The media says tariff policy and recession fears are pushing the markets lower. And yet, they don't pay attention to the real driver of boom and bust cycles.
"What I could guarantee is we would have had a financial crisis. I've studied it, I've taught it, and if we had kept up at these spending levels that -- everything was unsustainable," Bessent said on NBC's "Meet the Press." "We are resetting, and we are putting things on a sustainable path."
The bubble created by Yellen will deflate, and the equity markets will likely continue to decline with a lack of leverage in the U.S. markets, while money also flows abroad where it will be leveraged in Europe instead.
"her policies have fueled incredible levels of inequality"
Yes. But there's more. Leaving the gold standard kicked it off (Volcker / Friedman). Carter, under neo-liberal pressure (Kemp / Laffer), slashed the Cap Gains tax rate. Reagan then went all-in on supply-side policies (tax, fiscal, reg, etc) for eight years, which was the core bootstrap behind the last 45 years of increasing socioeconomic imbalance.
The word "inequality" carries too much Marxist baggage. I prefer "non-linearity" or "dis-proportion". It's not about how much stuff I own. It's about a natural Pareto distribution that rewards in nominal proportion to one's innate merit (IQ, EQ, ambition / drive, education, birth advantage, etc.). We (well, the white population) had this natural Gaussian distribution 1945-1980, by policy design.
But since the 1980's, every prosperity metric (except for those in the top 10%, and especially the top 1%) have been worsening, including GINI, real middle-class wealth, real middle-class income, real middle class debt, CEO salaries relative to average salary, real productivity, real GDP growth, upward mobility, and 100 others I could list. Most telling is that the broad 60% middle-class has lost virtually HALF of its real wealth since 1980. All that wealth was redistributed upwards into the top 10%. By design.
Moreover, I see a direct correlation between the breakdown of social trust and the breakdown of a balanced socioeconomy. From 1945-1980, trust in government was high and people were not nearly as politically polarized (see Pew studies). But from 1980-present, trust in government has fallen to near zero, and we're more politically polarized than at any time in our history, except perhaps during the Civil War.
Anyway, "inequality" is a topic I've studied for 20+ years, and have barely scratched the surface. It's deeply complex. I can say -- one fundamental truth I keep finding at the very root is the poisoning effect of big money in politics. But that's another exceptionally long conversation for another time.
John. I look forward to following your work. I think if you read through all of this blog, you would find that we are in heavy agreement.
I AGREE that going off the gold standard element was what started so many problems. However… that was desperation due to government expansion, war, and the Great Society that bankrupted so many.
I don’t know what the solution would have been in 1971. But France
Showed up with a war ship demanding gold… and the petrodollar idea bought time… now we give away infrastructure to protect a broken currency.
Yellen has been the single most powerful person in DC for 30 years and no one realizes it…
But you’ll see that it wasn’t just Yellen in the 1990s. It was the Clinton tax cap… ETFs… Cuomo at HUD… Rubin at Treasury… it goes on and on.
I think that I speak from my lifetime… I was born in 1981. The jet fuel of inequality in my lifetime was 1993
But a person in 1998 may say Covid… because they grew up in their environment. Anyway… we could go many rounds…
I want to say thank you for taking the time to provide this spirited answer. If you’d like I’m happy to share your work with my audience…
Finally I agree on your last part
The most free economies seem to have high taxes… but also limited government and no lobbying…
Do you put any stock into the hypothesis that Trump, with the on-again off-again trade war, is intentionally trying to stoke a recession? Force the Fed's hand to cut. You also scare the hell out of investors so they flood into Treasurys, forcing down yield. And then you roll over some of that debt on lower, long-term rates?
I think it’s a fair argument. But I don’t know if recession is the goal. I think it’s to reallocate capital to productivity… and a recession as a consequence
Wow Garrett, you've given me some serious acronym homework. Great piece. I see a lot of money heading to Europe where they are jumping the borrowing and stimulus wagon while opinion seems to to favour European stocks as fair value.
Bessent...Today
"What I could guarantee is we would have had a financial crisis. I've studied it, I've taught it, and if we had kept up at these spending levels that -- everything was unsustainable," Bessent said on NBC's "Meet the Press." "We are resetting, and we are putting things on a sustainable path."
Which means what?
The bubble created by Yellen will deflate, and the equity markets will likely continue to decline with a lack of leverage in the U.S. markets, while money also flows abroad where it will be leveraged in Europe instead.
Incredibly well said.
"her policies have fueled incredible levels of inequality"
Yes. But there's more. Leaving the gold standard kicked it off (Volcker / Friedman). Carter, under neo-liberal pressure (Kemp / Laffer), slashed the Cap Gains tax rate. Reagan then went all-in on supply-side policies (tax, fiscal, reg, etc) for eight years, which was the core bootstrap behind the last 45 years of increasing socioeconomic imbalance.
The word "inequality" carries too much Marxist baggage. I prefer "non-linearity" or "dis-proportion". It's not about how much stuff I own. It's about a natural Pareto distribution that rewards in nominal proportion to one's innate merit (IQ, EQ, ambition / drive, education, birth advantage, etc.). We (well, the white population) had this natural Gaussian distribution 1945-1980, by policy design.
But since the 1980's, every prosperity metric (except for those in the top 10%, and especially the top 1%) have been worsening, including GINI, real middle-class wealth, real middle-class income, real middle class debt, CEO salaries relative to average salary, real productivity, real GDP growth, upward mobility, and 100 others I could list. Most telling is that the broad 60% middle-class has lost virtually HALF of its real wealth since 1980. All that wealth was redistributed upwards into the top 10%. By design.
Moreover, I see a direct correlation between the breakdown of social trust and the breakdown of a balanced socioeconomy. From 1945-1980, trust in government was high and people were not nearly as politically polarized (see Pew studies). But from 1980-present, trust in government has fallen to near zero, and we're more politically polarized than at any time in our history, except perhaps during the Civil War.
Anyway, "inequality" is a topic I've studied for 20+ years, and have barely scratched the surface. It's deeply complex. I can say -- one fundamental truth I keep finding at the very root is the poisoning effect of big money in politics. But that's another exceptionally long conversation for another time.
John. I look forward to following your work. I think if you read through all of this blog, you would find that we are in heavy agreement.
I AGREE that going off the gold standard element was what started so many problems. However… that was desperation due to government expansion, war, and the Great Society that bankrupted so many.
I don’t know what the solution would have been in 1971. But France
Showed up with a war ship demanding gold… and the petrodollar idea bought time… now we give away infrastructure to protect a broken currency.
Yellen has been the single most powerful person in DC for 30 years and no one realizes it…
But you’ll see that it wasn’t just Yellen in the 1990s. It was the Clinton tax cap… ETFs… Cuomo at HUD… Rubin at Treasury… it goes on and on.
I think that I speak from my lifetime… I was born in 1981. The jet fuel of inequality in my lifetime was 1993
But a person in 1998 may say Covid… because they grew up in their environment. Anyway… we could go many rounds…
I want to say thank you for taking the time to provide this spirited answer. If you’d like I’m happy to share your work with my audience…
Finally I agree on your last part
The most free economies seem to have high taxes… but also limited government and no lobbying…
How odd…(sarcasm)…
What is the Y axis on the Chart "THIS IS TOTALLY NOT QE, YOU GUYS!!!" ?
Fed Balance Sheet.
Garrett,
Do you put any stock into the hypothesis that Trump, with the on-again off-again trade war, is intentionally trying to stoke a recession? Force the Fed's hand to cut. You also scare the hell out of investors so they flood into Treasurys, forcing down yield. And then you roll over some of that debt on lower, long-term rates?
I think it’s a fair argument. But I don’t know if recession is the goal. I think it’s to reallocate capital to productivity… and a recession as a consequence
Wow Garrett, you've given me some serious acronym homework. Great piece. I see a lot of money heading to Europe where they are jumping the borrowing and stimulus wagon while opinion seems to to favour European stocks as fair value.
This really helps explain the nonsense of stock values rising faster than their growth rates.
Loved this write GB! As always, a thanks to S DUNN also!