February 10, 2018

Small potatoes

The Week Ending Friday February 9th 2018 Wild, but not so wild. The 5% sell off in equities over the week added to the 3% fall the week before has certainly blown the froth off the stock market. Much better than expected sales and earnings figures had led to an excessively positive reaction in stocks (firstchart) – that has now been partly reversed. The long term forward Price/Earnings ratio (second chart) now looks more normal. And perhaps that is all there is. The news about the spending deal, about wage growth, about rates is all just noise. Stocks had gotten…...

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The last filmy slips of fabric have been stripped away, and macroeconomists must now view the once-romanced US Congress in flagrante delicto with a real paramour: Mr. Big Bucks Deficits. The Congressional Budget Office, the Budget Committees, the Tax Committees, the endless pompous pettifogging about national debts—all tossed overboard on the Washington IOU Love Boat. Worse, Congress is not having a mere wild love affair—they have brought Mr. Big Bucks Deficits to the altar. So Now What? From here, a premise of Federal Reserve monetary policy must be that it takes place alongside $1 trillion annual deficits. For many, the… Read More