2024-04-21 10:35:00 ET
Summary
- Due to the emergence of negative Net National Saving (NNS), the law of diminishing returns can no longer fully capture the harmful effect of debt on economic growth.
- A redefinition of the monetary base and world dollar liquidity (WDL) is needed to capture the pure impact of central bank actions on business conditions.
- MWDL has dropped by a record 9% in the twelve months ending February 2024, indicating the Fed’s restraint is intensifying on global markets.
- This declining inflation environment willcontinue to bring down inflationary expectationsand long-term Treasury bond yields.
The Long View
The dynamics of fiscal and monetary policy are now entering a new phase. Due to the emergence of negative Net National Saving ('NNS'), the law of diminishing returns can no longer fully capture the harmful effect of debt on economic growth. This new analytical framework indicates that the pronounced downward trend in the growth rate of the standard of living, evident since the 1970s, is likely to persist. A redefinition of the monetary base and world dollar liquidity ('WDL') is needed to capture the pure impact of central bank actions on business conditions. These new monetary measures, which are more restrictive than the old standards, indicate that the Federal Reserve is on the path to reducing inflation to the policy objective....
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Hoisington Investment Management Q1 2024 Review And Outlook