by The Federal Reserve’s models really are the most optimistic of the bunch. With the policy meeting conducted today, no surprises as far as policies go, we now know what ferbus has to say about everything that’s happened this year. Skipping the usual March projections, what with the FOMC totally occupied at the time by a complete global monetary meltdown Jay Powell now says “we saw it coming”, the central bank staff released the calculations performed by its DSGE prodigy concurrent with today’s policy meeting. According to these simulations, the US economy will contract by somewhere between 5.5% and 7.6% for all of 2020 and then rebound by hopefully 4.5% if not 6.0% in 2021. The median forecast, to make things simple, calls for -6.5% this year followed by +5.0% next
Topics:
Jeffrey P. Snider considers the following as important: 5.) Alhambra Investments, currencies, economy, Featured, Federal Reserve/Monetary Policy, ferbus econometric models, FOMC, jay powell, L-shaped recovery, Markets, newsletter, OECD, QE, stimulus, v shaped recovery, World Bank
This could be interesting, too:
Marc Chandler writes Sterling and Gilts Pressed Lower by Firmer CPI
Ryan McMaken writes A Free-Market Guide to Trump’s Immigration Crackdown
Wanjiru Njoya writes Post-Election Prospects for Ending DEI
Swiss Customs writes Octobre 2024 : la chimie-pharma détermine le record à l’export
The Federal Reserve’s models really are the most optimistic of the bunch. With the policy meeting conducted today, no surprises as far as policies go, we now know what ferbus has to say about everything that’s happened this year. Skipping the usual March projections, what with the FOMC totally occupied at the time by a complete global monetary meltdown Jay Powell now says “we saw it coming”, the central bank staff released the calculations performed by its DSGE prodigy concurrent with today’s policy meeting.
According to these simulations, the US economy will contract by somewhere between 5.5% and 7.6% for all of 2020 and then rebound by hopefully 4.5% if not 6.0% in 2021. The median forecast, to make things simple, calls for -6.5% this year followed by +5.0% next year.
And that places the Fed’s projections out in front of everyone else’s, not that it means anything.
Each and every one of these continues to look the same. The most optimistic forecasts, the FOMC’s, are not categorically different from the rest. The uncertainty pertains instead to estimates for just how bad off we might be by the end of next year; there’s no debating the massive economic damage already done.
This “V” everyone is talking about and hoping for keeps coming up conspicuously light on the right. Only a partial comeback which will almost certainly leave the world to deal with the fallout from years of underperformance – following more than a decade of unacknowledged and unexplained underperformance already.
|
But, QE or something. These statistical simulations already assume “stimulus” is, has been, and will continue to be tremendously helpful. In addition to all their biases and unrealistic premises, as noted yesterday, underlying each and every one of these sets of projections, especially the Fed’s, is the unproven (to put it kindly; in empirical reality these are disproved ten times over across every part of the planet) assumption monetary policy is some kind of miracle drug. If only in terms of “jobs saved.” Before Jay Powell got on TV this afternoon to talk a lot about how helpful the Fed can be, and how the biggest risk in his lurid liar’s mind must be interest rates exploding higher, the OECD had already put out its own forward-looking estimates. Even though you may not have seen this particular set, you’ve already seen them many times before recently. The V’s very light on the right.Their purple line “single-hit” scenario envisions COVID-19 being a one-off, no second outbreak, and still look where it ends up; substantially, dangerously below where the economy should have been had governments properly distrusted statistical modeling in both Economics as well as epidemiology. And that purple disaster assumes, of course, how, “Policymakers have used a vast array of exceptional measures to support healthcare systems and people’s incomes, as well as to help businesses and stabilise financial markets.” These best-case scenarios are all predicated on the same fairy tale. If Jay Powell can lie to the public convincingly enough, and keep it up for long enough, then we just might avoid a second and more disruptive leg of GFC2 and keep to the disaster of the purple line as opposed to an outright catastrophe. See what I mean about “jobs saved?” In the same part of the world as the OECD, and on the same day, yet another mainstream series of modeled projections was released, this one by the World Bank which basically ends up declaring the same thing as everyone else: the world is screwed. According to these numbers, the FOMC’s figures are only slightly elevated. They call for the US economy to drop 6.1% in 2020 and then come back 4% in 2021. Only a little lighter on the right side of their “V.” While that’s not really a “V”, either, it’s much closer to one than what’s being envisioned for the rest of the developed world; Japan and Europe. The former is looking like -6.1% but then only +2.5%. The latter is projected to collapse by 9.1% this year, and only rebound by 4.5% next year. If you thought the euro was in trouble in 2011… |
Mainstream Models, Q3 2019-Q3 2021 - Click to enlarge |
| As I’ve been writing (constantly), these are not the scenarios everyone right now has in mind. Certainly not what’s propping up valuations on Wall Street. There’s this idea, priced into equities, that COVID-19 was a serious health risk that has already been surmounted and is fading into historical trivia. Once the pandemic is over, it’s over.
On the contrary, every single one of the mainstream models, predisposed to be overly optimistic, indicates the exact opposite thing. When you can’t even get DSGE on your side even though DSGE is basically made to be on that side. What we are left to argue about is just how screwed we are; not whether we are. Even the Economists at the World Bank are nervous about their purple, since they also realize the dangers in relying on “stimulus” for these more optimistic numbers (that are, again, terrible). In other words, they also know how everything has to go perfectly in order to achieve them. The world has no room left for anything more like March.
Second and third order effects, in other words. We can’t afford even a whiff of those despite signs and signals already showing up in too many key indications. And even if everything does go right, we don’t have a wave of bankruptcies or more of GFC2 frightening consumers and businesses beyond what it already has, it will be a disaster greater than the Great “Recession.” Perfect illustrating this “best” case, the World Bank supplies what should be worth far more than every $1000 stock: |
Mainstream Models World Bank, 1975-2020 - Click to enlarge |
| If you thought 2008-09 was fun, just wait until 2022! And that’s only if “stimulus” can save a multitude of jobs between now and then.
The problem with calling what’s going on right now survivor’s euphoria is that we haven’t actually survived anything – economically speaking. It was premature in the middle of 2008 after Bear, just as it is almost certainly premature right at this moment. Shock euphoria just doesn’t have the same ring to it, though, does it? But that’s all that has really happened so far; we haven’t made it past the thing, we’ve only made it past the shock which has produced the thing. A shock which was amplified by what may prove to have been only the first leg of GFC2. |
Real GDP Pro forma, 2014-2022 - Click to enlarge |
| What every single one of these highly optimistic mainstream modeled assessments shows is that this thing has only gotten started. That’s why there’s no “V.” It wasn’t nothing as people are now being led to believe, hooked by crooks.
No wonder Jay Powell learned so quickly to be a damned liar. |
 |
You Might Also Like
From QE to Eternity: The Backdoor Yield Caps
So, you’re convinced that low rates are powerful stimulus. You believe, like any good standing Economist, that reduced interest costs can only lead to more credit across-the-board. That with more credit will emerge more economic activity and, better, activity of the inflationary variety. A recovery, in other words. Ceteris paribus. What happens, however, if you also believe you’ve been responsible for bringing rates down all across the curve…and then no recovery.
Why The FOMC Just Embraced The Stock Bubble (and anything else remotely sounding inflationary)
The job, as Jay Powell currently sees it, means building up the S&P 500 as sky high as it can go. The FOMC used to pay lip service to valuations, but now everything is different. He’ll signal to all those fund managers by QE raising bank reserves, leading them on in what they all want to believe is “money printing” (that isn’t).
So Much Bond Bull
Count me among the bond vigilantes. On the issue of supply I yield (pun intended) to no one. The US government is the brokest entity humanity has ever conceived – and that was before March 2020. There will be a time, if nothing is done, where this will matter a great deal.That time isn’t today nor is it tomorrow or anytime soon because it’s the demand side which is so confusing and misdirected.
A Day For Rate Cuts
Well, that wasn’t he had in mind. The whole point of a rate cut, any rate cut let alone an emergency fifty, is to signal especially the stock market that the Fed is in the business of…something. The public has been led, by and large, to assume that something good happens when the Fed Chair shows up on TV.
The Global Engine Is Still Leaking
An internal combustion engine that is leaking oil presents a difficult dilemma. In most cases, the leak itself is obscured if not completely hidden. You can only tell that there’s a problem because of secondary signs and observations.If you find dark stains underneath your car, for example, or if your engine smells of thick, bitter unpleasantness, you’d be wise to consider the possibility.
The Greenspan Bell
What set me off down the rabbit hole trying to chase modern money’s proliferation of products originally was the distinct lack of curiosity on the subject. This was the nineties, after all, where economic growth grew on trees. Reportedly. Why on Earth would anyone purposefully go looking for the tiniest cracks in the dam?
COT Black: No Love For Super-Secret Models
As I’ve said, it is a threefold failure of statistical models. The first being those which showed the economy was in good to great shape at the start of this thing. Widely used and even more widely cited, thanks to Jay Powell and his 2019 rate cuts plus “repo” operations the calculations suggested the system was robust.
ECB Doubles Its QE; Or, The More Central Banks Do The Worse You Know It Will Be
A perpetual motion machine is impossible, but what about a perpetual inflation machine? This is supposed to be the printing press and central banks are, they like to say, putting it to good and heavy use. But never the inflation by which to confirm it. So round and round we go. The printing press necessary to bring about consumer price acceleration, only the lack of consumer price acceleration dictates the need for more of the printing press.
Tags: currencies,economy,Featured,Federal Reserve/Monetary Policy,ferbus econometric models,FOMC,jay powell,L-shaped recovery,Markets,newsletter,OECD,QE,stimulus,v shaped recovery,World Bank