Excellent post and it connected some dots for me. Namely, one of the unintended consequences of the immigration crackdown could be greater stress on multi-family as vacancy rises and additional supply comes online.
Thanks! Multi-family has been weak for a while now as completions have increased. It probably has another adjustment to do as the effects of slower immigration work their way through.
We are up for an interesting mechanics when there will be less people employed, but UR stays relatively low - which would make Fed cut rates at a lower pace, while economic activity is slowing. That would probably go on until something cracks significantly and then rates drop like a stone
And then we will have a few years of recovery with CPI inflation below actual because of OER and FHA reform, which would force fed to keep rates to low for longer again😂
If the immigration impulse is greater than that of tariffs then you could be right that the Fed would be left with few excuses not to cut, especially in the face of political pressure!
I'm not a huge believer in the efficacy of monetary policy as these other more tangible forces (like debt and immigration) matter far more to demand and therefore inflation. They should just set policy at potential nominal GDP growth and call it a day.
Market has got this wrong, pricing a fall in nom GDP for too long. They will eventually be right given how things are playing out.
Lack of household stress is purely from government spending, direct stimulus initially and then indirect.
China's growing trade surplus isn't surprising (they have expanded capacity massively) but we have to wait on more data to understand fully where it is going. This question is still up in the air.
So what I can understand is the two big economies are in super debt cycle. China massively investing in property and infra earlier and now moved to manufacturing. Debt in China is concentrated in LGFVs, Households and SOEs. While US is borrowing massively to fund consumption. US debt concentrated in government sector and partially household.
Both are tied in this non-productive outcome through savings-investment model. The recokning would come when this massive debt accumulation stops.
"I can’t stress how important this is, and how we will have to change how we think about all the moving parts in the economy."
A declining labour market with flat/higher wages + trade uncertainties including tariff-caused-inflation - so lower growth, upcoming rate cuts but long end staying cyclically higher.
So some form of stimulus would have to come to keep growth rising? More deficit spending funding industrial policies and maybe stimulus checks creating more demand from the grassroots?
The TGA isn't the only consideration (new debt that just ends in the TGA doesn't count anyhow), but I'm seeing TGA roughly flat over this time period anyhow?
ok...so I look at the Daily Treasury statement and I take the (opening balance of month - closing balance of month) + new issues for month - redemptions for month, so as not to count the new debt that just ends up in the TGA, but rather new money that enters the financial system+economy (at least this is what I've been taught), and I got $240K for July
Opening balance - 456980
- Closing balance - 497596 (-40K)
+ New issues - 2814839 (money comes into TGA)
- Redemptions - 2533894 (money goes out of TGA) (240K)
OK I understand. Yes this is similar to how I do it, however the difference is in the timing. These flows would predominately end up in the June number (the third last bar). It's just to do with the construction of the model and how I use the summary statistics from the Monthly Treasury Statement.
Excellent post and it connected some dots for me. Namely, one of the unintended consequences of the immigration crackdown could be greater stress on multi-family as vacancy rises and additional supply comes online.
Thanks! Multi-family has been weak for a while now as completions have increased. It probably has another adjustment to do as the effects of slower immigration work their way through.
Great post as always!
We are up for an interesting mechanics when there will be less people employed, but UR stays relatively low - which would make Fed cut rates at a lower pace, while economic activity is slowing. That would probably go on until something cracks significantly and then rates drop like a stone
And then we will have a few years of recovery with CPI inflation below actual because of OER and FHA reform, which would force fed to keep rates to low for longer again😂
If the immigration impulse is greater than that of tariffs then you could be right that the Fed would be left with few excuses not to cut, especially in the face of political pressure!
I'm not a huge believer in the efficacy of monetary policy as these other more tangible forces (like debt and immigration) matter far more to demand and therefore inflation. They should just set policy at potential nominal GDP growth and call it a day.
Market has got this wrong, pricing a fall in nom GDP for too long. They will eventually be right given how things are playing out.
Great post again.
I look up to your weekly post.
Was wondering why there wasn't any stress in US household sector till date because of the Fed tightening cycle and it was one of the fastest?
And China is till posting huge trade surplus and US trade deficit hasn't narrowed on average. So why would US government debt would stall?
Thankyou for the kind words!
Lack of household stress is purely from government spending, direct stimulus initially and then indirect.
China's growing trade surplus isn't surprising (they have expanded capacity massively) but we have to wait on more data to understand fully where it is going. This question is still up in the air.
So what I can understand is the two big economies are in super debt cycle. China massively investing in property and infra earlier and now moved to manufacturing. Debt in China is concentrated in LGFVs, Households and SOEs. While US is borrowing massively to fund consumption. US debt concentrated in government sector and partially household.
Both are tied in this non-productive outcome through savings-investment model. The recokning would come when this massive debt accumulation stops.
Any input from your side?
I think that is spot on. It's a toxic co-dependency that is politically impossible to get out of.
Great thought-provoking piece!
"I can’t stress how important this is, and how we will have to change how we think about all the moving parts in the economy."
A declining labour market with flat/higher wages + trade uncertainties including tariff-caused-inflation - so lower growth, upcoming rate cuts but long end staying cyclically higher.
So some form of stimulus would have to come to keep growth rising? More deficit spending funding industrial policies and maybe stimulus checks creating more demand from the grassroots?
Trump has spoken of tax cuts or stimulus for lower income tax brackets a number of times so I would expect he will try and get this through.
Timing is up in the air though. If he waits long enough, he might get those cuts he is after 😂
Great Expectations lead big disappointments :) https://www.newyorkfed.org/microeconomics/sce#/inflexp-13
I'm a bit confused as when I look at the TGA it shows an increase of $240K for the month of July
The TGA isn't the only consideration (new debt that just ends in the TGA doesn't count anyhow), but I'm seeing TGA roughly flat over this time period anyhow?
https://fred.stlouisfed.org/series/WTREGEN
ok...so I look at the Daily Treasury statement and I take the (opening balance of month - closing balance of month) + new issues for month - redemptions for month, so as not to count the new debt that just ends up in the TGA, but rather new money that enters the financial system+economy (at least this is what I've been taught), and I got $240K for July
Opening balance - 456980
- Closing balance - 497596 (-40K)
+ New issues - 2814839 (money comes into TGA)
- Redemptions - 2533894 (money goes out of TGA) (240K)
Would you see any flaw in this logic?
Cheers
OK I understand. Yes this is similar to how I do it, however the difference is in the timing. These flows would predominately end up in the June number (the third last bar). It's just to do with the construction of the model and how I use the summary statistics from the Monthly Treasury Statement.
ok roger that...thanks for sharing