That’s the title of a new EconoFact piece. Here is the key depiction of some key current account balances, past and (possibly) future.
As I watched Secretary Mnuchin on Meet the Press (before discussing his taxpayer funded trip to view the recent eclipse) state :
…the president is not going to sign something that he believes is going to increase the deficit.
I was struck by an overwhelming sense of déjà vu. Of course, the caveat “he believes” is important. Mnuchin mentions “dynamic scoring”, but most economists agree that it is not plausible that the tax cuts as currently sketched out would lead to a revenue neutral outcome.
If one was looking back at the data available a half a decade ago, an observer (not me) might have concluded that there was a hiatus in per capita output that signalled an end to growth.
Figure 1: GDP per capita in thousands of Chained 2005$, SAAR, as of September 28, 2012, calculated using GDP and population reported at that date. On log scale. Source: St. Louis Fed ALFRED, and author’s calculations.
One common complaint heard about the current recovery is that the rate of growth has been particularly slow. In the past I’ve noted that omitting defense spending from GDP, the shortfall is not so large. Given past correlations, I believe we may soon see a pickup in defense spending which will boost GDP growth relative to what it otherwise would have been.
One of the ways economists have tried to estimate the effects of the Fed’s program of large-scale asset purchases (LSAP) is using event studies of how the market responds in the thirty minutes following Fed statements of changes in the program. Yesterday’s announcement from the Federal Reserve that it is starting a gradual process of reducing its balance sheet gives us one new data point for such efforts.
The Federal Reserve announced today that it will begin reducing the size of its balance sheet next month in very modest and deliberate steps. One reason the Fed is moving so slowly is that they don’t want a repeat of the May 2013 taper tantrum, in which a surprise hint that the Fed might slow the rate at which it would be growing its balance sheet led to a spike up in long-term interest rates. But there may also be another reason why the Fed is contracting its balance sheet so cautiously.
Even more draconian than outright repeal.