On Monday, August 15, 2022 at 9:10:24 PM UTC-4, stoney wrote:
On Tuesday, August 16, 2022 at 6:13:50 AM UTC+8, ltlee1 wrote:
"(Bloomberg) -- Economist Nouriel Roubini said there are two options for the US economy, given the Federal Reserve’s most-aggressive tightening campaign in decades: an economic hard landing or inflation at a persistently elevated level.
“The fed funds rate should be going well above 4% -- 4.5%-5% in my view -- to really push inflation towards 2%,” the chairman and chief executive officer of Roubini Macro Associates said in an interview on Bloomberg Television’s “Balance of
Power With David Westin” Monday.
“If that doesn’t happen, inflation expectations are going to get unhinged,” said Roubini, whose prescience on the housing bubble that led to the US financial crisis of more than a decade ago earned him the nickname Dr. Doom. “Or if that
happens, then we are going to have a hard landing. Either way, either you get a hard landing or you get inflation getting out of control.”
The central bank’s latest dot plot of interest-rate projections published after the June policy meeting suggests that the federal funds rate will reach around 3.375% by the end of this year and almost 3.8% by the end of 2023. That’s not hawkish
enough, said Roubini.
“Even if you have 3.8%, we have inflation still well above target around 8%, falling only gradually,” he said. “Markets expecting a pivot and the Fed cutting rates next year to me sounds delusional.”
Roubini joins a chorus of prominent economists, including Goldman Sachs & Co. Chief Economist Jan Hatzius, who think it will be difficult for the central bank to avoid a deep and painful recession, also known as a hard landing.
“In the US, whenever you had inflation above 5% and unemployment below 5%, the Fed tightening has led to a hard landing,” Roubini said. “So my baseline is a hard landing.”"
A hard landing is the best "middle of the road way" to say it. Given disruptions around world are recovering at different reconnected pace of life, higher costs will remain until supply is smoothed out over shortages. Only then, will inflation be
reduced. If lower and middle people can get more pay to defray their higher costs of living, the new normal of inflation rate will be the norm in the future. In short, the days of living in previous costs of living will not be back anymore. A hard
landing will not be there anymore, too, because it will be absorbed and even out into new normal cost of living.
Not much driver for near term economic growth.
Some still look upon India favorably. But they also know India has its own set of problems, externally and internally.
"In the future, Indian exporters will face a less favorable external environment. China’s
economy has slowed. The United States may not be able to avoid recession, and Europe
is already in one. So it is not clear whence demand for India’s exports will come. Every
Asian economy that has successfully expanded its manufacturing sector has scaled
up by exporting, but this avenue may no longer be available to India.
The country can of course borrow abroad to finance its current-account deficit and
domestic investment. But India continues to underperform as a destination for foreign
direct investment, which is deterred by bureaucratic obstacles to doing business. Having
discarded suggestions that it issue dollar bonds, the government now seeks to encourage
foreign investors to purchase local currency bonds. But this revised strategy is no less
risky. Foreign investors in local currency bonds tend to cut and run at the first sign of
trouble, since they otherwise will be hit by the double whammy of falling bond prices
and a falling exchange rate.
Nor does the government have space to borrow from residents to finance additional
spending on the infrastructure, health care, and education needed to sustain long-term
economic growth. General government debt is already 90% of GDP. The primary budget
deficit, which excludes interest payments, is 3% of GDP. The government pays an average
of 8% interest on its debt.
But the authorities are able to keep interest rates at that level, and maintain a veneer of
debt sustainability, only by requiring banks and other institutional investors to hold government
bonds. This in turn limits the banks’ ability to provide essential investment finance to the
private sector. Meanwhile, much of what the government takes in as revenue goes to
entitlements and interest payments. Additional capital spending will therefore have to come
from the private sector. And private savings are low by international standards.
Most fundamentally, the government seems to have found it hard to implement structural
reforms. Having experienced pushback from vested interests, it has basically taken significant
reforms of labor and product markets off the table."
https://www.ncaer.org/news_details.php?nID=1506
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