A Prediction of Vigor

11 Sept 2015: in comments
Household Debt Service Payments as a Percent of Disposable Personal Income
And now that the decline [in Debt Service] seems to be bottoming out, I am willing to say we might be ready to begin a period of good times of approximately the same duration as the decline... [T]he cost of debt has only just become low. So now, conditions will be able to improve.

13 Sept 2015: 2½ Times Longer and 2½ Times Deeper
Debt Service.
... we could soon get a few years when the economy seems pretty good again while debt races upward even faster than it did before the crisis, if we have the stomach for it...
Right now, though, nobody expects a few good years.
I don't either.

3 March 2016: We are at the bottom now, ready to go up.
We're right there right now. DPD is ready to go up right now.
Remember: When the downtrend turns and an uptrend begins the economy for a while is very, very good. This is not going to be your typical anemic recovery. This is going to be the full tilt, rapid output growth, rapid productivity growth, high performance boom.

If only they would use the accelerated repayment of debt as their main tool for fighting inflation, we could have that permanent quasi-boom.

7 April 2016: Way ahead of ya, Steve!
I predict a boom of "golden age" vigor, beginning in 2016 and lasting eight to ten years. It has already begun. In two years everyone will be predicting it.
But I hate to see the mess of debt we'll be in [ten years from now] if Congress doesn't create some incentives to accelerate the repayment of debt, and soon.

25 April 2016: April Update: We are at the bottom ...
Debt per Dollar.
... for the most part, projections look like this month's New York Fed Staff Forecast: RGDP growth slowing from 2½% in 2014 to 2% in 2015, holding at 2% in 2016, and slowing to 1¾% in 2017. Sluggishness on top of sluggishness. They predict no improvement. They are assuming that the existing state of affairs will continue indefinitely.

1 June 2016: Fear of debt
Total Debt, Total Debt relative to Base
The trend line bottoms out in the first quarter of 2016 -- just a few months ago. The trend shows increase since that time... This trend line turning upward -- this is a big deal. If you read economic history in terms of debt relative to base, you know that when the trend bottoms out and starts to go up, economic growth gets vigorous.

2 August 2016: Is anyone still predicting recession? Yes, in fact.
Monthly RGDP with HP trend line
"In practice," a friend says, we assume that "the existing state of affairs will continue indefinitely, except in so far as we have specific reasons to expect a change."

[I would now add that if you are not intently focused on debt, credit, and money, then you are looking at the wrong graphs, and you won't have "reasons to expect a change".]

7 August 2016: About the vigor created by our next President
Debt growth, Money growth, DPD, Debt Service
The stage has already been set for the vigor that will be attributed to our next President.

21 August 2016: Potential Productivity
Productivity, Debt Service, & Both
I expect that debt service will soon rise sharply. Productivity will improve, just as happened in the mid-1990s. And the economy will again be vigorous.

22 August 2016: Debt Service and Labor Productivity Projections
Debt Service & Labor Productivity
By the time we get to 2020, the economy will be great. The person we elect President in 2016 will be easily re-elected in 2020. And we'll all be happy again for a while -- until debt goes too high once again and we have another financial disaster.

26 October 2016: Taylor's Laundry
(no graphs)
[Quoting John B. Taylor] "In several key ways the US economy resembles an economy at the bottom of a recession, ready for a restart ..."

5 November 2016: About the vigor created by our next President
Debt growth, Money growth, DPD, Debt Service
Reblogged from August

16 November 2016: Checking the revised Debt Service numbers
Debt Service
I stand by my prediction: Growth and vigor, becoming obvious in 2018.

17 November 2016: Why Labor Productivity is Low: A Pictorial
Debt Service & Labor Productivity
We are in a transition now that will soon give way to a more vigorous economy. Debt Service is beginning to increase, and productivity will soon be on the rise.

18 December 2016: Federal Debt held by Federal Reserve Banks as a Percent of Debt other than Federal
Federal Debt Held By Federal Reserve Banks relative to the Federal debt
I am not suggesting that we should introduce policies that reduce new borrowing. Not yet, at least. New borrowing gives life to our economy. I am proposing that after we borrow and spend the money, we should pay off the loan faster. This will slow or stop the growth of accumulated private debt. And that will be a good thing.

If it means policy must reverse the tendency toward inequality, boosting median income so that people can afford to pay down debt, so much the better.


28 January 2017: It's "Productivity and Cost", not "Productivity and Labor Cost"
Debt Service & Labor Productivity, Labor Productivity
I have pointed out that productivity reliably goes high after financial costs go low: for two decades after the Second World War, and again for most of a decade after 1995. When productivity goes high again, over the next few years, it will confirm my hypothesis (though Donald Trump may get all the credit).

11 February 2017: Robert Shiller fleshes out Expectations with Narrative Economics. Meanwhile ...
DPD, Debt Service, Private/Public Debt Ratio
I think not.

27 March 2017: Economic Potential and the Growth of Debt
Private Non-Financial Debt
... this last graph does show what it takes to make the economy good. It takes an adequate growth of credit, without an excessive accumulation of debt.

29 March 2017: Comment on The promise of vigor
Debt Service
The uptick at the end of Graph #4 seems to have fizzled out [as of] the end of 2016...
However... there is a lot more talk now about things picking up.

6 August 2017: Indications
(no graphs)
[Quoting Reuters] "U.S. employers hired more workers than expected in July and raised their wages..."

26 August 2017: Where we stand
DPD, Three Measures of RGDP Growth
It won't be long. DJT will be telling us he has succeeded in making America "great again" because we got good growth. Don't believe it. We were going to get good growth anyway.

8 September 2017: Remember Alan Greenspan in 1995, talking about anecdotal evidence?
Core PCE Inflation
I just want to remind you that the latter 1990s were pretty good for employment and income and real GDP growth, not just for price stability. Economists consider that a fluke, though. They refuse to consider that it could happen again.

9 September 2017: "Don't Look Now," Bloomberg says, "But Productivity Is Finally Rising"
(no graphs)
I told you so.

11 September 2017: Does not contradict my prediction of booming RGDP
Capacity Utilization
And, because recent patterns of debt and debt service are comparable to those of the 1990s, we should expect a sustained high in capacity utilization and in economic growth, as in the '90s. Maybe longer, as the fall of debt was deeper and people are more cautious now about adding to their debt.

This would be the perfect time for policymakers to create tax incentives designed to accelerate the repayment of private debt.

13 September 2017: It's not a coincidence
(no graphs)
[Quoting Bloomberg] “The conventional wisdom did not work in the 1990s and it is not working now,” said Allen Sinai, chief executive officer of Decision Economics in New York.

16 September 2017: When Palley and Taylor agree...
Federal Funds Rate
Palley didn't know it in July of 1996, but the economy was strong enough then to withstand a series of interest rate hikes and move ahead with vigor nonetheless.

We don't know it yet, but the economy today is probably strong enough again to withstand a series of interest rate hikes and still move ahead with vigor. And strong enough for the same reasons.

26 September 2017: "... a burst of renewed growth" -- Steven Kopits
(no graphs)
Gavin Davies and Steven Kopits are predicting vigor.

12 October 2017: Comment on We are at the bottom now, ready to go up.
(no graphs in comment)
[Quoting the Wall Street Journal of 10 October] "The International Monetary Fund’s World Economic Outlook report forecasts growth of 3.6% this year and 3.7% next year" [and US growth below 2.5% for 2017 and 2018]

3 November 2017: Comment on "Steady economic growth continues"
(no graphs)
[Quoting CNBC of 1 November] "The Trump administration has promised to spur GDP growth to 3 percent a year or more. Most economists private think a sustained 3 percent growth rate is optimistic."

4 November 2017: Excerpts
(no graphs)
[Quoting a BLS News Release dated 2 November 2017] "Nonfarm business sector labor productivity increased 3.0 percent during the third quarter ..."

8 November 2017: Slowly, people are recognizing that the economy is improving
(no graphs)
30 Aug 2017: Trump's hope for 3% growth no longer looks so far-fetched at CNBC
8 Sept 2017: Two signs the US economy really is getting better, from World Economic Forum
27 October 2017: US economy on solid growth path from dw.com

17 November 2017: Comment on Way ahead of ya, Steve!
(no graphs in comment)
[Quoting Edward Harrison of 1 November] "Yesterday I promised you to 'look at individual economic data points and tell you why I think they bolster the case for optimism about the economic trajectory.'"

17 November 2017: Comment on Way ahead of ya, Steve!
(no graphs in comment)
[Quoting Tim Duy of 13 November] "conditions are fast approaching those the late-90’s. I believe the economy will sustain enough momentum to hit that point within the next six months."

4 December 2017: 24 years, Borio says. It's not a coincidence.
Debt per Dollar (shows 24 years)
We must make debt grow more slowly. That's crucial. As a bonus, a policy that gets us paying down debt faster is a policy that fights inflation. Why should interest rates have to do all the work?


26 Feb 2018: The Fed - An Assessment of the U.S. Economy by Randal K. Quarles
Real gross domestic product (GDP) growth through the final three quarters of 2017 averaged almost 3 percent, a considerable step-up over the 2 percent average annual pace recorded over the previous eight years.

22 March 2018: I called it two years ago
Household Debt Service
If you look at the Debt Service plot, it seems to be going up after 2016 Q1...
Look for GDP growth to be better than 3% next year. Productivity will be going up, too. Maybe this year.

24 May 2018: Similarities in Wage Growth: The 1990-91 Recession and the Great Recession
Growth of Average Hourly Earnings
I agree with John Taylor that in 2016 our economy resembled "an economy at the bottom of a recession, ready for a restart". In the last two years, our economy has been preparing for that restart. As Graph #4 shows, it is now ready. Prepare to be astounded by the vigor.

28 August 2018: U.S. Consumer Confidence Rises to Highest in Almost 18 Years at Bloomberg
[They do point out that the Consumer Sentiment Index disagrees with all the good news. But hey, there's good news now.]

4 Sept 2018: U.S. factory activity hits 14-year high; supply constraints rising at Reuters.
"U.S. manufacturing activity accelerated to more than a 14-year high in August, boosted by a surge in new orders, but increasing bottlenecks in the supply chain because of a robust economy and import tariffs could restrain further growth. "

"“Bottlenecks in production will support inflation, but the constraints have yet to become overly binding,” said Ryan Sweet, a senior economist at Moody’s..."

4 September 2018: Atlanta Fed lifts U.S. third-quarter GDP view to 4.7 percent
"The U.S. economy is growing at a 4.7 percent annualized rate in the third quarter, the Atlanta Federal Reserve’s GDPNow forecast model showed on Tuesday..."

"This was faster than the 4.1 percent GDP growth pace calculated by the regional Fed’s forecast program on Aug. 30. "

6 Sept 2018: Layoffs Just Reached a Half-Century Low at WSJ
"The number of Americans filing applications for new unemployment benefits fell at the end of August to a nearly five-decade low."

7 Sept 2018: Economy adds more jobs than expected in August, and wage growth hits post-recession high at CNBC

12 Sept 2018: What’s Going On with the Economy? It’s the Stimulus, Stupid
"productivity is going up" -- John Cassidy quoting Kevin Hassett, the chairman of the Council of Economic Advisers.

25 Sept 2018: U.S. Consumer Confidence Unexpectedly Jumps to 18-Year High
U.S. consumer confidence unexpectedly jumped to the highest in 18 years in September, according to a report Tuesday from the New York-based Conference Board, on brighter assessments of economic expectations and the present situation.

7 Oct 2018: Dark clouds gather over the US housing market
The US economy is white hot. Consumer confidence is higher than it has been since the 1990s. Unemployment just hit its lowest level since 1969. Using amazingly bold language for a central banker, US Federal Reserve chairman Jay Powell says he is “very happy” about the “ remarkably positive” outlook which he predicts may continue “for quite some time”.
Fighting the last war: Excessive focus on a repeat of events from 10 years ago. Ignorance of the debt-to-money ratios that make our economy like that of the latter 1990s.

5 Oct 2018: The US economy is doing so great that the markets are worried
What I've been predicting since March 2016:
Earlier this week, the central bank’s chairman Jerome Powell said the economy was looking “remarkably positive” (paywall) and that the US could be on the verge on an “historically rare” era of ultra-low unemployment and steady inflation.
Fighting the last war: Excessive focus on a repeat of events from 10 years ago. Ignorance of the debt-to-money ratios that make our economy like that of the latter 1990s.

9 October 2018: The prediction I've been waiting for
The Chairman of the Federal Reserve is now predicting the economy that I have been predicting since 2016.


4 January 2019: Could Trump Have a Point about Rate Hikes? (J.W.Mason)
By the official measures produced by the Bureau of Economic Analysis (BEA), 2018 was the first year since 2007 that GDP reached potential, and at 3.7 percent, the headline unemployment rate is quite low by historical standards.

12 April 2019: Jamie Dimon says the US economic expansion ‘could go on for years’ (CNBC)
“If you look at the American economy, the consumer is in good shape, balance sheets are in good shape, people are going back to the workforce, companies have plenty of capital,” Dimon told analysts during a conference call.

“It could go on for years,” he added. “There’s no law that says it has to stop. We do make lists, and look at all the other things: geopolitical issues, lower liquidity. There may be a confluence of events that somehow causes a recession, but it may not be in 2019, 2020, 2021.”


January 2020: A Comparison of Fed "Tightening" Episodes since the 1980s (Kevin L. Kliesen)
the growth of real GDP accelerated in 2017 and 2018
That last one ain't bad. I said growth resumes in 2016; Kliesen finds it in 2017 and 2018, though I'm not sure I see it in the FRED graphs. Still remains to be seen how long growth lasts, whether it keeps improving, and how good it gets. Looks to me now like I underestimated the effect of debt and crisis on people's willingness to borrow and spend.