Tuesday, January 17, 2017

2017 -- Shades of 1937

January 17, 2017

2017 – Shades of 1937

As a result of some Fed actions taken in 1936 and 1937, the U.S. economy, after experiencing a robust economic recovery starting in early 1934, slipped back into a recession midyear 1937, which lasted through midyear 1938. Based on the recent slowdown in thin-air credit growth,  I believe that a significant slowdown in the growth of nominal and real U.S. domestic demand will commence in the first quarter of 2017. The duration and magnitude of this slowdown depends on the future behavior of thin-air credit.

Let’s briefly review the U.S. monetary history of 1936-1938. In response to the robust recovery the U.S. economy was experiencing and the high level of excess reserves the banking system was maintaining, the Fed, in a series of steps between August 1936 and May 1937, doubled the percentage of cash reserves banks were required to hold against their deposits. The Fed believed that these de jure excess reserves held by banks were de facto excess reserves. That is, the Fed did not believe that banks desired to hold the amount of de jure excess reserves that were in existence. If these reserves held by banks truly were in excess of what they wanted to hold, then it was surmised by the Fed that banks would engage in the creation of new credit for the economy by some multiple of the existing excess reserves. If this creation of new bank credit were to occur against a backdrop of an already robust economic expansion, the U.S. economy would be in danger of overheating.  As a result of this reasoning, the Fed chose to “sterilize” some of these excess reserves by converting them into required reserves.

As it turned out, with the experience of bank runs of the early 1930s still fresh in the memory of bank managers, a large proportion of the existing excess reserves were, in fact, desired to be held by banks. As a result, when the Fed decreed that a large portion of these excess reserves would become required reserves, banks attempted to restore their holdings of excess reserves. In this attempt, banks contracted their loans and investments – bank credit. Because only the Fed can increase or decrease total reserves, this banking system contraction in bank credit did not, in and of itself, increase total reserves. But what it did do was contract bank deposits, which in turn, reduced required reserves. For a given amount of total reserves, a reduction in required reserves implies an increase in excess reserves. Following the contraction in bank credit and the sharp slowdown in the growth of bank reserves, the U.S. economy entered a recession at midyear 1937. In sum, the Fed’s decision back then to double the reserve requirement ratio against bank deposits set in motion a sharp deceleration in the growth of thin-air credit that resulted in a U.S. recession.

Let’s fast forward about 80 years. The Fed has not raised required reserve ratios. But, as shown in Chart 1, the Fed has begun contracting an element of thin-air credit, the monetary base (cash reserves held by depository institutions plus currency in circulation). In 2014, the Fed began tapering its purchases of securities in the open market, which slowed the growth in the monetary base. In 2015, the Fed ceased altogether its securities purchase program and contracted the monetary base at the end of 2015 in order to push up the federal funds rate by 25 basis points. For reasons still a mystery to me, the Fed stepped up its contraction in the monetary base in the second half of 2016, culminating in a further contraction in December 2016 in order to push up the federal funds rate another 25 basis points.




Chart 1
Another major element of thin-air credit, credit created by commercial banks, after cruising along at robust growth rates in 2015 and most of 2016, suddenly decelerated sharply in Q4:2016. I am not aware of any new regulations or credit-quality concerns that would have motivated commercial banks to slow their acquisitions of loans and securities. Yes, short-maturity bank funding rates have crept up in the past two years in response to actual and expected increases in the federal funds rate. For example, in the week ended September 30, 2016, the average three-month LIBOR interest rate was 21 basis points higher than it was in the week ended July 1, 2016. If a 21 basis point increase in bank funding costs caused the quantity demanded of bank credit to slow as much as it did in November and December 2016, then the interest elasticity of bank credit demand is extraordinarily high. And if, in fact, the interest sensitivity of bank credit demand is so high, the Fed might want to take this into consideration in its federal funds rate targets going forward.
Chart 2
Okay, it is a mystery to me as to why the Fed contracted the monetary base as much as it did in 2016 and why bank credit growth fell off a cliff in Q4:2016, but as I amusingly remember hearing in so many corporate staff meetings – it is what it is. So, let’s combine bank credit with the monetary base to see what the behavior of this thin-air credit aggregate has been of late. This is presented in Chart 3. On a year-over-year basis, growth in the sum of commercial bank credit and the monetary base in December 2016 was 2.6%. To put this into historical context, from January 1960 through December 2016, the median year-over-year growth in monthly observations of the sum of commercial bank credit and the monetary base was 7.1%. In the three months ended December 2016, the annualized percentage change in this measure of thin-air credit was minus 0.6%.
Chart 3

So, there has been a deceleration in the growth of this measure of thin-air credit to a rate that is quite low compared to its longer-run median rate. So what? Chart 4 provides an answer to this question. Plotted in Chart 4 are year-over-year percent changes in quarterly observations of nominal Gross Domestic Purchases and of the sum of commercial bank credit and the monetary base. The year-over-year percent changes in the sum of commercial bank credit and the monetary base are advanced by one quarter in order to be consistent with my hypothesis that the behavior of thin-air credit leads or “causes” the behavior of nominal Gross Domestic Purchases. Gross Domestic Purchases are defined as Gross Domestic Product minus exports plus imports. The correlation coefficient between these two series from Q1:2012 through Q3:2016 is 0.71. If these two series were perfectly correlated, the correlation coefficient would be 1.00. So, although not a perfect relationship, there does appear to be a relatively close positive relationship between changes in this measure of thin-air credit and changes in nominal domestic purchases of goods and services. With the year-over-year growth in this measure of thin-air credit slowing from 3.9% in Q3:2016 to 2.6% in Q4:2016 (indicated by the Q1:2017 blue bar in Chart 4 because growth in thin-air credit is advanced by one quarter), this augurs poorly for growth in nominal Gross Domestic Purchases in Q1:2017.

Chart 4
If growth in U.S. domestic demand falters in Q1:2017, as “predicted” by the recent behavior of thin-air credit, then the Fed is unlikely to push the federal funds rate higher until it sees a recovery in demand growth. Even if the Fed holds off on raising the federal funds rate, it still is unlikely to step up growth in the monetary base component of thin-air credit in Q1:2017. As mentioned above, I am at a loss to explain the recent sharp deceleration in bank credit growth. But unless growth in this component of thin-air credit does re-accelerate, then very weak growth in total thin-air credit would likely persist through Q1:2017, which would have continued negative implications for growth in domestic demand for goods and services into Q2:2017.

The Fed’s actions of 1936-37 caused a sharp slowdown in the growth of thin-air credit, which resulted in the recession of 1937-38. It is too early for me to forecast a recession in 2017 because of the Fed’s disregard for the recent growth slowdown in thin-air credit. But I do believe investor expectations of U.S. economic growth will be disappointed in the first half of 2017. All else the same, this economic-growth disappointment has positive implications for U.S. investment grade bonds and negative implications for risk assets such as U.S. equities.

One factor that could stimulate thin-air credit growth would be a sharp increase in federal credit demand resulting from tax cuts and/or discretionary spending increases. This increased credit demand would put upward pressure on the structure of U.S interest rates. If the Fed were unwilling to allow the federal funds rate from rising under these circumstances, then both the monetary base and bank credit would rise in the face of the increased credit demand. It is not a question of if significant federal tax cuts are coming in the next two years, but when and how the Fed will react to them.

Paul L. Kasriel
Founder, Econtrarian, LLC
Senior Economic and Investment Advisor
1-920-818-0236

“For most of human history, it made good adaptive sense to be fearful and emphasize the negative; any mistake could be fatal”, Joost Swarte


Wednesday, December 14, 2016

If You Think the Pace of Economic Activity Is Weak in 2016, Just Wait Until 2017

December 14, 2016

If You Think the Pace of Economic Activity Is Weak in 2016, Just Wait Until 2017

As shown in Chart 1, the year-over-year growth in real and nominal Gross Domestic Purchases (C+I+G) in Q3:2016 was 1.4% and 2.4%, respectively. This compares with 2.8% and 4.7% year-over-year growth in real and nominal Gross Domestic Purchases, respectively, in Q3:2014. So the pace of real and nominal domestic spending in the four quarters ended Q3:2016 was about half that of the pace in the four quarters ended Q3:2014. Notice the green line in Chart 1. It represents the year-over-year percent change in quarterly-average observations of the sum of commercial bank credit (loans and securities on the books of commercial banks) and the monetary base (reserves held at the Fed by depository institutions and currency in circulation). As regular readers (are there still two of you?) of this commentary remember, this sum is what I refer to as thin-air credit because it is credit that is created by the commercial banking system and the Fed figuratively out of thin air. The unique characteristic of thin-air credit is that no one else need cut back on his/her current spending as the recipient of this credit increases his/her current spending. Notice that growth in this measure of thin-air credit, as represented by the green line in Chart 1, has been trending lower since hitting a post-recession peak in the fourth quarter of 2014. Growth in thin-air credit is advanced by one quarter in Chart 1 because my past research has shown that the highest correlation between growth in thin-air credit and growth in nominal Gross Domestic Purchases is obtained when growth in thin-air credit leads growth in nominal Gross Domestic Purchases by one quarter. This suggests, but by no means proves, that the behavior of thin-air credit has a causal relationship with the behavior of growth in Gross Domestic Purchases. So, I believe that the slowdown in the growth of thin-air credit in the past two years has played a major role in the slowdown in domestic spending during this period.
Chart 1
Chart 2 provides some insight as to why growth in the sum of commercial bank credit and the monetary base has been slowing since 2014. The slowdown in the growth of thin-air credit in the past two years is not because banks have been stingy with their granting of credit. On the contrary, as can be seen in Chart 2, year-over-year growth in commercial bank credit (the blue line), after accelerating sharply in 2014, held in a range of about 6-1/2% to 7-3/4% in 2015 and over the first three quarters of 2016. So, despite the increased regulation that banks are now subject to, bank credit growth has returned to a rate approximately equal to its long-run median. No, the culprit has been the Fed. Growth in the monetary base (the green bars in Chart 2), reserves and currency created by the Fed, decelerated in 2014. There was essentially no growth in the monetary base in 2015 and there has been a contraction in it so far in 2016. In 2014, the Fed began to taper the amount of securities it had been purchasing in the open market in connection with its third phase of quantitative easing (QE). This resulted in the deceleration in the growth of the monetary base. In 2015, the Fed ceased its QE operations. In December 2015, the Fed raised its federal funds rate target by 25 basis points. In order to “enforce” this higher federal funds rate, the Fed had to reduce the supply of reserves it created relative to depository institutions’ demand. This resulted in the contraction in the monetary base in early 2016. For reasons still a mystery to me, the Fed has failed to offset the drain of reserves caused by unusually high Treasury balances at the Fed. In addition, the Fed has been draining reserves from the financial system via reverse repurchase agreements, presumably to satisfy the money market mutual funds’ demand for risk-free assets as a result of regulatory changes that when in effect in October 2016. (See my November 1, 2016 commentary “The Fed Began Tightening Policy in October and No One Knew It, Maybe Not Even the Fed” for a discussion of this.) This has resulted in the continued contraction in the monetary base in 2016. In sum, the slowdown in the growth of combined commercial bank credit and the monetary base in the past two years is primarily the result of the Fed’s failure to create enough thin-air credit to prevent the stagnation in monetary base in 2015 and the outright contraction in the monetary base so far in 2016. And I would submit to you that the significant deceleration in the growth in combined commercial bank credit and the monetary base in 2015 and 2016 is primarily responsible for the deceleration in the growth of both nominal and real Gross Domestic Purchases in these years as well.
Chart 2

On December 14, 2016, the Fed raised its federal funds rate target by another 25 basis points. Just as the Fed had to reduce the supply of reserves relative to depository institutions’ demand for them in order to push the federal funds rate up to its higher targeted level in December 2015, it will have to do the same thing in December 2016. This implies a further contraction in the monetary base. Chart 3 shows the year-over-year annual and three-month annualized growth in combined commercial bank credit and the monetary base in the past 12 months. In the 12 months ended November 2016, growth in combined commercial bank credit and the monetary base was 2.7%. In the three months ended November 2016, growth in combined commercial bank credit and the monetary base was a goose egg – that is, zero. To put the recent growth in this measure of thin-air credit into perspective, from January 1960 through November 2016, the median year-over-year growth in monthly observations of combined commercial bank credit and the monetary base has been 7.1%. So, recent months’ growth in this measure of thin-air credit has been exceptionally low, both in absolute as well as relative terms. And, with the Fed’s December 14, 2016 decision to raise the federal funds rate another 25 basis points, growth in combined commercial bank credit and the monetary base will be even weaker in the coming months.
Chart 3

The extreme weakness in the growth in the past three months of combined commercial bank credit and the monetary is not just due to the contraction in the monetary base. As shown in Chart 4, there also has been some weakening in the growth of commercial bank credit, too. To wit, in the three months ended November 2016, the annualized growth in commercial bank credit slowed to 5.6%, the slowest growth since the 5.7% posted in the three months ended November 2015.
Chart 4
Based on published data so far for Q4:2016, the Atlanta Fed is forecasting real GDP annualized growth in this current quarter of 2.4%, down from the previous quarter’s 3.2% annualized growth. With current growth in thin-air credit already very weak and likely to get even weaker after the Fed contracts the monetary base more in order to push the federal funds rate 25 basis points higher, real and nominal U.S. economic growth is likely to slow further in the first half of 2017. Happy Festivus!

Paul L. Kasriel
Founder, Econtrarian, LLC
Senior Economic and Investment Advisor
1-920-818-0236



“For most of human history, it has made good adaptive sense to be fearful and emphasize the negative; any mistake could be fatal”, Joost Swarte

Sunday, November 20, 2016

Do Larger Deficits Stimulate Spending? Depends on Where the Funding Comes From

November 21, 2016

Do Larger Federal Budget Deficits Stimulate Spending? Depends on Where the Funding Comes From

The U.S. equity markets have rallied in the wake of Donald Trump’s presidential election victory. Various explanations have been given for the stock market rally. President-elect Trump’s pledge to scale back business regulations are favorable for various industries, especially financial services and pharmaceuticals. Likewise, President-elect Trump’s vow to increase military spending is an undeniable plus for defense contractors. But another explanation given for the post-election stock market rally is that U.S. economic growth will be stimulated by the almost certain business and personal tax-rate cuts that will occur in the next year, along with the somewhat less certain increase in infrastructure spending. It is this conventional –wisdom notion that tax-rate cuts and/or increased federal government spending stimulate domestic spending on goods and services that I want to discuss in this commentary.

Although I have been a recovering Keynesian for decades, I got hooked on the Keynesian proposition that tax-rate cuts and increased government spending could stimulate domestic spending after having taken my first macroeconomics course way back in 19 and 65. I was so intoxicated with Keynesianism that I made a presentation about it in a political science class. I dazzled my classmates with explanations of the marginal propensity to consume and Keynesian multipliers. My conclusion was that economies need not endure recessions if only policymakers would pursue Keynesian prescriptions with regard to tax rates and government spending. Reading the body language of my classmates, I believed that I had just enlisted a new cadre of Keynesians. That is, until one older student sitting in the back of the class raised his hand and asked the simple question: Where does the government get the funds to pay for the increased spending or tax cuts? I had to call on all of my obfuscational talents to keep my classmates and me in the Keynesian camp.

When I graduated from college with a degree in economics, I still was a Keynesian, perhaps a bit more sophisticated one, but not much. At graduate school, I became less enchanted with Keynesianism. But Keynesianism is similar to an incorrect golf grip. If you start out playing golf with an incorrect grip, you will have a tendency to revert to it on the golf course even after hours of practicing at the driving range with a correct grip. Bad habits die hard. So, even though I had drifted away from Keynesianism, it was easy and “comfortable” to slip back into a Keynesian framework when performing macroeconomic analysis. Yet, I continued to be haunted by that question my fellow student asked me:  Where does the government get the funds to pay for the increased spending or tax cuts?

I guess I am a slow learner, but after a number of years in the “real world”, away from the pressure of academic group-think, I realized that tracing through the implications of where the government gets the funds to finance tax-rate cuts and increased spending is the most important issue in assessing the stimulative effect of changes in fiscal policy. And my conclusion is that tax-rate cuts and increased government spending do not have a significant positive cyclical effect on economic growth and employment unless the government receives the funding for such out of “thin air”.

Let’s engage in some thought experiments, beginning with a net increase in federal government spending, say on infrastructure projects. Let’s assume that these projects are funded by an increase in government bonds purchased by households. Let’s further assume that the households increase their saving in order to purchase these new government bonds. When households save more, they cut back on their current spending on goods and services, transferring this spending power to another entity, in this case the federal government. So, the federal government increases its spending on infrastructure, resulting in increased hiring, equipment purchases and profits in the infrastructure sector of the economy. But with households cutting back on their current spending on goods and services, that is, increasing their saving, spending and hiring in the non-infrastructure sectors of the economy decline. There is no net increase in spending on domestically-produced goods and services in the economy as a result of the bond-financed increase in infrastructure spending. Rather, there is only a redistribution in total spending toward the infrastructure sector and away from other sectors.

What if a pension fund purchases the new bonds issued to finance the increase in government infrastructure spending? Where does the pension fund get the money to purchase the new bonds? One way might be from increased pension contributions. But an increase in pension contributions implies an increase in saving by the pension beneficiary. The pension fund is just an intermediary between the borrower, the government, and the ultimate saver, households or businesses saving for the benefit of households. Again, there is no net increase in spending on domestically-produced goods and services in the economy.

What if households or pension funds sell other assets to nonbank entities to fund their purchases of new government bonds? Ultimately, some nonbank entity needs to increase its saving to purchase the assets sold by households and pension funds. Again, there is no net increase in spending on domestically-produced goods and services in the economy.

What if foreign entities purchase the new government bonds? Where do these foreign entities get the U.S. dollars to pay for the new U.S. government bonds? By running a larger trade surplus with the U.S. That is, foreign entities export more to the U.S. and/or import less from the U.S., thereby acquiring more U.S. dollars with which to purchase the new U.S. government bonds.  Hiring and profits increase in the U.S. infrastructure sector, decrease in the U.S. export or import-competing sectors.

Now, let’s assume that the new government bonds issued to fund new government infrastructure spending are purchased by the depository institution system (commercial banks, S&Ls and credit unions) and the Federal Reserve. In this case, the funds to purchase the new government bonds are created, figuratively, out of “thin air”. This implies that no other entity need cut back on its current spending on goods and services while the government increases it spending in the infrastructure sector. All else the same, if an increase in government infrastructure spending is funded by a net increase in thin-air credit, then there will be a net increase in spending on domestically-produced goods and services and a net increase in domestic employment. We cannot conclude that an increase in government infrastructure spending funded from sources other than thin-air credit will unambiguously result in a net increase in spending on domestically-produced goods and services and a net increase in employment.

President-elect Trump’s economic advisers have suggested that an increase in infrastructure spending could be funded largely by private entities through some kind of public-private plan. This still would not result in net increase in U.S. spending on domestically-produced goods and services and net increase in employment unless there were a net increase in thin-air credit. The private entities providing the bulk of financing of the increased infrastructure spending would have to get the funds either from some entities increasing their saving, that is, by cutting back on their current spending, or by selling other existing assets from their portfolios. As explained above, under these circumstances, there would be no net increase in spending on domestically-produced goods and services.

Now, it is conceivable that an increase in infrastructure spending, while not resulting in an immediate net increase in spending on domestically-produced goods and services, could result in the economy’s future potential rate of growth in the production of goods and services. To the degree that increased infrastructure increases the productivity of labor, for example, speeds up the delivery of goods and services, then that increase in infrastructure spending could allow for faster growth in the future production of goods and services.

Another key element in President-elect Trump’s proposed policies to raise U.S GDP growth is to cut tax rates on households and businesses.  To the degree that tax-rate cuts result in a redistribution of a given amount of spending away from pure consumption to the accumulation of physical capital (machinery, et. al.), human capital (education) or an increased supply of labor, tax-rate cuts might result in an increase in the future potential rate of growth in GDP, but not the immediate rate of growth unless the tax-rate cuts are financed by a net increase in thin-air credit.

At least starting with the federal personal income tax-rate cut of 1964, all personal income tax-rate cuts have been followed with cumulative net widenings in the federal budget deficits. So, for the sake of argument, let’s assume that the likely forthcoming personal and business tax-rate cuts result in a wider federal budget deficit. Suppose that households in the aggregate use their extra after-tax income to purchase the new bonds the federal government sells to finance the larger budget deficits resulting from the tax-rate cuts. The upshot is that there is no net increase in spending on domestically-produced goods and services nor is there any net increase in employment emanating from the tax-rate cuts.

My conclusion from the thought experiments discussed above is that increases in federal government spending and/or cuts in tax rates have no meaningful positive cyclical effect on GDP growth unless the resulting wider budget deficits are financed by a net increase in thin-air credit, that is a net increase in the sum of credit created by the depository institution system and credit created by the Fed.

Let’s look at some actual data relating changes in the federal deficit/surplus to growth in nominal GDP. I have calculated the annual calendar- year federal deficits/surpluses, and then calculated these deficits/surpluses as a percent of annual average nominal GDP. The red bars in Chart 1 are the year-to-year percentage-point changes in the annual budget deficits/surpluses as a percent of annual-average nominal GDP. The blue line in Chart 1 is the year-to-year percent change in average annual nominal GDP. According to mainstream Keynesian theory, a widening in the budget deficit relative to GDP is a “stimulative” fiscal policy and should be associated with faster nominal GDP growth. A widening in the budget deficit relative to GDP would be represented by the red bars in Chart 1 decreasing in magnitude, that is, becoming less positive or more negative in value.  According to mainstream Keynesian theory, this should be associated with faster nominal GDP growth, that is, with the blue line in Chart 1 moving up. Thus, according to mainstream Keynesian theory, there should be a negative correlation between changes in the relative budget deficit/surplus and growth in nominal GDP. The annual data points in Chart 1 start in 1982 and conclude in 2007. This time span includes the Reagan administration’s “stimulative” fiscal policies of tax-rate cuts and faster-growth federal spending, the George H. W. Bush and Clinton administrations’ “restrictive” fiscal policies of tax-rate increases and slower-growth federal spending and the George H. Bush administration’s “stimulative” fiscal policies of tax-rate cuts and faster-growth federal spending.







Chart 1

In the top left-hand corner of Chart 1 is a little box with “r=0.36” within it. This is the correlation coefficient between changes in fiscal policy and growth in nominal GDP.  If the two series are perfectly correlated, the absolute value of the correlation coefficient, “r”, would be equal to 1.00. Both series would move in perfect tandem. As mentioned above, according to mainstream Keynesian theory, there should be a negative correlation between changes in fiscal policy and growth in nominal GDP. That is, as the red bars decrease in magnitude, the blue line should rise in value. But the sign of the correlation coefficient in Chart 1 is, in fact, positive, not negative as Keynesians hypothesize. Look, for example, at 1984, when nominal GDP growth (the blue line) spiked up, but fiscal policy got “tighter”, that is the relative budget deficit in 1984 got smaller compared to 1983. During the Clinton administration, budget deficits relative to nominal GDP shrank every calendar year from 1993 through 1997, turning into progressively higher surpluses relative to nominal GDP starting in calendar year 1998 through 2000. Yet from 1993 through 2000, year-to-year growth in nominal GDP was relatively steady holding in a range of 4.9% to 6.5%. Turning to the George H. Bush administration years, there was a sharp “easing” in fiscal policy in calendar year 2002, with little response in nominal GDP growth. As fiscal policy “tightened” in subsequent years, nominal GDP growth picked up – exactly opposite from what mainstream Keynesian theory would predict.

Of course, there are macroeconomic policies that might be changing and having an effect on the cyclical behavior of the economy other than fiscal policy. The most important of these other macroeconomic policies is monetary policy, specifically the behavior of thin-air credit. In Chart 2, I have added an additional series to those in Chart 1 – the year-to-year growth in the annual average sum of depository institution credit and the monetary base (reserves at the Fed plus currency in circulation). “Kasrielian” theory hypothesizes that there should be a positive correlation between changes in thin-air credit and changes in nominal GDP. With three variables in chart, Haver Analytics will not calculate the cross correlations among all the variables. But E-Views will. And the correlation between annual growth in thin-air credit and nominal GDP from 1982 through 2007 is a positive  0.53. Not only is this correlation coefficient 1-1/2 times larger than that between changes in fiscal policy and nominal GDP growth, more importantly, this correlation has the theoretically correct sign in front of it. By adding growth in thin-air credit to the chart, we can see that the strength in nominal GDP growth in President Reagan’s first term was more likely due to the Fed, knowingly or unknowingly, allowing thin-air credit to grow rapidly. Similarly, the reason nominal GDP growth recovered from the George H. W. Bush presidential years and was relatively steady was not because tax rates were increased in 1993 and federal spending growth slowed, but rather because growth in thin-air credit recovered in 1994 and held relatively steady through 1999.

Chart 2

In sum, there may be rational reasons why the U.S. equity markets rallied in the wake of Donald Trump’s presidential election victory. But an expectation of faster U.S. economic growth due to a more “stimulative” fiscal policy is not one of them unless the larger budget deficits are financed with thin-air credit. Fed Chairwoman Yellen, whether you know it or not, you are in the driver’s (hot?) seat.

Paul L. Kasriel
Founder, Econtrarian, LLC
Senior Economic and Investment Advisor
1-920-818-0236


“For most of human history, it has made good adaptive sense to be fearful and emphasize the negative; any mistake could be fatal”, Joost Swarte