GDP, DEBT, Congress and the FED.
The BEA released its Advance Q2 GDP , as well as its annual revisions. No real great surprises regarding Q2, as it fell within expectations. However the annual revisions saw a downward revision in 6 or the previous 7 quarters. Range of -0.7% to -0.2%.
The nominal growth is not keeping up with growth in marketable debt. The likelihood of 77.4% Debt/GDP is very real, compared to 75.68% Debt/GDP from end of last fiscal year. Marketable debt is currently growing at a 4.95% annual clip and nominal GDP grew 3.72% the past 12 months. With deficits expected to rise, the debt will continue to outpace the GDP, given current FED targets of 2% real growth and 2% inflation, or 4% nominal GDP growth target. The economy has achieved the 2% real growth, but is still lagging below the inflation target.
It appears to me that Congress and the FED are not working towards the same goal. The FED is very worried about inflation accelerating beyond its stated 2% target and appears willing to increase rates, as well as unwinding of QE. The Congress seems hamstrung to either reduce spending or increase taxes (or both) to slow down the rate of growth in the debt. At a minimum additional infrastructure spending tied directly to tax increases is about the only tool left in the fiscal basket, unless the FED were to suddenly reverse direction and accept a higher inflation target (4%) on the monetary side. I have a better chance of winning the lottery, imo.
I am not sure how this could possibly end well.
Tags
Who is online
402 visitors