Today, we present a guest post written by Jeffrey Frankel, Harpel Professor at Harvard’s Kennedy School of Government, and formerly a member of the White House Council of Economic Advisers. This column is based on “The Next Economic Crisis,” remarks on a panel at the 2nd annual retreat of the American Enterprise Institute in Jackson Hole, Wyoming, August 13. A shorter version appeared in Project Syndicate.
US economic statistics are currently good. But the next recession could be bad.
This American expansion has been long-lived. If it continues another year it will equal the record 10-year expansion in the 1990s. Unemployment is low: 3.9% in July, as low as in 2000, during the Clinton Administration. GDP growth has been relatively strong: the BEA yesterday estimated 2nd-quarter 2018 growth at 4.2%, the highest quarter since 5.1% and 4.9% in 2014, during the Obama Administration.
But sooner or later there will be a new recession. There always is. When it comes, it could be severe.
What could cause a recession
What could set off a downturn in the coming years? Here is one possibility. Because the US stock market is high — as indicated, for example, by a historically high CAPE ratio (Cyclically Adjusted Price Earnings) – and because global corporate debt is also high, a negative shock could send securities tumbling.
What sort of shock? A return of inflation is one good candidate. Another is an escalation of the trade war that Donald Trump has started.
Possible shocks could also originate in the rest of the world. The crisis in Turkey could spread to other emerging markets. The euro crisis is not truly over, even though Greece’s bailout ended August 20, with its creditors declaring over-optimistically that the country is back on a sustainable debt path. Italy is in particular danger. China — which Americans view as a manufacturing juggernaut that threatens to surpass it — is vulnerable, in light of its slowing growth and high levels of debt.
Why do I worry that the next recession, whenever it comes, could be severe? Because US government policy is currently pro-cyclical, rather than counter-cyclical.
Admittedly it is hard to get counter-cyclical timing exactly right. But that is no excuse for adopting pro-cyclical policy. The current government is acting pro-cyclically in three areas: (1) fiscal policy; (2) macro-prudential policy; and (3) even monetary policy.
Pro-cyclical fiscal policy
The US is now undergoing the most radically pro-cyclical fiscal expansion since the late 1960s, and perhaps since World War II. Usually during economic upswings, the budget deficit falls, at least as a share of GDP. Not this time. The respected Congressional Budget Office projects that despite good growth and low unemployment, the budget deficit will soon exceed $1 trillion.
Expansionary fiscal policy is blowing up the deficit on both the tax side and the spending side. Most notable is the tax bill passed by the Republicans in December 2017, featuring big cuts in the corporate income tax. A reduction in the corporate tax rate was appropriate; but true tax reform should have been revenue-neutral. Also spending has been increasing rapidly this year. Once again, as in the administrations of Ronald Reagan and George W. Bush, despite their small-government rhetoric, “fiscal conservatives” are fiscal profligates in practice.
When the next recession comes, the US will lack “fiscal space” to respond, having already used up its ammunition.
Such destabilizing fiscal policy is traditional in developing countries, exacerbating their booms and busts. The historical pattern is well-documented, though some EM countries achieved counter-cyclical fiscal policy after learning from the mistakes of the 1970s-1990s.
(Another reason, besides cyclical timing, why this is an especially bad time to push up the budget deficit: The retirement of the baby boom generation means that big deficits are coming in Social security and Medicare.)
Pro-cyclical regulatory policy
A second reason, beyond fiscal policy, why a future crisis may be severe is pro-cyclical financial regulation: relaxing financial regulation at the height of a financial boom. This is the wrong way to do it. Pro-cyclical regulation exacerbates the swings.
The White House and <a href="“>Congress have been de-regulating too much, at the wrong point in the cycle. They have now gutted Obama’s fiduciary rule, which would have required professional financial advisers (in return for their fees) to put their clients’ interests first when advising them on assets invested through retirement plans. They have halted the good work of the Consumer Financial Protection Bureau, which was protecting households who take out pay-day loans, student loans, and car loans. Sensible regulation of housing finance has been rolled back, for example, risk-retention rules to require that mortgage-originators “keep skin in the game” and requirements that borrowers should be able to make a substantial down-payment before they take on debt that they may not be able to repay.
Congress and the White House have been working to “do a number” on the Dodd-Frank reform of July 2010. Its key features helped to strengthen the financial system: the creation of the CFPB, higher capital requirements on banks, SIFI designation, and enhanced transparency for derivatives. Undermining or rescinding these regulations increases the risk of an eventual recurrence of the 2007-2008 financial crisis.
Like most major legislation, Dodd-Frank could usefully be modified after a few years of experience. Banks’ paperwork burden and other compliance costs were indeed excessive, especially in the case of small banks. The original threshold for “too big to fail” stress-tests, at $50 billion in assets, was too low. But the $250 billion threshold is probably too high. Furthermore, non-banks should not be exempted from annual stress tests. Now is the right point in the cycle to raise banks’ capital requirements as called for under Dodd-Frank; the cushion will minimize the risk of a future banking crisis.
Other countries do macro-prudential policy better. Europeans have applied the counter-cyclical capital buffer on their banks. Some Asian countries raise bank reserve requirements and tighten homeowners’ loan-to-value ceilings in a boom, and loosen them when there is a financial downturn, rather than the other way around.
Pro-cyclical monetary policy
Third comes monetary policy. Although the Federal Reserve has been doing a good job, its independence has been under assault from politicians. If the assault were successful, it would impair the counter-cyclicality of monetary policy.
In past recessions, the Fed has responded by short-term cutting interest rates around 500 basis points, helping to moderate those recessions. But it won’t be able to do it next time, if interest rates at the peak are only 200 basis points, their current level. As Martin Feldstein wrote July 26 in a WSJ op-ed: “raising the rate when the economy is strong will give the Fed room to respond in the next economic downturn with a significant reduction.” That is counter-cyclical monetary policy.
Most Fed critics think differently. In 2010 they attacked the Fed for easy money (Quantitative Easing), even though unemployment was still above 9%. Now President Trump says he is “not thrilled” (July 19) about the Fed raising interest rates, even though unemployment is below 4%. Fed critics act as if they want pro-cyclical monetary policy.
Deja vu
We have been here before. The tenth anniversary of the global financial crisis is upon us: September, if one dates it from the Lehman Brothers failure. In the years 2003-2007, the government pursued fiscal expansion and financial de-regulation. It was possible to predict that when the next recession came, the government would feel constrained by the national debt from enacting sufficiently big tax cuts or spending increases to fully deal with it. History may repeat itself yet again.
This post written by Jeffrey Frankel.
This Turkey situation isn’t getting enough attention in the US press, although it is a big deal if you watch something like Deutsche Welle. Turkey in-and-of-itself isn’t big enough to tank the global economy, but it is big enough to tank the highly vulnerable Italian banks, and a collapse of the Italian banking system could be enough to trigger a global financial recession. And just yesterday the OECD reported that international trade within the G20 contracted after eight consecutive quarters of positive growth: http://www.oecd.org/newsroom/international-trade-statistics-trends-in-second-quarter-2018.htm
I saw Jeff’s excellent discussion over at Brad DeLong’s place. Brad is frustrated with Jeff for not assigning more blame for the slowness of the recovery from the Great Recession on the FED. Well OK but that was not the central thesis of this excellent discussion so here is my comment to Brad:
OTOH Jeff is spot on about the push for financial regulation as well as the pro-cyclical nature of fiscal policy. 2018 is reminding me too much of 1981.
When those at the top can no longer be satiated with current growth, they turn predatory. If they can’t profit sufficiently on the trend, they seek to make it on the swings, and work to exacerbate them.
Yes indeed. Drain that swamp, Mr. President. Coming soon to a theatre near you.
There will always be recessions until the day that the Federal Reserve is nationalized. After that there may be far and few between sporadic recessions due to technological waves eventually crashing. But will be far milder than the Fed induced boom-busts that have wracked this country since the Fed’s inception. 20s boom, then crash, 70s boom, then crash, 2000s boom, then crash. And the smaller ones in between. All caused by the rash inappropriate actions of our privately owned central bank.
Somebody needs to study their 19th century economic history if they think booms and busts got *worse* after the Fed was created.
Pardon the retort, but someone needs to study their 1st millennium BC history if they think that central banks (and other big financial institutions, private or not) aren’t the ones creating the boom-busts.
Required reading: Roman denarius (AKA, the penny, which used to be worth 3 full days of labor circa 500 BC, https://en.m.wikipedia.org/wiki/Denarius), Chinese Jiaozi (first fiat currency, lasted 250 years before realized the scheme, https://en.m.wikipedia.org/wiki/Jiaozi_(currency) ), the South Sea Bubble (the South Sea Company was the front organization for the institution operating as England’s central bank at the time, https://en.m.wikipedia.org/wiki/South_Sea_Company), Kipper Und Wipper (financial crisis created to finance the 30-years-war).
No, these cycles didn’t start with the “Fed”. And they’ll still be around long after the Fed is gone.
Of course, fluctuations in economies have indeed occurred since the beginning of time due to natural causes, such as natural disasters like plagues (we’re probably more vulnerable now than ever, even with overwatch organizations) and famines (odds massively decreased but over-homogenization now poses new risks), rapid social phenomena (like the internet with the dot-com bubble), or wars.
And I would love to learn about 19th century economic history if you would like to share. I have a hard enough time finding US economic data before the 20s.,.
Pardon the retort, but someone needs to study their 1st millennium BC history if they think that central banks (and other big financial institutions, private or not) aren’t the ones creating the boom-busts.
Required reading: Roman denarius (AKA, the penny, which used to be worth 3 full days of labor circa 500 BC, https://en.m.wikipedia.org/wiki/Denarius), Chinese Jiaozi (first fiat currency, lasted 250 years before realized the scheme, https://en.m.wikipedia.org/wiki/Jiaozi_(currency) ), the South Sea Bubble (the South Sea Company was the front organization for the institution operating as England’s central bank at the time, https://en.m.wikipedia.org/wiki/South_Sea_Company), Kipper Und Wipper (financial crisis created to finance the 30-years-war).
No, these cycles didn’t start with the “Fed”. And they’ll still be around long after the Fed is gone.
Of course, fluctuations in economies have indeed occurred since the beginning of time due to natural causes, such as natural disasters like plagues (we’re probably more vulnerable now than ever, even with overwatch organizations) and famines (odds massively decreased but over-homogenization now poses new risks), rapid social phenomena (like the internet with the dot-com bubble), or wars.
And I would love to learn about 19th century economic history if you would like to share. I have a hard enough time finding US economic data before the 20s.,.
Oh, you mean the Rothschild owned 1st Bank of the US whose 20-year charter was let expire by the US Congress which resulted in the Rothschild-financed British red coats coming over and burning US capital in Washington, innuendo boy? Oh, or do you mean the 2nd Bank of the US whose 20- year charter was capped by Andrew Jackson, patriotic Old Hickory, braving grave risk to his life by multiple assassination attempts from the minions and agents the Rothschilds planted on these shores? Rothschilds’ agents in US from day one. August Belmont main agent going into Civil War. Lincoln didn’t bite on 8% bonds to be floated in London to fight that war. Sensibly funded with Greenbacks. Industrial Robber Barons and banking cartel including J P Morgan beholding to London. US banking houses took direction from London. Rothschilds controlled international money markets from London by manipulating price of gold. Panic of ’07 deliberate to set stage for creation of central bank twice before aborted. Senator Aldrich pushed monetary commission and then toured Europe to ostensibly research. More so to confer with Rothschilds. Come back to states, went to Jekyll Island, drew up plan there, snowed the American people with “Federal and “Reserve”, income tax birthed, Congress voted Fed into being against Constitution. Fed worse monetary authority than the free markets such as they were during the 1800s. 4% real growth for period of 90 years up until right before 1913 Fed. See Angus Maddison for dataset from year 1. No growth like that since! Obama hammered it down to half that. No increase in end-to-end price level during 19th century. Fed enabled debt to fight two wars that US ought not to have been in and could not have fought without that debt, inflation went ballistic after 1913, and once dollar was untethered from gold Fed enabled exponential growth of debt into current record level which is major impediment going forward. Glass-Steagall curbed abuses of banking cartel and FDIC tamed bank runs after 30s, nothing to do with Fed. All part of a piece from the gitgo. See Carroll Quigley’s Tragedy and Hope for starters.
as i mentioned in your new comments rules article, menzie, i would extend the idea of uncivil posts beyond simply name calling. sometimes a comment need not be name calling and still serves the same useless purpose. most posters would probably not consider that as censorship. conspiracy theory fear mongering probably falls in such a category.
Wait, what?
Are you saying JBH’s comment is evil hate-speech that can’t be tolerated? Are you saying that even though the post is civil, it should be deleted because it’s unpopular? What do you think the definition of censorship is? Only if the secret police come to your house? And only then if they poison you?
Yes, his post is not unemotional. Is that a crime now?
And yes, some people who I’ve met IRL who started talking about Rothschilds ended up being raging conspiracy theorists that had absolutely no idea what they were talking about.
But remarkably, whether or not the narrative is precisely correct, and whether or not every “Rothschilds” narrative is completely bogus, every single sentence of JBH’s post taught me something new to go study. That’s a statement that I can rarely ever make on a comment board.
“Are you saying JBH’s comment is evil hate-speech that can’t be tolerated? ”
i did not reference JBH comments at all. but if you want to call it evil hate speech, have at it. i would probably have given it a different description, had i been trying to describe the comments of JBH. all i said was it may be useful to consider conspiracy theory fear mongering as useless commentary, and thus also uncivil.
If it’s a bad one, it’ll be because many trillions of dollars of borrowing took place, along with pathetic GDP growth, that ballooned the National Debt, since the last recession, and there will be little or no expansionary fiscal policy to dig us out of a recession.
At least, monetary policy has a little room.
“it’ll be because many trillions of dollars of borrowing took place”.
Let’s see – Jeff Frankel did note Trump’s procyclical fiscal policy. Let us translate this for you. He is talking about Trump’s 2017 tax cut and his increase in defense spending. Which of course means a larger Federal deficit. There was this fellow named Peak Trader who claimed that these policies were great ideas. You should contact the other Peak Trader and tell him to stop contradicting you.
BTW – in 2009 the correct fiscal response was stimulus so if you are now criticizing that – you are clueless.
“in 2009 the correct fiscal response was stimulus so if you are now criticizing that – you are clueless”
In terms of the premise of counter-cyclical policy, yes. But ignoring the fact that it’s the booms themselves that are artificial bubbles, I hope you can find major flaws with the specific response in 2009.
CP: I do not understand; if the boom is artificial, why does it follow that one doesn’t want to embark on countercyclical policy?
PT,
But growth is doing well right now, even revised upwards for second quarter. Of course part of the reason for it being higher than for several years is precisely this pro-cyclical fiscal policy in place thanks to Trump, massive tax cuts favoring the rich, with spending increases. This is the core of Frankel’s argument. The economy had been solidly growing for many years without inflation, bringing unemployment way down. This should have been a time to tighten up, or at least not loosen, especially massively loosen, fiscal policy. The US is the only OECD nation forecast to having a rising debt/GDP ratio over the next few years. Let us be very clear here, PT, this is entirely the doing of Trump and the current Congress.
The deregulatory stuff and monetary policy stuff is more like icing on the pie. We are looking at a currently massively irresponsible fiscal policy that may help GOPs in the midterms with this current slightly higher growth rate (not as dramatic as they claim), but at the cost of increasing the chance of much recession when the next one hits, quite likely after Trump is out of office so a successor of whichever party will have t clean up the mess and get the political blame. That is the bottom line here. No way around at all to excuse this massive irresponsibility by Trump and the GOP-run Congress.
Barkley, after the last recession, there was a sudden and sustained drop in output of over $1 trillion a year.
I’ve explained before why households needed a big tax cut, after the last recession, but businesses also needed a big tax cut.
I agree with JF, the recent corporate tax cut is needed, but much of the income tax cut benefits small businesses.
With the recent tax cuts and deregulation, it would’ve been appropriate to raise the national minimum wage, e.g. to $12 an hour, by the end of 2019, and reduce the earned income tax credit and its massive fraud.
“I’ve explained before ”
Followed as always by right wing intellectual garbage. PT confuses gibberish with mansplaining.
Let’s try to keep it clean and free of misandry…
Full-time workers should be paid a subsistence wage. Higher wages will make work more attractive, to bring more people into the workforce and increase hours worked (e.g. part-time to full-time). It’ll also reduce dependency on government. It’ll correct a market failure, since low income wages haven’t kept up with productivity growth over many decades. A large proportion of the workforce earns less than $12 an hour. A higher wage in itself will increase productivity, with further productivity gains through increased capital spending.
i will agree with you, a higher minimum wage would be helpful. considering the critters currently controlling the white house and congress, i would doubt such a policy would be taken seriously at all.
Another Trump Brain Fart: Linking capital gains taxes to inflation. I remember watching an old C-SPAN coverage of the issue. Rep. Dick Armey was pushing this stuff about linking capital gains taxes to inflation. He thought he was pretty clever, since he normally only argued with idiotic politicians. But this time he was sitting opposite James Tobin and Paul Samuelson, and they schooled him mightily as to why it was a bad idea and bad economics. The beating was severe and I started feeling sorry for poor old Dick Armey.
https://www.cnbc.com/2018/08/30/trump-says-he-may-link-capital-gains-taxes-to-inflation.html
But then we also learn that Trump had another Brain Fart: he wants to kill any cost-of-living increase for federal employees. Why? Because of the need to “put our Nation on a fiscally sustainable course.” I’m serious. You can’t make this stuff up.
https://www.cnbc.com/2018/08/30/trump-says-government-wont-give-civilian-employees-raises-in-2019.html
The real value of the minimum wage fell dramatically under St. Reagan even as the nominal wage remained constant. Letting inflation erode the real value of worker income is not a bug – it is the plan.
The Usual Suspects here dismiss how Trump is endangering American citizens including the press but this story is beyond alarming:
https://slate.com/news-and-politics/2018/08/robert-chain-arrested-fbi-boston-globe-death-threats.html
FBI Arrests Man for Making Death Threats Against the Boston Globe
“The FBI arrested a California man Thursday for making death threats against the Boston Globe over the newspaper’s editorial in support of the free press, according to a statement from the U.S. Attorney’s Office for the District of Massachusetts. Robert Chain of Encino, California, was charged with making threatening communications in interstate commerce. Between Aug. 10 and Aug. 22, Chain allegedly made approximately 14 threatening phone calls to the newsroom, including a threat that he would kill Globe employees.”
Chain has been clear what is motivating his desire to murder reporters:
The calls came in response to a campaign spearheaded by the Boston Globe this month in which more than 400 newspapers published coordinated editorials denouncing President Trump’s constant attacks on the press, such as calling journalists “the enemy of the people” and labeling legitimate publications “fake news.” The Globe’s editorial, titled, “Journalists Are Not the Enemy,” warned that the “relentless assault on the free press has dangerous consequences” for our democracy.
On Aug. 16, the day the Globe published its editorial, Chain allegedly called the newspaper and warned that he would travel to Boston to shoot newspaper employees in the head that afternoon. In response to that phone call, local law enforcement set up a police presence around the Boston Globe’s building to protect its staff. In one of his calls, Chain also allegedly referred to the Globe as “the enemy of the people,” echoing Trump’s epithet. (President Trump again called the media the “enemy of the people” on Wednesday and Thursday of this week.)
According to the FBI, Chain told the Boston Globe he would keep harassing the newsroom as long as it kept “attacking the president, the duly elected president of the United States, in the continuation of your treasonous and seditious acts.”
The Globe’s campaign provoked outrage from President Trump. On Aug. 16, President Trump blasted the newspaper editorials in a series of tweets, claiming that “the Globe is in COLLUSION with other papers on free press” and that “THE FAKE NEWS MEDIA IS THE OPPOSITION PARTY.” By contrast, the Senate responded to the editorials by unanimously passing a resolution affirming that the media “is not the enemy of the people.”
The great problem is the a structural deficit up there. It is at least 6% of GDP yet you are almost at full employment.
to use fiscal policy properly fiscal policy is only expansionary when the Structural deficit is greater then the previous year.
If a recession came up quickly the USA would be in the worst of all worlds. Unable to use fiscal policy and loud demands for a contractionary fiscal policy when the economy is tanking.
Does high consumer confidence predict recessions?
https://www.google.com/amp/s/www.marketwatch.com/amp/story/guid/FD447E42-AC5C-11E8-AE29-A24B9F7FD2DD
Maybe, the tax cuts and deregulation were timely?
Ever notice how many of PT’s insane links start with Google? PT thinks this is how to do research – type into Google “find me another real dumb article”.
PeakTrader No! Moreover, no upper bound on sentiment. When the sluice gates on the swamp open — early next year at the latest — after the initial shock of all the indictments being handed down wears off, Americans will realize we’ve entered a new era. Sentiment should revive and go on to new highs. Worth looking into each sentiment high to see what was going on at the time. In all cases, nothing like today.
JBH, yes, the chart shows consumer sentiment has been near a peak and a recession didn’t take place for two or three more years.
2slugbaits: “Rep. Dick Armey was pushing this stuff about linking capital gains taxes to inflation. He thought he was pretty clever, since he normally only argued with idiotic politicians. But this time he was sitting opposite James Tobin and Paul Samuelson, and they schooled him mightily as to why it was a bad idea and bad economics. The beating was severe and I started feeling sorry for poor old Dick Armey.”
Thanks for the hint. I looked up the hearing in 1992 addressing the recession and spent way to much time reading it, but it was worth it.
https://www.jec.senate.gov/reports/102nd%20Congress/The%201992%20Economic%20Report%20of%20the%20President%20Part%20I%20(1573).pdf
Yes, indeed. Dick Armey has his, uh, hat handed to him. He comes off as exceedingly dim. And Larry Kudlow makes an appearance in his coke-addled days, not sounding much different than sober today, beating the same old low-tax, supply-side drum.
What was new to me was realizing just how knowledgeable and sharp Chairman Paul Sarbanes was. He was amazingly quick witted, getting right to the core of complex economic arguments. Can’t think of his equal today in the Senate.
The disheartening part was listening to all of the exact same arguments we hear today, a quarter century later. They talked about austerity in the face of recession. Fiscal stimulus vs monetary policy. The effectiveness of tax cuts vs public spending. And from Jeff Faux, the contradictory effect of simultaneous capital gains and ordinary income tax cuts — trying to simultaneously increase saving and spending.
OK, I am more on PGL’s side however he is clearly still making those inflammatory, non informational posts you just banned.
I may be inflammatory when I see someone spreading pure BS – which alas occurs way too often. Should I instead say – “now that is an interesting point”?
The theme of this post is that the next recession promises to be a deep one. A collection of arguments is adduced to support this theme. The most cogent being the lack of fiscal ammo when the need to use it arises. There is also some merit to the fed funds rate not being lofty enough to provide monetary ammo when the time comes. This, however, rests on the weak conditional assumption that “if interest rates at the peak are only 200 basis points” the Fed will not be able to drop the funds rate by 500 points. The assumption of 200 bps at the peak is gravely biased. As I point out elsewhere, the funds rate will reach a minimum of 350 bps, and depending on inflation may go even higher. This severely weakens the argument that the Fed will not have enough monetary ammo. Moreover, no mention of next recession QE if it comes to that.
Now for the other side, what’s omitted. That the most pro-business president in the history of this nation now holds office ought to count for something. The transmission mechanism is the policy changes that have already been made over the last 19 months. And let us not overlook other policy changes like infrastructure yet to come. The website Megapill.com has an extensive list of this administration’s accomplishments to date. From this large bloated list I count over 30 that put economic growth on a firmer base. Some of these are geopolitical, so that their impact on domestic growth may well be small at first. But every grain fills the bushel. The point being that the Trump economy will have increasing potential to grow up under nominal debt and hence slow the rise in the debt-to-GDP ratio so worrisome to Frankel. In the meantime, the bulk of current indicators say this economy has a full head of steam. One such indicator being small business optimism which is a hair’s breath away from making an all-time high. As the S&P 500 just has.
Special mention must be made about trade and the gigantic trade deficit that is bleeding this country. The economics profession, globalist think tanks, and many multinationals corporations are united against the president on his trade policies. But when the dust settles we will see this chorus was flat wrong. Wrong because at a deep theoretical level a host of hidden assumptions to the Ricardian comparative advantage model are clearly being violated. The US has been a gravy train to the rest of the world for all too long. Final stage negotiations with Mexico indicate that US growth will get a sustained boost on net. Similar boosts are likely with Canada, some EU nations, and a bigger boost still from China. While global trade and global growth will take a hit during the transition, US growth will benefit. How could it not? The gravy train is already shunted off onto a sidetrack and will soon be idled.
Lastly we have corruption. The magnitude of corruption is so great as to be unimaginable to most Americans. When the lid finally comes off there will be Richter scale tremors not just here but across the globe. There are no good (comprehensive) papers in the literature for estimating how ridding society of a unit of corruption translates into future GDP. The profession is purblind about this. As it was about the importance debt until Reinhart Rogoff.
This many-faceted other side is addressed not at all by Frankel’s post. It is my experience that when an article is so one-sided, the exact opposite of the theme prediction is the more likely outcome. All the more so since all seven Federal Reserve Governors will shortly be Trump appointees. Such carefully chosen appointees will not permit the raw material of a credit crunch to build up as it did time after time under their predecessors. The debacles of 1929, 80-82, and 2008 were credit crunches of the highest order. These were the three deepest recessions outside the immediate post-war collapse and the never-to-be-repeated oil-shock recession of ’74. A massive credit crunch recession is off the table. One more reason to believe that when the next recession arrives it will be normal at best, quite possibly even mild.
CP When quite young I consciously chose a path of acquiring wisdom. Along the way I collected what I call universal principles. One is that the universe operates on the margin. Years ago the country’s top economic forecaster taught me that. Here is the principle on conspiracy theory. When called out as a conspiracy theorist, the one doing the calling is either part of it – a very real conspiracy being kept hidden – or has simply bought into the lie. Pearl Harbor, JFK, 911 classic examples. Of course there are exceptions, but on trivial events never on big ones. Archives open, researchers dig, the truth comes out. Mujahid Kamran – a Nobel class physicist and Vice-Chancellor of the University of Punjab – frames the big picture in his The International Bankers, World Wars I, II, and Beyond. A must purchase. Kamran has a website. More directly on economics, see Stephen Mitford Goodson’s A History of Central Banking and the Enslavement of Mankind. The court historians lied to us. Everything you think you know about the (causality of) major events of the past century is upside down from the truth. Dig deeply. Donald Trump is pealing back the lid on the true criminals and dark forces that until now have reigned. The panic is palpable. What conspiracy theory did the MSM start pushing a month ago? That which above all else they do not want to come out …
thought i would remind menzie of a potential change to his commentary policy. conspiracy theory fear mongering really should be considered as an uncivil post on this site. while such posts do produce a fair amount of chuckles, not sure if they contribute to the advancement of knowledge on this blog. not that anybody would post such nonsense here, but perhaps the authors of the blog could consider such modification nevertheless.
baffling: I agree, but at one time I thought the idea of the Reagan administration conspiring to ship arms in a scheme involving the Contras and Iran so preposterous to be a conspiracy. I still wonder about the thousands of emails that mysteriously disappeared from the White House servers during the GW Bush Administration (from personal experience, I remember each and every one of my emails having a cc: to WH records, so why did so many disappear when they should have been archived). Hence, I am loath to ban discussion of conspiracies. On the other hand, feel free to ridicule clearly insane conspiracies that have been debunked, e.g., 125,000 sealed indictments being held by the attorney general, etc.
menzie, noted and understood. life can be hard to believe. possible compromise. if there are more than two conspiracy theories plotting to overtake the world order in a single comment, perhaps that could be considered uncivil and removed? lots of folks in virtual tin foil hats these days!
Menzie: Nowhere have I seen a number anywhere close 125,000. You quote a gross exaggeration. What is the source? The actual number, previously 45,000 is now 51,000. Precisely who debunked this current very real tally? You by the way read selectively. I cited the official government source for the growing number of indictments more than once in previous comments.
JBH: Apologies, you did write 45,000. Now, you are awaiting the wave of arrests… tell me when they occur. I am dubious. But who knows, those who predicted something happening when comet Hale-Bopp comes by may still eventually be proved right.