In this article, Larry Summers believes that the U.S. economy is close to entering a massive recession. He believes that the positive economic news that we have been receiving is misleading Americans into being too optimistic about the economic outlook for 2023.
He claims that our economy is way too tough to read and that there may be good news regarding a growth in stock prices or high consumption rate over the last month. He also mentions that inflation is a huge contributor to future issues and that the negatives outweigh the positives.
He notes that inventories relative to sales has increased and he also thinks companies are overstaffed while consumers seem to continue spending regardless of the massive price increases we have seen. Summers fears our economy can have a Wile E. Coyote moment where the economy is moving along and then all of a sudden, the economy crashes very sharply.
More rationale for Summers' pessimist approach comes from the efforts from central banks as the hike in rates has failed to bring inflation down as prices are continuing to surge at a ridiculously high rate. He thinks that if the U.S. gets aggressive with another hike, then we can see a Wile E. Coyote moment with the markets. He also thinks that if no interest rate hikes are made, then inflation will continue to outrun the speed of the economy.
I agree with Summers as I do think that our economy is in a lose-lose situation. The effect of all of the money we printed during covid has been huge as we as a nation are all over leveraged. We have a huge debt crisis and the continued irresponsibility of all actors in the economy has doomed us. The fact that the FED can have an unlimited budget is disturbing and has cost us today. Overall, I think that we will see a continued drop in the markets as inflation will continue to rise while consumers will eventually realize they cannot spend like they have.
LINK: https://markets.businessinsider.com/news/stocks/us-economy-outlook-troubling-signs-larry-summers-recession-2023-2
1 comment:
The economic situation not just in the US, but the world is an anomaly that nobody can quite completely understand. Since 2020, the US has printed 80% of all US dollars to ever exist. Even with basic economic knowledge, you can tell that at some point, that will come back to bite us through inflation, or even economic inequality. Hindsight is 20/20 and of course, many people needed this money during COVID, but maybe there could've been a better way to handle that. I choose to have a positive outlook but can understand why people do not have the same outlook I do. Ensuring people believe in the economy is almost all that matters, as the biggest part of the US market is consumer spending. If consumers get spooked and stop spending, that's when even greater issues can arise.
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