We have lost all spending gains versus last year because of the slow pace of tax refunds. A reader by the name of John, kindly schooled me on the reason. John is a tax accountant. He said it's not due to the IRS computer glitch that I have been citing. Rather, it's due to increased filing requirements related to Obamacare.
The economy was barely growing with y-o-y spending gains of $25 billion. (Only up 0.7% annualized in Q4.)
We have lost $25 billion in a instant because of the tax refund situation. Another reader anecdotally told me how much his business relies on people spending those refunds.
Given the stock market setback and generally terrible state of sentiment and now this, I am calling recession.
John the accountant told me that refunds will get to where they need be by April, but that's going to be too late. The damage will have already be done. The best we can hope for is a very shallow recession.
4 comments:
Mike don't give up too easily....
http://mikenormaneconomics.blogspot.com/2015/08/i-was-lone-voice-of-calm-and-reason.html
I humbly suggest that in order to avoid error, examine your model which is very similar to mine! Why did we have such different expectations?
Steve Keen puts too much emphasis on horizontal money (and took a long walk because of it) , some put too much emphasis on vertical money(not sure how they will atone).
So there are two obvious policy levers, interest rates and deficit spending. Short-term rates have lost all ability to influence the economy but long-term rates still have ammo. Deficit spending will likely have a small increase.
There are other, not so obvious levers, most importantly the price of oil (Warren admits he missed seeing that one). There might be something else out there, not sure what. Saudi Arabia appears to control this policy lever.
Not to be too cryptic, but today's election could knock Jeb! out of the running and make the purpose of the Saudi lever mute. Why should the Saudis suffer when there is no chance of getting another Bush crony in the WH only Trump?
I think we both agree the Fed has total control of the 10 yr tsy rate. If they don't want a recession, they could drop to below 1.3% over the next week or so and really get the housing boom started. Perhaps it is too late to avoid recession but don't give up, watch the levers!
Yes, good points.
In any case, I don't think it will be a very deep recession and it will be over quickly.
All of these could happen simultaneously...
60 % probability ---- With Jeb! hanging on in NH, I see price of oil likely to continue to fall until oil company bankruptcies blow up a large bank.
35% probability ---- If Jeb! does lose it eventually and drops from race, next move would be Saudi's boots on ground ultimately leading to the destruction of Iranian oil fields and possibly the House of Saud.
75% probability ---- 10 yr rates are dropping quickly 1.58% today, likely to continue. I see 1.3% as important level to get housing going strong.
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