In this month’s letter, Bill Longbrake shares his worries about global economic and political trends along with summaries of similar concerns expressed in the International Monetary Fund’s World Economic Outlook and by the editor-in-chief, Zanny Beddoes, of The Economist. He also explores reasons for the surprising strength of Donald Trump and Bernie Sanders in this year’s presidential campaign. In addition to regular updates about the U.S. economic outlook, he provides a review of a recently published book, The Smartest Places on Earth, by Antoine van Agtmael and Fred Bakker, which describes how brain-belts that are emerging in the U.S. and Europe will reverse the global competitive advantage held in recent years by emerging economies. Read the full letter here.
In this month’s letter, Bill Longbrake explores the possibility of recession commencing some time during the next few months and initiates a “Recession Watch.” In recent weeks several developments emerged more or less at about the same time which spooked global financial markets. Are these developments the forerunner of worse to come, including a U.S. recession? Or, is the market overreacting to “temporary” shocks? Will policymakers be able to defuse anxiety? From the vantage point of the present it’s difficult to discern where the U.S. and global economies are headed and just how fragile global financial markets really are. Regardless of whether recession is imminent, substantial global economic and financial imbalances exist. Bill examines these imbalances and comments on how they might evolve and impact the global economy and financial markets. Read the full letter.
This month’s letter features two separate parts: a review of the key 2015 topics along with the regular Longbrake Letter.
Bill Longbrake extracts discussions of major topics that were included in various 2015 letters. These discussions explained and examined deep-seated trends which continue to evolve and shape global economies, markets, social systems and political governance. He provides additional commentary and updates on each topic, which are identified in bold italicized print. Developments in the United States receive the most attention, but because we are increasingly interconnected globally what occurs elsewhere has impacts on what happens in the United States.
Markets began 2016 with a massive anxiety attack about the threat of a collapse in global growth. In this month’s letter Bill Longbrake explores whether recent developments are a forerunner of worse to come, including a U.S. recession? Or, is the market overreacting to “temporary” shocks? Part of the difficulty in assessing prospects has to do with the unprecedented and aggressive monetary policy intervention of central banks in all major developed economies to force down interest rates in an attempt to stimulate demand and increase inflation. Academic theories are supportive of these policies. But, the theories may turn out to be deeply flawed or flat out misguided. It’s a huge bet! The consequences could be quite dire, if the bet turns sour.
In this month’s letter, in a series of tables, charts and commentary, Bill Longbrake provides long-term forecasts for 15 U.S. economic indicators for the period from 2016 through 2023. Bill shares the view of many that potential inflation-adjusted growth will languish in the vicinity of 2 percent. However, he expresses skepticism about the consensus view that inflation will rise to 2 percent over the next three years and explains why inflation might remain very low in the near term and take much longer to rise to 2 percent. Bill’s inflation view, if correct, has significant implications for forecasts of many other economic indicators.
Bill provides a final assessment of observations he made a year ago about how the U.S. and global economies might fare in 2015. He got some things right and many things wrong. The U.S. and global economies are dynamic and ever changing. Some trends are foreseeable. But, governmental policy intervention, whether it be political or economic, can alter outcomes and set in motion feedbacks that significantly affect economic developments. In this respect, 2015 was no different from any previous year. Such will also be the case in 2016. Nonetheless, Bill summarizes key U.S. and global economic developments that seem possible, perhaps likely, in 2016.
As we enter the holiday season, the U.S. economy continues its slow forward march, with the exception of manufacturing which is struggling courtesy of a strong dollar. Much of the damage inflicted by the Great Recession has been repaired. The Federal Reserve is poised to take the first step to raise short-term interest rates after seven years of zero rates. Although the outlook is sanguine, most no longer expect robust growth. When the consensus coalesces around benign trends, it is especially important to listen to opposing viewpoints. The question we should ask is: what is different today that could result in unpleasant surprises? This month’s letter explores how the cumulative impacts of monetary policy might lead the U.S. into recession. Bill Longbrake also voices his skepticism about significant acceleration in wage rate growth.