"Economy Firing On All Cylinders"..What?!

[target2019]

How many "cylinders" does the economy have?
- Employment
- Interest rate
- GDP
- Debt

What other measurable indicators would you add to the list?

 

[cooch96]

How many "cylinders" does the economy have?
- Employment
- Interest rate
- GDP
- Debt

What other measurable indicators would you add to the list?

-infrastructure
-manufacturing
-agriculture
-money velocity
-et cetera

 

[VFK57]

"Economy is booming" - sure all mass media confirms it but our National Debt continue to grow even faster, what most reasonable people cannot connect with the "booming economy". The higher interest rates what most of savers want and longed for years, will bite bigger and bigger chunk of our budget. Surely it is not the sustainable growth if we continue to massively borrow without paying the Debt off by huge inflation or going to default at some point.

 

[JDARNELL]

I think we will just inflate our way out if the National Debt. We are still on of the best of the worst economies.

 

[audreyh1]

"Economy is booming" - sure all mass media confirms it but our National Debt continue to grow even faster, what most reasonable people cannot connect with the "booming economy". The higher interest rates what most of savers want and longed for years, will bite bigger and bigger chunk of our budget. Surely it is not the sustainable growth if we continue to massively borrow without paying the Debt off by huge inflation or going to default at some point.

Theoretically, a booming economy should mean an increase in tax revenues.

It’s possible that the increasing tax revenues (in spite of being significantly lowered recently) could help lower the national debt, and I know some folks are convinced this will happen, but call me skeptical....

 

[Pellice]

-infrastructure
-manufacturing
-agriculture
-money velocity
-et cetera

But "amount of income increases for the majority of citizens" - in some formulation or other - does not count as a cylinder. Even though inflation does. As a thought experiment, what would it mean if it were to count? It can't be more difficult to measure than inflation.

 

[travelover]

........ the War on Savers......... .

The low interest rates have pushed up stock prices, so savers that invested in stocks don't feel "warred" upon.

 

[USGrant1962]

Theoretically, a booming economy should mean an increase in tax revenues.



It’s possible that the increasing tax revenues (in spite of being significantly lowered recently) could help lower the national debt, and I know some folks are convinced this will happen, but call me skeptical....

Federal receipts have been UP every year since the 2008 recession. Sometimes more than inflation and sometimes less.

In nominal terms 2018 receipts were $816B higher than 2008, and outlays were $1,191B higher.

 

[audreyh1]

The low interest rates have pushed up stock prices, so savers that invested in stocks don't feel "warred" upon.

I totally agree. The effect, somewhat deliberate, was to push investors into riskier assets.

Now, it probably went way farther than desired, as IMO we had a huge inflation of riskier assets accompanied by cheap company stock buybacks. And with interest rates rising I seriously expect some deflation in these same riskier assets.

But I also don’t believe savers using traditional savings accounts, CDs, and treasuries are ever “owed” some minimal interest rate.

 

[audreyh1]

Federal receipts have been UP every year since the 2008 recession. Sometimes more than inflation and sometimes less.

In nominal terms 2018 receipts were $816B higher than 2008, and outlays were $1,191B higher.

My comment about the recent lowering of Federal receipts was from the lowered 10 year revenue projections due to the recent tax cut legislation including 2018. Treasury issuance has been increasing due to the growing budget deficit.

 

[marko]

They always shake out the weak, whether it be businesses or individuals. Recessions are like a power wash. Gets you back down to a good base.

I'm not a 'what could go wrong?' type but I keep getting a sense of negativity in this and other threads that I'm not sure is warranted.

I also can't buy into the 'this time is different' mentality. From my limited view, the economy is on sound footing, companies are making money and profits, people are working and spending money; there doesn't seem to be any boogeyman in the shadows...at least not at this point.

Recessions come and go. I view them as unpleasant but healthy.

Like COcheese's power wash analogy, I've always likened a recession to someone who overate and over drank at a party, got sick, threw up and after a day in bed gets back to normal.

 

[target2019]

How many "cylinders" does the economy have?
- Employment
- Interest rate
- GDP
- Debt

What other measurable indicators would you add to the list?

-infrastructure
-manufacturing
-agriculture
-money velocity
-et cetera

For manufacturing, okay with PMI?
https://www.advisorperspectives.com.../ism-manufacturing-index-expansion-in-october

I'm not even a little bit familiar with agriculture or money velocity. How to measure those?

 

[ShokWaveRider]

It would be interesting to know what exactly constitutes a good economy. There are many publications on this and all have different, sometimes biased perspectives.

I think the main measurement is Employment and Jobs, then CPI, Exports vs imports,Debt and of course there may be a lot of others, but Jobs is really the most important. So we have low unemployment therefore the economy is generally good. CPI and Debt are dampeners but jobs are key.

I personally think that the stock market is a poor measurement, and one that gets way more stock (Pun intended) that it deserves. Why? Because for the most part it is based on emotion and/or automation (Algorithms). OK yes if a company is doing well, it's stock price will be bought up, but it can easily go down if traders want to take profits just because they feel like it. If there is a disaster or something abroad that causes the SM to crash, the overall economy still could remain very good if the majority is employed.

Not sure why I am rambling on about this, but I generally think too much is put into the health of the stock market. Also interest rates could be high, and unemployment could be very low, the economy would still remain good.

 

[Amethyst]

Clever analogy

It's running on all cylinders, but its on an engine stand with the battery sitting on the bench, fuel being fed through a funnel, and no load applied.


10 years of near zero interest rates isn't a recovery, its life support.

 

[joeea]

Given the immense debt that been accrued across pretty much every sector (governments, corporations, student loan, auto, home, credit card, etc..); I tend to agree that this entire booming economy is based on low interest rates and debt and can't possibly be sustainable.

Low interest rates help, but aren't the only reason the economy is in good shape.

So, what the heck am I missing? Shouldn't we all be saving and paying down debt instead of continually deficit spending?

It's not clear what you mean by "we all" here.

If you mean each of us individually, I can't speak for you, but I manage my personal debt quite nicely, than you. Other than a mortgage, I have no debt.

If instead you mean the country as a whole, I think the thing you seem to be missing is politics.

Isn't a "healthy" economy one that balances saving and investment and can thrive in a normal interest rate environment?

You appear to be assuming that the current economy couldn't thrive in a "normal interest rate environment". I disagree.

 

[GrayHare]

With US government debt roughly 100% of GDP one could tax domestic production 10% and become debt free in 10 years, provided spending did not change of course. Even if there were political will for that, it would not be done because it would suck money out of the economy at such a rate as to kill off many businesses and jobs. A rate lower than 10% might be sustainable.

 

[street]

It would be interesting to know what exactly constitutes a good economy. There are many publications on this and all have different, sometimes biased perspectives.

I think the main measurement is Employment and Jobs, then CPI, Exports vs imports,Debt and of course there may be a lot of others, but Jobs is really the most important. So we have low unemployment therefore the economy is generally good. CPI and Debt are dampeners but jobs are key.

I personally think that the stock market is a poor measurement, and one that gets way more stock (Pun intended) that it deserves. Why? Because for the most part it is based on emotion and/or automation (Algorithms). OK yes if a company is doing well, it's stock price will be bought up, but it can easily go down if traders want to take profits just because they feel like it. If there is a disaster or something abroad that causes the SM to crash, the overall economy still could remain very good if the majority is employed.

Not sure why I am rambling on about this, but I generally think too much is put into the health of the stock market. Also interest rates could be high, and unemployment could be very low, the economy would still remain good.

It depends on what party is opening their mouth.

 

[cb7010]

Before the Federal Reserve was created the US economy repeatedly swung rapidly between boom and bust cycles. Inflationary times quickly switched to deflationary ones, and vice versa. The Fed buffers that by influencing interest rates. The Fed has also generally kept the economy in inflation mode for the past century. That seems like a recipe for a big deflationary period Some Day. As for when the Century of Inflation music stops is anyone's guess.

I’m curious as to what exactly is wrong with deflation? Doesn’t that mean the dollars I’ve saved get more valuable as I hold them? I like the sound of that. I’ve also heard the advent of fractional reserve banking has had a lot to do with inflation

 

[cb7010]

I feel the same - it's all smoke and mirrors. I have no insight. Just angst...

You pretty much summed up my initial, long winded, post. Bravo!

 

[JDARNELL]

The concern with deflation is everyone holds their dollars because they believe the will
Be better tomorrow and it’s a downward spiral

 

[njhowie]

I’m curious as to what exactly is wrong with deflation? Doesn’t that mean the dollars I’ve saved get more valuable as I hold them? I like the sound of that. I’ve also heard the advent of fractional reserve banking has had a lot to do with inflation

https://www.investopedia.com/articles/personal-finance/030915/why-deflation-bad-economy.asp

 

[cb7010]

https://www.investopedia.com/articles/personal-finance/030915/why-deflation-bad-economy.asp

Not so sure I fully buy this perspective and guessing there are also economists that would join me. Implies some inflation is good, with no explanation as to why, and that central bank intervention is a given, yet throughout much of history this didn’t exist, I think what’s most natural is periods of expansion and contraction around a mean; but, these natural fluctuations have been exacerbated by central bank and political miscalculation and intervention. Capitalists should offer market based interest rates above treasury rates to fund their projects and to incent savers to lend and invest..how the heck did markets function before the 1900’s and modern financial engineering?

 

[razztazz]

Not so sure I fully buy this perspective and guessing there are also economists that would join me. Implies some inflation is good, with no explanation as to why, and that central bank intervention is a given, yet throughout much of history this didn’t exist, I think what’s most natural is periods of expansion and contraction around a mean; but, these natural fluctuations have been exacerbated by central bank and political miscalculation and intervention. Capitalists should offer market based interest rates above treasury rates to fund their projects and to incent savers to lend and invest..how the heck did markets function before the 1900’s and modern financial engineering?

I have heard reasonable inflation referred to as an "economic lubricant." I think Milton Friedman used the term. I am not entirely sold on the idea but I think depressions are net bad.

As to expansions and contractions. They existed way before central banks. They were called "panics." After a century of these things happening and their associated "death and destruction" people, or maybe it was Government, or maybe it was the Business Community decided they weren't good and wanted a mechanism to act as a capacitor. Personally I think the industrial revolution, being a new thing in type and scale caused decades or centuries long economic re-orientations to suddenly become more frequent, more severe AND with more people than ever before, were being felt by more people.

You can probably find a place on the scale for Central Bank actions simply because they exist but I wouldn't blame central banks as a cause for these things. They are part and parcel of any market based economy.

 

[RenoJay]

I’m with the OP on this analysis. I thought I was a buy and hold index guy but about a month ago I did some major selling. It’s feeling like bubble 3.0 to me and that minor increases in rates will mess up a lot of people’s massive debt repayment plans.

 

[RenoJay]

I've been hearing more about Modern Monetary Theory lately.

https://en.wikipedia.org/wiki/Modern_Monetary_Theory



I heard a segment on NPR a while back that discussed it. I understand there were MMT advocates involved with the Sanders campaign in 2016 but I don't have details.

For MMT to work, I believe that we'd have to completely revise the methods of taxation.

This fancy term...”MMT”....sounds a lot to me like what Mugabe did in Zimbabwe. Spoiler alert: it didn’t end well.