In my last column (Wanted Ice Cream Scoopers – $23/hr – Yes, The Service Economy Is Booming (forbes.com)), I thought it was difficult to imagine a recession before year end. So, I posited that the SP 500 might even challenge its August 2022 high of 4300. Beep Beep! The roadrunner stock market took 4300 as a minor speed bump to last week’s 4600 high. Why so strong? And is a potential recession just another wall of worry to climb?
First, I should note that the bond market and the stock market are in complete disagreement on the future macroeconomic path. Stocks clearly see blue skies while the bond market, with its severely inverted yield curve, predicts heartache for the economy around the next bend. Both could be befuddled by Bidenomics. This is not either party’s political talking point on the President’s economics but rather my view of the most unique thing happening entirely due to DC. Since 1950, we have never had a moment where DC ran a massive federal budget deficit while the economy simultaneously was at or below full employment. This is a combo of reduced tax revenue, the Inflation Reduction Act, the Infrastructure bill, and all the other DC mislabeled bills. Profligate deficit spending while in an economic boom is truly an n of 1 event and looks like something called “fiscal dominance”. As per the St. Louis Fed, the definition of fiscal dominance is, “Central banks’ resolve and independence is chronically tested by fiscal authorities wishing to impose their desired policies.”
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