Friday , August 23 2019
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Edward Harrison

Edward Harrison

I am a former European credit markets and M&A guy who started out as a diplomat. — so I have some pretty diverse interests.

Articles by Edward Harrison

Our over-reliance on monetary policy is the problem

7 days ago

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

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The Fed overtightened. Now it’s behind the curve. Recession awaits

8 days ago

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.

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Why my base case for 2020 is recession

10 days ago

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 …

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Competitive currency devaluation and the currency war

16 days ago

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…

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The trade-currency war will crystallize downside risks

17 days ago

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…

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Trade war escalation highlights downside economic risks

18 days ago

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…

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A variety of pre-FOMC thoughts on the economy

23 days ago

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…

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Why what economists are now saying about inflation matters

24 days ago

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

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US GDP report puts nail in the coffin for the recession story

28 days ago

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.

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The awful news coming out of Germany

29 days ago

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, …

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Dreams of a Second Half Recovery

July 24, 2019

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…

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Obama the Conservative vs Trump the Revolutionary

July 10, 2019

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,

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The Fed’s Pickle

July 9, 2019

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

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The Downside Risk to the Mid-2019 Macroeconomy

July 9, 2019

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…

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The Mid-2019 Macroeconomy

July 2, 2019

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. …

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What the yield curve is signaling about the US economy

June 21, 2019

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…

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More negative signals, this time from the economy

June 18, 2019

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…

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The convergence to zero trade is back

June 12, 2019

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…

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The problem with Europe

June 12, 2019

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

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The Fed basically has to cut now

June 7, 2019

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 …

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Geopolitical confrontation and the breakdown of globalization

June 5, 2019

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…

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The US economy is now on recession watch

June 3, 2019

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…

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Henry George: The economist to watch in the 21st Century

May 31, 2019

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

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Very negative market signals

May 31, 2019

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…

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More on the Collapse of the Center

May 30, 2019

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 …

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The Collapse of the Center

May 28, 2019

It’s the politics, stupid?Credit Writedowns is back. And right now, it’s the politics that are on my mind more than the markets or the economics. I have had a long while to sit and think about what’s been happening and where we’re going. And what stands out for me on the economic front is just how …

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Automatic stabilizers and a neutral fiscal stance

May 16, 2019

Quick note hereNeutral Fiscal PolicyI mentioned ‘augmented fiscal stabilizers’ and a neutral fiscal policy in the last message. And subsequently, I thought I should link out to a piece I published on these topics two years ago. Read that piece in full here. But let me quote from the piece and post…

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The hardening trade war and the pause in IPO easy money

May 14, 2019

Like yesterday, I have a few thoughts on the economic headlines below. This one is behind the paywall though and I am going to focus mostly on two topics.Yield curve inversionAt its worst yesterday, the risk-off play saw the 10-year falling to 2.40%, marginally below the 3-month yield. As I write …

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Risk-off selling continues as Uber slides

May 13, 2019

I have some thoughts on economic headlines below. This one is outside the paywall. If you like what you read, please subscribe.
Uber as a signpost
I am just catching up to where I left off at the end of last week regarding the risk-off move in shares. That move continues into today. As I write this Uber is down 6.9% in the pre-market after a decline of nearly 8% Friday. This is after it went to market at the bottom of its trading range. Its smaller rival Lyft is also still hurting, with shares down 30% from its IPO price.
A number of things come to mind here. First, this is a near-term bad sign for the market. That Uber and Lyft were able to IPO at all tells you there is risk-on appetite. I am not talking about retail investors here. The fear of missing out is palpable among

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