The Return of Stagflation

Weaker Expansions

Back on Its Own

Dangerous Assumptions

The Human Infrastructure Wrench in the Gears

Dallas and Optimism

I have been writing this letter for 22 years. Sometimes I look into the future and other times merely try to explain the present. Today I’m going to look at several possible futures. There are forces at work in both Congress and the Federal Reserve that could take us down radically different paths. There are also changes in the Zeitgeist, the way we act and think both in and as a society, that are going to have major impacts.

What I am not doing today is predicting the future. I am looking at events and saying if “this” happens we need to be prepared for it. I’m increasingly concerned we are in an economic situation with almost no wiggle room. We had serious issues before the pandemic which haven’t gone away. Massive fiscal and monetary stimulus obscured this reality, but can’t do so forever.

The late 2020 and early 2021 recovery was exactly that: a recovery from an exogenous event. It wasn’t new, organic growth—or at least not most of it. Moreover, the “exogenous” event is proving less than exogenous. We have wonderful vaccines, very effective in preventing severe disease and death. They help protect the people who get them, but the macro benefit is limited because they aren’t being administered widely enough and quickly enough. This limits global trade and travel, without which sustainable recovery is difficult.

Yes, we’ve learned to cope. We’re making adjustments but still a long way from normal. Much like the COVID-19 disease itself, the economy endured a severe acute phase followed by a chronic “long COVID.” The ongoing symptoms are less severe but still problematic.

Today we’ll explore all this and consider the possibilities. Longtime readers know I call the shots as I see them. Maybe I’m wrong but I fear we have consumed all the wiggle room. Now we need everything to go exactly right… and I have serious doubts it will.