Last Friday July 27, 2018), the US Bureau of Economic Analysis published their latest national accounts data – Gross Domestic Product: Second Quarter 2018 (Advance Estimate), which tells us that the annualised real GDP growth rate for the US was a very strong 4.1 per cent in the was 3 per cent in the June-quarter 2018. Note this is not the annual growth over the last four-quarters, which is a more modest 2.8 per cent (up from 2.6 per cent in the previous quarter). As this is only the “Advance estimate” (based on incomplete data) there is every likelihood that the figure will be revised when the “second estimate” is published on August 29, 2018. Indeed, the BEA informed users that it has conducted a comprehensive revision of the National Accounts which includes more accurate data sources and better estimation methodologies. So I had to revise my entire dataset today to reflect the revisions. The US result was driven, in part, by “accelerations in PCE and in exports, a smaller decrease in residential fixed investment, and accelerations in federal government spending and in state and local spending.” Real disposable personal income grew at 2.6 per cent (down from 4.4 per cent in the first-quarter). The personal saving ratio fell from 7.2 per cent to 6.8 per cent. Notwithstanding the strong growth, the problems for the US growth prospects are two-fold: (a) How long can consumption expenditure keep growing with flat wages growth and elevated personal debt levels? (b) What will be the impacts of the current trade policy? rise is a relevant question. At some point, the whole show will come to a stop as it did in 2008 and that will impact negatively on private investment expenditure as well, which has just started to show signs of recovery. Government spending at all levels has also continued to make a positive growth contribution. But with rising private debt levels and flat wages growth the growth risk factors are on the negative side. When that correction comes, the US government will need to increase its discretionary fiscal deficit to stimulate confidence among business firms and get growth back on track....To the degree that the consolidated domestic private sector is driving growth, growth of private debt is the key driver. Growth based on expanding private debt is income-dependent, and incomes must also grow for the increased debt to be sustainable over time. If the rate of growth of private debt falters, increasing net exports or (inclusive "or)) government deficit spending must offset to maintain the growth path.
Bill looks at the details of this and it is a good example of MMT macro analysis. He shelfs the discussion of the external sector for another day.
I will write more about the tariff tit-for-tat in a future blog post.
What appears to be happening is the decisions taken by Trump are putting US trading partners into situations that will see them concede in one way or another....This is a fairly long post and quite detailed. It will be mostly of interest to those already handy with MMT analytical tools, but it will also give MMT newbies a look at how MMT analysis works.
Bill concludes by looking at the US labor market and the plight of US workers.
This post really covers the bases!
Here is something else to consider:
So, the standard neoliberal claims that the labour share has to be reduced to stimulate more private business investment and jobs is not supported by the evidence.The increased owner/rentier share is not going to capital investment and not that much is going to increased consumption either. This is means that the residual is being saved.
The increased savings over investment would imply that owners expect a better return from financial investment than productive investment, as Marx held — and also predicted that when this became chronic it presaged late-stage capitalism. This seems to be occurring in the developed world where the rate of actual growth is masked by the lack of distinction in GDP between actual production and services, especially financial services. Production is increasingly being exported to the still developing world. Now President Trump is trying to reverse that trend.
Bill Mitchell – billy blog
US growth surprise will not last
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia
See also
On net, we can say that the economy is likely getting some near-term boost from the tax cut, which could lead to a growth rate of close to 3.0 percent in 2018. It is difficult to see this persisting into 2019 unless we see a pick up in productivity growth as the labor market tightens and employers are forced to pay higher wages.
It is important to point out that for almost everyone but economist types, growth does not mean anything. People care about whether they have a job and whether their pay is rising. On the last point, the news has not been good, as real wages have been flat over the last year.
However, it is important to note that without the increase in energy prices, they would have risen 0.5–0.7 percent. That is not a great story given how much ground has to be made up for workers to get their share of growth, but at least it is movement in the right direction. And, as the energy price hikes of last summer move out of the 12-month window, we will be looking at real wage gains of 0.5 to 0.7 percent, what workers were seeing before Donald Trump became president.Beat the Press
Quick Thoughts on Trump's "Amazing" Economy
Dean Baker | Co-director of the Center for Economic and Policy Research in Washington, D.C
To the degree that the consolidated domestic private sector is driving growth, growth of private debt is the key driver. Tom Hickey
ReplyDeleteThe issuance of common stock is another way to finance growth and without debt and profit taking. But why share equity when a government-privileged usury cartel allows one to use what is in essence then, the public's credit but for private gain?
Growth based on expanding private debt is income-dependent, and incomes must also grow for the increased debt to be sustainable over time. Tom Hickey
A Citizen's Dividend is a straightforward, ethical means, beyond normal deficit spending by the monetary sovereign for the general welfare, to provide the aggregate interest required for private debt. How to finance? By negative yields and interest on the inherently risk-free debt of the monetary sovereign, including bank reserves, but with a negative-interest-free exemption for individual citizen checking/debit accounts at the Central Bank itself.
The increased savings over investment would imply that owners expect a better return from financial investment than productive investment
ReplyDeleteThere is very little "financial investment" as opposed to "productive investment" absent the fiat funny money system. One need not worry about inflation hedges if there is no inflation. There will be very few investment bubbles if funny money is not there to blow them up. Absent the funny money, the only profits available must come from satisfying consumer demands.
Of course, since the free market does not lead to monopoly, unemployment or stagnation, there is never a good excuse for violent government intervention in the market.
From Mikes latest report :
ReplyDelete“Fiscal flows
Spending for the month of July thru July 26 was $276.7 bln. That is up $22.1 bln vs same time last year.
Total spending for the fiscal year thus far, $3.88T, up $126.8 bln over last year and growing at 3.4% y-o-y. This is just off the highest spending rate all year, but spending continues to trend higher as you can see from the graph on page 8.”
Fiscal is up over 3.4% YoY not too shabby... this can foment higher levels of bank credit...
... this can foment higher levels of bank credit ... Franko
ReplyDeleteMore accurately:
... this can foment higher levels of the public's credit but for private gain...
Just have the public buy some bank shares...
ReplyDelete“On net, we can say that the economy is likely getting some near-term boost from the tax cut,”
ReplyDeleteWrong....
Again from Mikes report:
“Corporation taxes, $203.5 bln, down $53.2 bln y-o-y.”
So the Trump tax increase on previous retained foreign earnings was 250b (incl 30b+ for banks) and mike has the data here showing they are only saving at most 50b in the 6 months since ...
so far a net 200b tax increase and is causing the shitty 2018 so far... won’t leave the trailing 12 months data until after 4Q 2018 reports... so we may be screwed for the rest of the year due to Trumps “pay fors”...
Regardless of how much banks are willing and able to lend at the absolute level, the relative level is dependent on creditworthiness and income is a key determinant of this. Incomes have to rise to support the creditworthiness needed for loans.
ReplyDeleteIn addition, housing a primary driver of economic growth. As interest rates rise, fewer and fewer people qualify for the monthly nut base on income unless incomes rise to support the higher monthly.
Maybe millennials don’t want the maintenance responsibility that comes with home ownership... they might rather spend their off time enjoying themselves....
ReplyDeleteMaybe millennials can't afford rent let alone ownership.
ReplyDeleteExcept it's not "maybe". From 2000 to 2016, real median home prices increased by 29%, but young adult per capita real incomes increased only 1%.
What are they living in their cars?
ReplyDelete“Incomes have to rise to support the creditworthiness needed for loans.”
ReplyDeleteRight but then how can one say this:
“incomes must also grow for the increased debt to be sustainable over time”
At the same time? You just said you need the income FIRST to get the loan at all....
CNBC (10 May 2018)
ReplyDeleteA growing share of millennials are living with mom
Nearly 23 percent of millennials live with mom, up from 13.5 percent in 2005.
Aaron Terrazas, senior economist at Zillow, blames rising housing costs and relatively lackluster wages.
And this now:
ReplyDelete“Indeed, the BEA informed users that it has conducted a comprehensive revision of the National Accounts which includes more accurate data sources and better estimation methodologies. So I had to revise my entire dataset today”
Now they are going to blame the data revisions for being bearish for like the last 5 years...
So what is wrong with living with mom?
ReplyDeleteYou sound like you’ve been watching Fox News...
Are you long the home builder stocks or something?
ReplyDeleteAt the same time? You just said you need the income FIRST to get the loan at all....
ReplyDeleteIts' dynamic.
See Irving Fishers's debt-deflation theory of depression.
When the bank's cut back lending, then the economy contracts but the loans outstanding remains on the same terms unless restructured, which banks are not usually wont to do.
If means that in aggregate, income becomes less and less sufficient to meet existing credit obligations and non-preforming loans rise and defaults increase.
This is pretty much how the finance cycle corresponds to the business cycle.
Income would just have to stay the same in order to service existing debt it doesn’t have to increase... you just said you need the income FIRST...
ReplyDelete“When the bank's cut back lending”
ReplyDeleteThey always seek to increase lending... why would they instead “cut back lending”?
The standard m.o. of the cb when it wants to address an overheating economy, meaning rising real wages, then it raises the interest rates. This makes current and future borrowing more costly. That reduces the number of people that qualify for loans. This affects big ticket items that drive the economy like housing and vehicle sales. As private debt stops accelerating at the same pace, businesses that had projected increasing future sales find inventories building and reduce quantity, including labor quantity. Those laid off can't meet their debt obligations and NPL increase. Backs keep watch on NPL's and when the increase they take it as a signal to further tighten. Then there is a cascading effect between business and finance. This is how NAIRU operates.
ReplyDeleteThey always seek to increase lending... why would they instead “cut back lending”?
ReplyDeleteDo you have any friends that are loan officers or have been loan officers. They hate NPL's charged to loans they made. It is a career killer.
This is what makes banks effective at credit assessment and contributes to profit by reducing loss exposure.
As interest rates rise, more people get turned down for insufficient income, unless wages are rising to support the higher monthly nut.
This is dynamic and happening in aggregate at the macro level.
BTW, it's also why cb's raise rates gradually. They want to avoid having to pull a Volcker if they wait too long.
ReplyDeleteBank assets are always increasing:
ReplyDeletehttps://fred.stlouisfed.org/graph/fredgraph.png?g=kIpq
This is how NAIRU operates.
ReplyDeleteI read this comment not as a general endorsement of the NAIRU but rather a contention of what it does actually show (in your opinion)--am I reading you correctly?
I was describing how current Fed policy operates using the thinking behind NAIRU and the Phillips curve. They realize that this is not a very good theory for precise forecasting, so they have to rely on discretion.
ReplyDeleteThis means as the economy begins to expand after a contraction, there Fed has to begin to raise rates gradually to in anticipation of increasing inflation expectations. There is a lead time for monetary policy to work, since it operates chiefly through the housing channel. But as incomes rise in an expansion, people become more creditworthy or at least don't become less creditworthy. So the Fed needs to get aheads of the curve early on, so that the inflation doesn't explode and they need to go all Volcker.
Of course, I am not endorsing this. For one thing it is a flawed analysis from the MMT POV. But this is how they think and operate.
Drive out the moderates and then the Libertarians. Sounds like a "winning" strategy;
ReplyDeletePolitico has Biden 7 points up on Trump in 2020, and HRC did win the popular vote.
The GOP had better focus on the electoral college vote.
BTW, HRC wining the popular vote but losing on a technical quirk in the US political system makes a mockery of Russia influencing the election. They knew the key swing states and worked their magic there? Really?