, onto the content.
Yesterday, …

As I write this, Washington is fixated on the congressional testimony of Robert Mueller. My attention is elsewhere though. For me, it’s the economy that matters.
Over the past two weeks, we have had a "recession watch" on Real Vision, where I act as both editor and interviewer. The thesis is that w…

I was thinking about this topic this morning and I wanted to run it by you. The genesis of it all was an interview I did with Rohan Grey and Kevin Muir on Real Vision regarding MMT. And one conclusion I drew – partially motivated by the debate – is that Millennials face a very different world than Gen X or baby boomers did. I think that means their receptivity to change is different. So I wanted to sketch out how I am thinking about some of these things using Obama and Trump.
The generational backstory
I’ve been mulling this over for quite some time. In the past, I had seen surveys that say Millennials are more open to socialism than any generational cohort in recent memory including Gen X and the baby boomers, who make up the rest of the working-age population.
Looking this up,

This is a follow-up to my subscriber post from earlier today on the US economy. For those of you who are not paying subscribers, let me summarize the post by saying I think the US economy is slowing but not in a recession. Nevertheless, I think we are likely to see a recession before the end of 2020. That’s actually my base case.
The obvious questions regard policy responses, particularly the Fed’s. So I am writing this post to address some of that.
50 basis points won’t happen
A few weeks ago, I spoke to David Rosenberg of Gluskin Sheff on Real Vision. Here’s the link. This was a follow-up to a March interview in which he predicted a capex recession and a bunch of other stuff. All of his points came to pass. He was perfect in prognosticating how the data would turn out and how

None of the metrics I look at are screaming recession right now. In fact, for the US, some of the data is improving. Nevertheless, there is reason to be concerned about the state of the US economy in mid-2019 – so much so that my base case is for recession by the end of next year. Let me tell you wh…

In the US, we are officially in the longest expansion of all time. And, as yet, there are no definitive indicators I can see that it will end in short order. So I remain hopeful, if cautious about the potential for the US economy to avoid recession over the coming 18 months through the end of 2020. …

Today, we saw a nice pop in equities on the back of a dovish Fed and falling interest rates. Equities moved to new highs as a result. But, clearly, falling yields are a sign of economic distress that one might think would cause equity investors to run for cover. What gives?
Here’s my answer.The Fe…

At the end of May, I started a post on very negative market signals saying "[t]he economic data out of the US and elsewhere still point to continued economic expansion over the near term. But, what we’re seeing in financial markets right now suggests markets are discounting serious economic problems…

Let me follow up this morning’s general post with some longer term thoughts here via the Patreon platform. And while I want to make some geopolitical comments, let me look at this mostly from a markets perspective.
I am once again thinking a lot about the long Anglo-Saxon bonds relative value trade…

I have been troubled by the lack of policy space in Europe for some time now, particularly as it concerns Italy. But this is coming to a head for me this morning, with the German government auctioning 10-year paper at 24 basis points below zero and some German interest rates almost 70 basis points below zero. So I want to explain what I see as the challenges ahead as well as the opportunities.
By the way, this is one of the occasional free Credit Writedowns posts I write. If you like what you read please consider subscribing to the newsletter. Plus, I have just started running a limited promotion for paid subscriptions.
Back to Europe
Currency Sovereignty
In Europe, it all starts with the currency. And that’s because the euro is not a national currency which individual member

The latest jobs report out of the US was relatively poor. While the comprehensive U-6 unemployment rate went down to the lowest since 2000, other data points suggested the labor market is topping. And with bond markets already predicting a need for two cuts this year, the Fed has to cut this summer …

Everything I am reading this morning in the news flow points to increased geopolitical confrontation and the breakdown of the post-Cold War world order. We are quickly moving to a more hostile balkanized geopolitical environment. And I believe this will negatively impact medium-term growth, with glo…

Recession Watch
America’s business leaders are growing more worried that the United States will enter a recession by the end of 2020. Their primary fear: protectionist trade policy.That is the topline finding of a report released Monday by the National Association for Business Economics. The surve…

I am sitting here diving into a brand new copy of a book – Progress and Poverty – that was written 140 years ago, in 1879. And it occurred to me I should write you about it because the ideas in this book are as relevant to the 21st century as any other school of economic thought.
The author is Henry George, a political economist and journalist who was influential in the late 19th century. And although Georgism isn’t getting a lot of buzz in the business press right now, this book I am about to re-read has sold millions of copies since it was written. And that’s because its themes resonate.
I am actually now on the board of a small economics school headquartered in Manhattan called the Henry George School of Social Science. But, I had never even heard of Georgism before 2017. So

The economic data out of the US and elsewhere still point to continued economic expansion over the near term. But, what we’re seeing in financial markets right now suggests markets are discounting serious economic problems down the line. So, let me go through the news flow and comment on what I’m se…

SplinteringI am in the process of editing a video at Real Vision where the founder, Raoul Pal, is talking to Dee Smith, the CEO of Strategic Insight Group. It’s going to be released in early June. Interestingly, Dee Smith was making a lot of the same points I made in my post on the Collapse of the …