Economic Insights

Long-term returns are unsustainable. I realize that is a bold statement that flies in the face of mainstream analysis. How often have you seen the following chart presented by an advisor suggesting if you had invested 120 years ago, you would have obtained a 10% annualized return?

Long-term returns are unsustainable. I realize that is a bold statement that flies in the face of mainstream analysis. How often have you seen the following chart presented by an advisor suggesting if you had invested 120 years ago, you would have obtained a 10% annualized return?

Of course, such sentiment is not surprising given that over the last decade, investors have repeatedly been beaten into submission to buy stocks when the Federal Reserve is easing monetary policy. Such was a point we discussed in “Pavlov’s Dogs & The Ringing Of The Bell:”

No recession. That was the recent declaration from Treasury Secretary Janet Yellen, noting that consumer spending, industrial output, credit quality, and other indicators don’t suggest economic risk.

As expected, Wall Street wins again. In 2020 and 2021, retail investors were chasing financial markets recklessly. Armed with sites like Reddit WallStreetBets and a Robinhood trading app, not to mention young investing mentors on social media, they believed they had the Wall Street “tiger by the tail.”

Making eurodollar futures interesting is not among Fed chair Jay Powell’s goals, but he’s achieved it nonetheless. From just after their June FOMC meeting through Thursday, the market has lopped over 0.50% off the projected rate cycle. The cycle peak has even been brought forward, from March 2023 to this coming December. The FOMC’s Statement of Economic Projections (SEP) has rates peaking at the end of next year, a forecast Powell described as “probably the best estimate of where the Committee’s thinking is still.”

At the end of 2019, Federal Debt outstanding was $23.2 trillion. Of course, three months later, the government would decide to shut down the economy to battle the COVID-19 outbreak. That decision was the defining moment that implemented MMT policy with successive rounds of monetary stimulus from direct checks to households to expanded government subsidies. By the year-end of 2021, Federal Debt swelled to nearly $30 trillion. Such is the most significant increase in government spending in U.S. history.

At the end of 2019, Federal Debt outstanding was $23.2 trillion. Of course, three months later, the government would decide to shut down the economy to battle the COVID-19 outbreak. That decision was the defining moment that implemented MMT policy with successive rounds of monetary stimulus from direct checks to households to expanded government subsidies. By the year-end of 2021, Federal Debt swelled to nearly $30 trillion. Such is the most significant increase in government spending in U.S. history.