... I heard someone say we will emerge from lockdown to an “80% economy”—mostly back, but with big pieces missing. That sounds about right. But losing a fifth of the economy will still mean a severe recession, if not outright depression, albeit hopefully not as long as that of the 1930s.
...governments and central banks have just been keeping their ships afloat. They haven’t even started “stimulus” yet. But they will, and it will have consequences. That will be today’s topic.
...When the velocity of money is falling, monetary policy which would otherwise cause inflation doesn’t seem to do so.
...Here is Lacy Hunt’s latest velocity chart. You have to go back to 1949 to find a time when it was lower than today, and it was actually rising rapidly off the postwar lows. This was before the coronavirus shutdowns. Let me crawl out on a limb and suggest that the velocity of money is now going to drop even further. Deflation is not your friend.
Source: Hoisington Investment Management
Lacy Hunt told me in an email and then telephone call that this last $2.2 trillion is not money printing. They are simply buying already existing bonds, not unlike QE in the past when the Federal Reserve bought US government bonds. This is not like Venezuela, Argentina, or Zimbabwe. Not even close.
...working from home, ... having been forced to try, they found productivity actually rose significantly. They are now getting ready to institute this new policy more broadly.
Multiplied across thousands of large companies, that means the demand for office space will drop, which means prices for office space will drop. That is deflation, gentle reader.
....At some point supply and demand will balance, but I don’t think it will be in three months. Three years? Maybe. Lacy Hunt thinks it will be a few years longer.
At that point we have the potential for an inflationary episode if the Federal Reserve keeps stimulating and the government keeps running massive deficits. If they act responsibly, inflation could rise to the 2 to 3% level and hopefully not higher. If they don’t act responsibly? All bets are off.
...buying gold as central bank insurance is a reasonable idea.
...people will want to save, perhaps more than they ever have in their lives. Purchases are going to be put off if they can be.
...The money being spent by the Federal Reserve and the US government is not going to create inflation in the short term. And by short term I mean 3 to 4 years. It will take longer than that to get through all of this. Are we going to force entire generations to file for bankruptcy? What about student loans which can’t be discharged in bankruptcy court?
What will landlords do when their banks want payment and their renters can’t pay? Think they will easily be able to find renters who can pay? How much bank capital will be destroyed in write-offs?
...infrastructure program to create jobs, spread out over several years, to fix our ailing water systems, electrical grids, roads and bridges, etc. Now that would be honest-to-God stimulus, as opposed to the mere replacement of lost income.
No comments:
Post a Comment