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y y growth rate in nondefense capital goods orders excluding aircraft fig 7 sure enough the latter measure of capital spending on equipment and machinery jumped 0 9 m m and 22 0 y y to a fresh record high during april fig 8 4 bottom line what the economy is experiencing may simply be a business cycle set to fast forward by the insanely stimulative combination of fiscal and monetary policies we had a terrible recession last year that lasted only two months twelve months later the economy had fully recovered based on most macroeconomic indicators booms usually occur at the tail ends of expansions this time one started during the tail end of the recovery and continues at the beginning of the expansion that s all great until it isn t because as we all know booms are followed by bananas economist alfred kahn an economic adviser to former president jimmy carter warned lawmakers in the 70s that if they didn t get inflation under control the nation was heading for a recession or a depression to avoid scaring the public during his testimony at the capitol instead of saying recession or depression he simply said banana posted by dr ed yardeni at 9 08 pm no comments email this blogthis share to x share to facebook share to pinterest tuesday june 1 2021 lots of liquidity while the debate rages on over whether inflation is transitory or long lasting there s no debating that an enormous amount of liquid assets has piled up since the start of the pandemic the accumulation began with a mad dash for cash by panicked individuals and businesses but since modern monetary theory week march 23 27 2020 when the fed and the treasury a k a t fed joined forces the huge accumulation of liquid assets has been mostly attributable to helicopter money actually helicopters don t do the situation justice it s been more like t fed loaded up b 52 bombers with cash and has been carpet bombing the economy and financial system since then how much cash has been dropped from the b 52s so far let s count it up 1 t fed s b 52 money since february 2020 the fed s balance sheet has increased 3 6 trillion to a record 7 7 trillion through april fig 1 over that same period the fed s holdings of treasuries increased 2 5 trillion fig 2 so the fed purchased 54 of the 4 6 trillion increase in the treasury s publicly held debt from february of last year through april 2021 fig 3 the fed now holds a record 25 7 of the treasury s outstanding publicly held debt fig 4 just as significant the 12 month sum of federal government s outlays increased 2 1 trillion y y to a record 7 3 trillion during april fig 5 this extraordinary jump was led by a 1 2 trillion increase in federal outlays on income security which includes the economic impact payments i e the three rounds of checks sent to most americans since the start of the pandemic fig 6 2 m2 velocity total deposits at all commercial banks in the us rose a whopping 3 5 trillion from the march 18 2020 week through the may 12 week of this year to a record 17 1 trillion fig 7 the monetary aggregate m2 is up 4 6 trillion since february 2020 through april to a record 20 1 trillion many economists track m2 velocity which is the ratio of nominal gdp to m2 it remains near the record lows of the past year we prefer to track the inverse of this ratio it shows that over the past year m2 has been equivalent to 89 of nominal gdp a record high fig 8 the potential for all this money to fuel higher consumer price and or asset inflation is hard to ignore 3 who is liquid then again it s possible that the pandemic spooked lots of people who ve decided to hold more precautionary balances in liquid assets as a result the fed s distributional financial accounts shows that liquid assets held by households jumped by 3 3 trillion from q4 2019 through q4 2020 to a record 15 9 trillion fig 9 this category is the sum of currency checkable deposits other deposits and money market mutual funds over this same period here are the increases and latest levels of liquid assets held by the bottom 50 wealth percentile group 154 billion to 549 billion the 50 90 group 0 9 trillion to 5 0 trillion the 90 99 group 1 2 trillion to 6 0 trillion and the top 1 group 1 1 trillion to 4 4 trillion fig 10 the bottom half of households in terms of wealth undoubtedly needed to spend the cash they received from the government for pandemic relief so they didn t accumulate much in liquid assets the top half might actually have raised some cash at the start of the pandemic by selling other assets much of the cash they received from the government was probably saved the question is what will these households do with all that cash they ve accumulated since last year odds are they will continue to spend it on goods and services and to invest in financial assets posted by dr ed yardeni at 2 54 pm no comments email this blogthis share to x share to facebook share to pinterest wednesday may 12 2021 reagan volcker killed inflation will biden powell bring it back from the dead president joseph robinette biden jr jrb aspires to be as transformative a president as was fdr in expanding the scope and scale of the us social welfare state biden is also the anti reagan president he loves big government as much as president ronald reagan hated it furthermore he has as much faith in big unions as reagan distrusted them the reagan revolution didn t last very long president ronald reagan was a proponent of free market capitalism he was against big government he championed the constitutional system of federalism and the republican system of checks and balances yet here we are three decades later with lots more crony capitalism and with the federal government bigger and more powerful than ever conservative presidents have had very little lasting impact on the course of our nation progressive ones have made much more progress at leaving their marks the legacies of theodore roosevelt woodrow wilson franklin delano roosevelt lyndon baines johnson bill clinton and barack obama have radically changed our country they all expanded the social welfare state to varying degrees now president joe biden intends to build on their legacies to some extent the reagan legacy was briefly revived by president donald trump but now under biden the progressive agenda is back on the fast track what is different this time is that biden unlike his progressive predecessors seems to have no concerns about the deficits that will result from his mammoth spending programs sure he is pushing to raise tax revenues to cover some of the costs of his spending plans but revenues are very unlikely to come close to covering biden s ambitious expansion of the social welfare state furthermore biden and his economic advisers seem to have no concerns about the inflationary consequences of their policies on the contrary they are pushing for higher wages and more power for labor unions their regulatory policies especially the ones aimed at climate change are going to add lots to the cost of doing business their plan to raise the corporate tax rate will do the same yet just last week treasury secretary janet yellen said i don t think there s going to be an inflationary problem but if there is the fed can be counted on to address it reagan may not have been as transformative as other presidents but he helped to end the great inflation of the 1970s by supporting fed chair paul volcker s tough monetary policies he also accelerated the demise of the labor union movement in the private sector when on august 5 1981 he fired more than 11 000 air traffic controllers who had ignored his order to return to work after their union the professional air traffic controllers organization patco had organized an illegal strike that marked the end of the wage price spiral of the 1970s as many private sector business executives following in reagan s path successfully pushed back against their labor unions biden loves labor unions and intends to do whatever he can to bring them back in the private sector he is also pushing to raise wages consider the following 1 raising wages at federal contractors on april 27 biden signed an executive order that requires federal contractors to pay a 15 an hour minimum wage currently the minimum wage for federal workers is 10 95 per hour and the tipped minimum wage is 7 65 per hour according to the white house fact sheet starting on january 30 2022 all government agencies will need to incorporate a 15 minimum wage requirement into new contract solicitations and by march 30 2022 all agencies will need to implement the minimum wage into new contracts additionally government agencies will need to implement the higher wage into existing contracts when contracts are extended each year 2 promoting unions on april 26 biden signed an executive order that will create a task force to promote labor organizing at a time when just over 6 of us private sector workers belongs to unions fig 1 the white house task force will be headed by vice president kamala harris with labor secretary marty walsh serving as vice chair the order is in the tradition of the national labor relations act which was passed in 1935 under fdr to encourage worker organizing 3 powell s dovish fed meanwhile last august the fed reworded its dual mandate statement to prioritize broad based and inclusive maximum full employment ahead of maintaining price stability it is now aiming to overshoot inflation above the official 2 target for a while to make up for undershooting it for so many years fed chair jerome powell is the anti volcker doing whatever it takes to bring back some inflation what about a repeat of the great inflation of the 1970s as a result of the current administration s policies it could happen however that decade was uniquely inflation prone nixon devalued the dollar on august 15 1971 the resulting surge in commodity prices was exacerbated by a food price shock 1972 73 followed by two oil price shocks 1973 and 1979 during the 1970s strong labor unions in the private sector succeeded in quickly boosting wages through cost of living clauses in their contracts productivity growth collapsed during the decade the result was an inflationary wage price spiral 1 this time may not be different the dollar is down 12 3 since it peaked on march 18 2020 food energy and industrial commodity prices are soaring wages inflation may be starting to pick up labor unions in the private sector may still be weak but the federal government under biden is clearly on their side does all this mean that a comeback for inflation is inevitable or are there offsetting reasons why this might not happen i am on the lookout for but don t expect an inflationary wage price spiral i do expect to see wages rising more rapidly in coming months given all of the above the main reason is that i believe that productivity growth is set to move higher during the roaring 2020s as it did during the roaring 1920s 2 i expect that it will be strong enough to offset the inflationary consequences of the biden administration s inflationary policies so far so good 3 so for now i remain in the camp anticipating a transitory rebound in the inflation rate in the 3 0 4 0 range in coming months before it settles back down to 2 0 2 5 stay tuned ______________________ 1 see my linkedin article inflation was sooo 1970s will it roar back in the 2020s december 12 2020 2 see my linkedin article comparative roaring 20s december 1 2020 3 see my linkedin blog on productivity posted by dr ed yardeni at 6 58 pm no comments email this blogthis share to x share to facebook share to pinterest tuesday may 4 2021 the one percent off with their heads socialists promote policies that they claim will lead to greater income equality history shows that most countries that have embraced socialism have achieved income equality almost everyone is poorer than before socialism was imposed on them for their own good purchasing power is depressed for most people and the quality of the goods and services they can purchase is poorer too socialists often declare that the rich don t pay their fair share of taxes and must pay more so that the proceeds can be redistributed to boost the incomes of the poor the problem is that the fair share that the rich must pay never seems to be enough higher and higher taxes on the rich result in fewer and fewer of them eventually the only fat cats left are the socialist elites who always get richer as most of the rich in the private sector get poorer needless to say the poor also get poorer as a result in the us today progressive politicians claim that the one percent of taxpayers are compensated too much and don t pay their fair share of taxes it s hard to deny that a few ceos especially the ones heading up technology and financial companies get paid too much relative to the pay of their workers many professional athletes and hollywood celebrities earn even more than top paid ceos so the progressives could be right but let s see what the latest available data through 2018 show 1 number of tax returns the total number of all the tycoons on wall street in silicon valley in hollywood and on the playing fields including everyone with adjusted gross income agi exceeding 500 000 a year was 1 65 million taxpayers in 2018 exactly 1 1 of the 153 8 million taxpayers who filed individual income tax returns that year according to the latest available data from the internal revenue service irs fig 1 adjusted gross income is income from all sources before subtracting deductions and exemptions by the way the number of returns showing agi of 500 000 and over has more than doubled since 2009 the rich have been getting richer and there are more of them what you won t hear from progressives is that the same can be said for all the other income groups other than taxpayers earnings less than 50 000 clearly showing that there are fewer low income tax filers their headcount has dropped 6 1 million since they peaked at a record 95 0 million during 2011 since 2009 the number of returns filed by taxpayers with agi of 50 000 100 000 rose 5 0 million 100 000 200 000 rose 7 6 million and 200 000 500 000 rose 3 7 million 2 adjusted gross income during 2018 agi in the us totaled 11 6 trillion the agi of the one percent was 2 5 trillion during 2018 accounting for 21 7 of the total up from 13 9 during 2009 and exceeding the previous high of 21 7 during 2007 fig 2 and fig 3 over that same period the share of taxpayers reporting less than 100 000 in agi fell from 50 7 to 36 6 of total agi that s outrageous the one percent earned over 20 of all national agi during 2018 off with their heads not so fast robespierre 3 taxes collectively during 2018 the one percent paid 639 billion in income taxes or 25 3 of their agi fig 4 and fig 5 that amount represented a record 41 5 of the 1 54 trillion in federal income taxes paid by all taxpayers fig 6 that s up from 29 8 in 2009 meanwhile the rest of us working stiffs the ninety nine percent picked up only 58...