U.S. Debt Exceeds Size of Economy for First Time Since World War II; Triple Digit Inflation on Horizon; But Mnuchin Says U.S. Economy to Reopen Next Month and Then ‘Really Bounce Back’
By Washington Examiner. The U.S. deficit is expected to be $3.7 trillion in 2020, according to the Congressional Budget Office, driving the federal debt to exceed the size of the economy for the first time since World War II.
The deteriorating outlook is a result of the economic havoc being wreaked by the coronavirus and the federal response. Spending has been driven up by $2.7 trillion due to economic relief legislation, and the dramatic drop in business activity is expected to gut revenue collections.
Going into the crisis, the United States was already on shaky ground fiscally, with the CBO projecting annual $1 trillion deficits as far as the eye could see given the long-term crisis facing entitlements as the ranks of retirees grow and healthcare costs rise. (Read more from “U.S. Debt Exceeds Size of Economy for First Time Since World War II” HERE)
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National Review: Friedman Model Predicts Triple Digit Inflation
By Martin Hutchinson. In the six weeks to April 6, M2 money supply has increased by 7.7 percent, an annual compounded rate of 90.4 percent. That reflects all the money the Fed has pumped into the system; the statistics are not wrong. But at that rate of money creation, if Friedman is right, we should get inflation close to triple digits, 18 to 24 months from now. You can’t produce money at that rate without the dollar going the way of the continental, the assignat, the reichsmark or the 1946 Hungarian pengo, exchanged for the new forint at a conversion rate of 1029 to 1. . .
Here we have around 20 million people who have been forcibly prevented from working by the government and the coronavirus. At least in the short term, there is no way to put them back to work and make them productive. The output they would have produced is lost forever; a restaurant meal not served in April cannot be served in August. Hence the extra money inserted into the economy has no goods to buy. That is the position we had in World War II — “too much money chasing too few goods.” It caused inflation.
[Before the Coronavirus panic,] global supply chains were optimized on the “just in time” principle. That meant if any one supplier in the chain stopped production, the entire output had to be halted until alternative suppliers could be found. So production will not be able to restart unless all the suppliers are in place. Some key workers will be missing, some key factories will have gone out of business.
If you think of the world economy as a gigantic machine, it will no longer be operating smoothly; horrible grinding noises will emit from its innards, and smoke will billow everywhere. Inevitably, that will cause increased costs; it has to. Then there are the costs of shortening the global supply chains and perhaps re-domesticating some production. Entirely without economic theory, simply from observing how the world economy will operate for the rest of 2020 and probably 2021, you come to an inevitable conclusion: There will be inflation. (Read more about triple digit inflation HERE)
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U.S. Economy to Reopen in May and June and Then ‘Really Bounce Back,’ Mnuchin Says, but Others Are Thinking Fall
By Market Watch. The U.S. economy will start to recover in the third quarter after a period of reopening in May and June, Treasury Secretary Steven Mnuchin said Sunday.
“As we begin to reopen the economy in May and June, you’re going to see the economy really bounce back in July, August and September,” Mnuchin said in an interview on Fox News Sunday.
The trillions of dollars in government spending “will have a significant impact” to spur growth, he said. “As businesses begin to open, you’re going to see the demand side of the economy rebound.”
Mnuchin noted his forecast is based on assumptions about how the pandemic proceeds. Reopening will have to be balanced with increased testing, he said.
Many experts don’t think there will be a quick recovery, often referred to as a V-shaped rebound. (Read more from “U.S. Economy to Reopen in May and June and Then ‘Really Bounce Back,’ Mnuchin Says, but Others Are Thinking Fall” HERE)
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