Will you still love me when I’m 64?
Paul McCulley and Saumil Parikh make the case for the Fed’s transparency, arguing that both the US and the world economies have benefited as a consequence of this openness. Although I intuitively agree with them, I don’t think their low interest rate charts help to prove their point, viewed against the backdrop of the Chinese exported deflation of the last 20 years or so…
I think the article’s utter importance rests elsewhere: according to recent Fed estimates, based on population growth, participation and productivity growth, aging will trim 1 % from potential US GDP growth during the following 10 years… Since populations from Europe, Japan and China are also rapidly heading in the same direction, this contraction could easily be extrapolated to world growth forecasts.
And this newly acquired Fed knowledge, could very well mean that they have… overshot their Fed funds rate… or applied the brakes too hard by raising their target rate too high. If this is true, then the Fed should ease their rates soon enough… According to Paul and Saumil:
To marry the concepts of an already restrictive real federal funds rate,
given “new information” on potential GDP, to the observed reflexive
nature of the ongoing recession in residential real estate (which, is
leading overall GDP growth lower over PIMCO’s cyclical horizon), almost
instantaneously yields a call for easier monetary policy in the
not-so-distant future. This is what cyclical forecasting is all about –
we must focus on understanding the source of cyclical output gaps and
separate it from the by-products of the same cyclical output gaps, to
arrive at a clear picture of future real interest rate expectations
around “neutral”.
In conclusion, the prospect of lower interest rates is reinforced by this new "information", seated on the inescapable truth of us all growing old… and living longer.
Click to listen: Will you still love me when I’m 64? The Beatles
The real question is then: Is this the straw that will break the camel’s back, or… will the US economy crumble under the weight of this new twist of Fed overshooting?
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YOUR KIDS FUTURE
This is an editorial on the web site economy in crisis. Do you think Americans should be concerned with our kid’s future due to poorly negotiated trade and immigration policy?
PREPARE YOUR KIDS FOR THE FUTURE — AS A SERVANT
EC-In 1994, more than 1 in 8 jobs in America was in manufacturing. In 2014, if US government (Bureau of Labor Statistics) projections are to be believed, that figure will have slipped to less than 1 in 12.
The government is actually telling us in black and white that the policies that they are enacting will decrease absolute and relative manufacturing employment to levels below that of the 1950’s – over 2 million jobs below. In the 1950’s, 30% of US employees were in manufacturing – almost one in three jobs! This country was a relative manufacturing superpower.
In less than 20 years since America put in place some of its most self-devastating policy decisions (NAFTA, WTO, CAFTA, etc.), this country will have almost completely converted from a self-sufficient sovereign state, capable of manufacturing what it needs to sustain and protect itself, to a country of servants – serfs, working at the behest of foreign employers or engaged in the sales, marketing, and distribution of foreign-made goods – working at their discretion, for wages they determine, and forced to pay their prices for needed goods. This is the definition of a servant.