Today is the calm before an economic storm.
The Federal Reserve is hiking interest rates to slow inflation. Many commodity prices are already coming down. But if it hikes too fast, economic activity will slow and that will be a recession.
To Nouriel Roubini (right), the economist known as “Dr. Doom,” a recession at this time could quickly become a depression, because public debt remains at historically high levels. If you owe $43 trillion at 1%, it costs $430 billion to carry it for a year. At 3%, it’s $1.3 trillion. Your budget just got broken. That’s his reasoning.
But debt owed to yourself isn’t real. We can print that $1.3 trillion. The risk then is that the dollar falls off a cliff. That’s not happening. If anything, the dollar is too strong. We’re importing deflation. Every western nation, and China, has massive debts.
It’s why the doomsayers were wrong in 2009, and again in 2020. It’s why we couldn’t fight the Trump tax cuts. They didn’t create inflation. They didn’t sink the dollar.
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