Nima and Dylan Respond to a Stefan Molyneux’ and Bob Murphy’s Freedomain Radio video about “Trump’s Economy”.
The video of Stefan Molyneux and Bob Murphy:
Dylan’s debate with Bob Murphy: https://tomwoods.com/ep-1116-debate-bob-murphy-and-dylan-moore-on-modern-monetary-theory-mmt/
Warren Mosler’s Debate w/Bob Murphy: https://www.youtube.com/watch?v=cUTLCDBONok&t=3803s
The Princes of the Yen: https://www.youtube.com/watch?v=p5Ac7ap_MAY
Potential Problems with Narrow Banking: https://www.pragcap.com/potential-problems-narrow-banking/
While President Trump’s tax and deregulation policies have already fueled a historic stock market rally as I explained and predicted in 2016, an important figure has quietly begun declining in Q4 2017 and is now near a 17 year low.
This figure is the ratio of private debt to annual income, a hugely important indicator to assess the sustainability of the booming economy, the financial stability of households and corporations, thus their willingness to spend and invest, respectively, and with that a sense of how sustainable current GDP growth levels might be.
It hit an all time record high in Q1 2009 at 301.32%, and now hovers at 225.93%, a better level was last seen in Q1 2015 at 225.92% and before that only in Q3 of 2001 224.46%.
Large government deficits due to big tax cuts are flooding the private sector with safe assets for the private sector to hold, and thus net private sector saving is on the rise, inducing the private sector to spend and invest comfortably, generating the income reflected in this ratio.
This rally does have legs, that is until the current government’s agenda is thwarted by those who suffer from Trump Derangement Syndrome and seek to sabotage it out of rank hatred for their country and its working people.
End of March I pointed out that economic numbers indicated a disastrous drop in net private saving, foreshadowing a recession unless things change quickly.
It looks like things have changed quickly this past quarter (Q1 2018), plus there seem to have been revisions to Q4 numbers. The federal budget deficit has expanded sharply to -$1.1 trillion which should take us out of the danger zone for now:
The current account deficit has expanded a bit to -$569 billion:
This means that net private saving (Fed data not yet available) will come in at around $531 billion, a level that hasn’t been seen since 2013.
Red alert is off, numbers are looking good again, for now.
As I’ve written before, the private sector’s net private saving is a reliable indicator to predict severe recessions, and even depressions.
More specifically, there hasn’t been a period of negative net private saving that hasn’t resulted in a depression or at least a very severe recession, such as the so called Great Recession of 2008.
Recent Q4 data paints a shockingly bleak picture:
The government’s deficit (red line) has gone from a Q3 level to around -$900 billion to a surplus of around $15 billion in Q4. As you can see, the private sector’s net saving (blue line) has correspondingly crashed from a positive $538 billion to -$499 billion (!!), with the foreign sector’s saving (green line) also expanding a little bit.
The way to reverse this trend would be massive government budget deficits or a monumental reversal in the US current account deficit. If this doesn’t happen in the current and future quarters, a huge recession is now all of a sudden in the cards, even though private sector leverage has remained low, when compared to 2008 levels, for now.