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Senior Advisor

square root shaped recovery

seems the best case, with a low bounce off the bottom and a very long tail- as in the jobless recovery 2009-2020 that inched its way back to full employment along a slow, steady path even with a huge Keynesian boost at the end.

Gets worse from there- a second hard wave of the 'rona or a breakdown in trade from a New Cold War means a depression.

Even if agriculture enjoys a unique safety net, probably not good either.

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Senior Advisor

Re: square root shaped recovery

Thinking about it.

Without getting into any Angels on the Head of a Pin arguments about what all the stats really mean, let's assume full employment is around 4%- we were around there for about 5 years.

Let's also assume that unemployment bottoms (at least the first time) at around 20%, and we make it halfway back, which would be 12%. Technical definitions of recessions and depressions are what they are but that would be a depression.

But if that unemployed 8% only represents 3% of aggregate demand (mostly poorly paid people anyway) and the government makes up the difference, does it matter?

The difference maker is really how people with more disposable income and greater capacity to invest react. My guess is that even if there are some 'Rona Warriors who go out and buy an SUV for America, in the aggregate they spend less.

Propping the stock and bond markets is in part an attempt to counteract that but I doubt it does fully.

 

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Honored Advisor

Re: square root shaped recovery

The rooster crowed this morning and i`ll be damned, the Sun came up! But he can crow all he wants at 8 o`clock this evening and the Sun will still set. 

The thing is people want to get back to "normal" even the liberal fancy boys that have hair styling places, they want the old ladies with blue hair to leave big tips and get back to opening up their shops. 

Thankfully most people don`t understand how precarious the economy is and has been for 20 years.  Things are run on confidence and if most people put their blinders on, go back to work and not think about it, that will be the reality that we will have.  I recall a old Star Trek episode where the crew were about to be shot and Mr Spock explained that it wasn`t real, but they would believe they were shot and they would die, but he wouldn`t because he was the only crew member that really understood that it wasn`t real.

We`ve rediscovered federal reserve money printing and will be amazed how $2 trillion $3 trillion can just be created in thin air with no consequences as grownups in the past have warned.  The "free stuff" political party is really going to want in on this sweet action!  To heck with solely gittin` rid a the Orange man, we want the job just to give away stuff!

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Senior Advisor

Re: square root shaped recovery

Lol. Of course the Tea Party fig leaf falls away revealing the swastika.

There are limits to what the Fed can do, as Powell very clearly stated in a manner calculated to be as clear as he could be without "spooking the market."

It will require more fiscal action- if that even works- but they're struggling to figure out how to keep any of it from going to people who haven't pulled themselves up by their own bootstraps and earned every darn cent of their handouts.

Even a 5% reduction in consumer demand makes it exceedingly difficult to claw back from this hit. Maybe you should take the straight truck and head up to the Mall of America?

You're whistling past the graveyard again although this one has a track hoe and some big open pits.

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Honored Advisor

Re: square root shaped recovery

By Powell saying that "he didn`t want to spook the markets", that didn`t spook the markets and kept the Dow bobbing either side of 24,000 and not the 16,000 some were predicting.  What can congress do?  Well, Nancy passed another $3 Trillion very juicy stimulus that will be dead in the senate.  Congress just has $3 or $4 Trillion to play with and not even that after obligations are covered. 

During the QE spending  and 0% fed funds rate of the previous administration the fed grew a $4.5 Trillion balance sheet, perhaps it will have to grow to $10 or $15 Trillion to pacify the self inflicted shot in the leg that this economy has suffered.  It`s out of congress` league, it seems the market expects it. 

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Highlighted
Senior Advisor

Re: square root shaped recovery

Self inflicted insofar as the electoral college elected a sociopathic moron who couldn't even make money on casinos.

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