Daily Reckoning

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  • Monetary and Fiscal Policy Won’t Help

    Monetary and Fiscal Policy Won’t Help

    This post Monetary and Fiscal Policy Won’t Help appeared first on Daily Reckoning. Monetary and fiscal policy won’t lift us out of the new depression. Let’s first take a look at monetary policy. Fed money printing is an exhibition of monetarism, an economic theory most closely associated with Milton Friedman, winner of the Nobel Memorial Prize in economics in 1976. Its basic idea is that changes in money supply are the most important cause of changes in GDP. A monetarist attempting to fine-tune monetary policy says that if real growth is capped at 4%, the ideal policy is one in which money supply grows at 4%, velocity is constant and the price level is constant. This produces maximum real growth and zero inflation. It’s all fairly simple as long as the velocity of money is constant. It turns out that money velocity is not constant, contrary to Friedman’s thesis. Velocity is like a joker in the deck. It’s the factor the Fed cannot control. Velocity is psychological: It depends on how an individual feels about her economic prospects. It cannot be controlled by the Fed’s printing press. It measures how much money gets spent from people to businesses. Think of …Read More »
  • Economy Won’t Recover Until 2023

    Economy Won’t Recover Until 2023

    This post Economy Won’t Recover Until 2023 appeared first on Daily Reckoning. I’ve argued that we’re in a new depression. The depth of the new depression is clear. What is unclear to most observers are the nature and timing of the recovery. The answer is that high unemployment will persist for years, the U.S. will not regain 2019 output levels until 2022 and growth going forward will be even worse than the weakest-ever growth of the 2009–2020 recovery. This may not be the end of the world, yet it is far worse than the most downbeat forecasts. Some sixth-grade math is a good place to begin the analysis. Make 2019 economic output 100 (the actual figure is $21 trillion; “100” is 100% of that number, a convenient way to measure ups and downs). Assume output drops 40% in the second and third quarters of 2020. (Many estimates project larger drops; 40% is a plausible if conservative estimate.) A 40% drop for six months equals a 20% drop for the full year assuming the first and fourth quarters are flat on net. A 20% drop from 100 = 80 (or $4.2 trillion of lost output). Now let’s see what happens if …Read More »
  • Fools, Traitors and America

    Fools, Traitors and America

    This post Fools, Traitors and America appeared first on Daily Reckoning. A nation can survive its fools, it is said — but not its traitors. Yet we begin to suspect the opposite… That is, a nation can survive its traitors — but not its fools. That is because a nation’s fools infinitely outnumber a nation’s traitors. Answer this question: How many traitors roam within your range of acquaintances? But how many fools roam within your range of acquaintances? Being a fool is no crime of course. We would be rotting behind the bars if it were. Much of the population would be with us. But their legal status makes fools no less dangerous. And the damage they work often ranges beyond calculation. A fool with a bad idea in his head is like a baby with a loaded gun in his hand… Woodrow Wilson, Fool Was Woodrow Wilson a traitor for meddling in a European civil war? We would never suggest it. He may have meant the best in the world. He wished to make the world safe for democracy — and by extension safe for America. But was he a fool for hurling the nation into a European civil …Read More »
  • Depression and the Great American Exodus

    Depression and the Great American Exodus

    This post Depression and the Great American Exodus appeared first on Daily Reckoning. Is the worst of the economic collapse over? Not really. The economy is off the bottom, but that’s only to be expected after the historic collapse of March–May and the stock market crash in March and April. The question now is not whether we’re growing again. We are. The questions are how fast is that growth, and how long will it be before we return to 2019 levels of output? And this question applies not just to the U.S. but to the entire global economy, especially the large producers such as China, Japan and the EU. Here, the news is not good at all. Recent data suggests that we may not reach 2019 output levels until 2023 at the earliest, and that something close to full employment may not return until 2025. A simple example will make the point. Just Not Enough Growth Assume 2019 GDP has a normalized level of 100. Now assume a 10% drop (that’s about how much the U.S. economy will decline for the full-year 2020 according to many estimates). That moves the benchmark to 90 in 2020. Now assume 5% growth in …Read More »
  • “A Revolution Not Made But Prevented”

    “A Revolution Not Made But Prevented”

    This post “A Revolution Not Made But Prevented” appeared first on Daily Reckoning. The Daily Reckoning trampled sacred ground this Independence Day… and profaned the national religion of America. For we posted grave heresies about the American Revolution. This is the question we raised, leadingly, provocatively, heretically: “Was the American Revolution a mistake?” We may as well have declared Benedict Arnold a hero… George Washington a traitor… the revolutionaries a crew of cutthroats… and the Fourth of July a blackguard’s holiday. Yet the article’s author — Mr. Gary North — roared a thunderous “yes” to our question. Heresy! “I did not celebrate the Fourth of July today,” he thundered… with fire in his heart, blood in his eye, venom in his words. Why did Mr. North refuse to celebrate this July Fourth… or any other July Fourth? Here is the answer: Because he believes the American colonists were the freest peoples on Earth. And at 1% — perhaps 2.5% in the southern Colonies — King George’s tax bite was so light it failed to break the skin. That is, the Revolution was a grand swindle and the Declaration of Independence a packet of lies. Please click here if you missed …Read More »