Paul Tudor Jones, billionaire hedge fund manager and predictor of the 1987 stock market crash, and Ben Bernanke, former Federal Reserve Board Chair and widely praised for his handling of the 2008 financial crisis, may express themselves differently when asked about the current state of our economy but, bottom line, they agree.
Tudor Jones, as quoted in MarketWatch in mid June, “The next recession is really frightening because we don’t have any stabilizers.” Bernanke, quoted by Bloomberg News also in mid June, warned “…the stimulus (Republican tax cuts) came at the very wrong moment…the economy was already in full employment.” Bernanke predicts the impact of the stimulus to run its course by 2020, the latest, and then predicts the US economy “…to go fall off the cliff.”
For the time being, things look pretty good. Unemployment stands at 3.8%, the lowest level in 5 decades; the Federal Reserve Bank of Atlanta projecst GDP (gross domestic product) growth of 4.6% for Q2 2018; the Atlanta Fed also projects overall growth at 3.7% and the Federal Reserve Bank of New York, also optimistic, projects growth at 3.1% in Q2 2018. Even Warren Buffett, according to CNBC, was reported as saying, “…If this were the 6th inning, we have our sluggers coming up to bat right now.”
The Congressional Budget Office (CBO), however, is forecasting a different economy…an economy in “stealth slowdown.” The CBO projects economic growth this way…
2017 – +2.6%
2018 – +3.3%
2019 – 2.4%
2020 – 1.8%
Laksham Achuthan, co-founder and CEO of the Economic Cycle Research Institute, agrees with the CBO. He recently told CNBC, “There is a stealth economic slowdown already happening. Consumer spending growth and personal income growth have been easing over the last 8 months but still, (consumer) spending is outpacing income growth.”
Consumer debt is piling up, rising interest rates are squeezing consumers and a full-out trade war between China and the US looms large. (Some financial experts see a pending trade war as a HUGE problem but more on that in another forthcoming post.)
Stephanie Pomboy, founder of Macromavens and early predictor of the 2008-housing crisis, also warns against rising consumer debt, particularly rising household debt. “Debt service is increasing at a rate that will eliminate the entire effect of the tax cuts…for homeowners, you’re looking at an annual increase in debt service of $75B.”
Speaking to Bloomberg News in mid-June, Pomboy said, “According to Federal Reserve data, (also reported by Bloomberg) US household debt rose in Q4 2017 at the fastest pace since 2007. Households are borrowing $.90 for every incremental $1.00 they spend…this is up from borrowing $.40 on every $1.00 spent just 4 years ago.”
One last thing. Take a look at these comparative international economic outlook and GDP growth projections compiled by the Organization of Economic Cooperation and Development, an intergovernmental economic organization with 37 member nations:
United States China India Turkey
2017 2.3% 6.9% 6.5% 7.4%
2018 2.9% 6.7% 7.4% 5.1%
2019 2.8% 6.4% 7.5% 5.0%
