So that was a fantastic article that I read to the end and it made several fascinating claims:
1. The recent disconnect between government debt and the economic cycle as the debt-to-GDP ratio has shot up when unemployment is low. Who knows how bad that's going to look as unemployment inevitably shoots up and government receipts go down as a result.
2. The fact that corporate income has basically been flat since 2014. That was a surprise to me and particularly surprisingly the almost unprecedented stock market rally over that period. When earnings become divorced from returns, it tends to signal the end of the boom and everything comes crashing back to earth at some point.
3. Seeing just how high China's USD-denominated debt is. I've read a few things on the possible US-China trade war in the last couple of years and I'd come round to the view that China was in a far weaker position for a protracted trade war than many thought. This data point fits that view.
4. The US tax "cuts" aka the GOP Donor Class Handout Act may well go down as one of the most foolish missed opportunities of the modern era, particularly given the trillions the government is clearly going to spend on Covid-19 bailouts.
5. The Federal Reserve is likely going to have to go on an unprecedented money printing spree to buy government debt.
What I'd like to know is will any of this impact inflation?
Probably not, as Philips Curve fueled inflation hasn't been a problem for a very long time in the US, income & wealth inequality just eats that segment of inflation up
Central banks through the western world have been getting consistent under target inflation rates for many, many years now, and that's a chronic issue that won't change unless strong systemic changes happen which fuel Phillips Curve inflation once again
Last year the ECB published this amazing, amazing paper which cover how labor costs affect inflation, specifically the Phillips Curve which I can't recommend to all the other MacroEcon people to review
It depends how you measure inflation. Over the past decade or so we've seen what I've heard described as "biflation" - imported deflation in the prices of many goods alongside pretty high rates of inflation in some services, goods and assets (like company shares or real estate in some markets). Traditional measures of consumer price inflation are pretty heavily skewed towards goods and within those slightly skewed towards goods which come with imported deflation so when that all gets averaged out it shows slightly below target inflation but the headline numbers really don't tell you as much as they used to.
Whether this continues I have no idea but it's worth thinking about the components of "inflation" and what is and isn't included when considering its impact on the economy.
Won't the M2 measure of the money supply increase by some 40% as a consequence of the current stimulus and bailout packages? Hard to see that this won't cause some inflation.
No. Look at the papers about QE from the financial crisis. Increases in bank reserves had very little effect on consumer price inflation. Even with large scale monetary intervention, we haven't seen significant inflation in any developed economy in decades. There are many reasons for this (decreased wage-push inflation from weaker labor unions, wealth inequality, trade, structural and demographic factors, etc).
Someone else on this post commented on the potential for a bifurcated inflation system, where some goods and services (and assets) are sensitive to local currency, inequality, and labor market conditions and others (e.g. imported goods) are more sensitive to other factors. This is a reasonable hypothesis but last I checked the evidence is not all there yet.
I'd say that the 2-week 20% stock market rise in the middle of a global pandemic is at least partially due to the expectation of asset inflation, and not just due to childlike optimism that the economic consequences of the pandemic will be gone in 6 months.
This is just the first thought that makes sense though, would love to see some discussion of it.
I expect this bump to be a dead cat bounce. Some people rushed back in thinking the bottom was passed. I think there will be a new bottom in the next 6 months. However, the companies that do survive this pandemic will be even stronger and more valuable. The FTC will allow all kinds of M&A activity when it should be going to bankruptcy instead. If people think Tech and FAANG dominated before, you ain't seen nothing yet.
What would cause it to crash down again? Seems like virus spread is slowing and were not going to see the insane number of deaths being predicted during last crash. Travel industry might be hurt for a year but most people will likely just have an even bigger vacation this winter or next summer
No one can know, but a lot of business won't recover. That means sustained unemployment for a long period of time. I think it is not fully understood how interconnected small businesses are. Those unemployed people are don't have money to support a bounce back of other business. We'll see how 2020 plays out.
"GOP Donor Class Handout Act" - Did people not see a tax decrease? My taxes noticeably decreased. Could be due to state taxes no longer being subsidized, but it still should even out for most
1. The recent disconnect between government debt and the economic cycle as the debt-to-GDP ratio has shot up when unemployment is low. Who knows how bad that's going to look as unemployment inevitably shoots up and government receipts go down as a result.
2. The fact that corporate income has basically been flat since 2014. That was a surprise to me and particularly surprisingly the almost unprecedented stock market rally over that period. When earnings become divorced from returns, it tends to signal the end of the boom and everything comes crashing back to earth at some point.
3. Seeing just how high China's USD-denominated debt is. I've read a few things on the possible US-China trade war in the last couple of years and I'd come round to the view that China was in a far weaker position for a protracted trade war than many thought. This data point fits that view.
4. The US tax "cuts" aka the GOP Donor Class Handout Act may well go down as one of the most foolish missed opportunities of the modern era, particularly given the trillions the government is clearly going to spend on Covid-19 bailouts.
5. The Federal Reserve is likely going to have to go on an unprecedented money printing spree to buy government debt.
What I'd like to know is will any of this impact inflation?