Saturday, January 5, 2019

Filed For Future Reference: Larry Kudlow Says There is No Recession Coming

Larry Kudlow
On Friday, President Trump's National Economic Council Director Larry Kudlow appeared on FOX Business and said there is no recession in sight and that there is no price inflation.

Basically, he is doing rearview mirror forecasting. That is he is looking at past data. In other words, he has no theory as to what causes the business cycle.

If he understood the business cycle,  he would know that the key factor that drives the business cycle, monetary pumping by the Federal Reserve, is slowing. I am now reporting in the EPJ Daily Alert that if this slow money growth continues we are extremely likely to experience a recession later this year.

As for price inflation, Kudlow is simply in denial. Price inflation, as can be seen in the chart below, bottomed at the start of 2015 and has generally been trending higher ever since.

Consumer Price Index (12 month percentage change from 2008 to 2018)

At some point a rather rapid spike in price inflation is likely.

As Murray Rothbard explained in What Has Government Done to Our Money:
At first, when prices rise, people say: "Well, this is abnormal, the product of some emergency. I will postpone my purchases and wait until prices go back down." This is the common attitude during the first phase of an inflation. This notion moderates the price rise itself, and conceals the inflation further, since the demand for money is thereby increased. But, as inflation proceeds, people begin to realize that prices are going up perpetually as a result of perpetual inflation. Now people will say: "I will buy now, though prices are `high,' because if I wait, prices will go up still further." As a result, the demand for money now falls and prices go up more, proportionately, than the increase in the money supply.
A recession also causes consumers to be careful with their spending. This was the immediate effect of the Great Recession. When the fear about the economy lessesns, at is at present with wages climbing and being 10 years out from the recession,  the spending accelerates and more pressure is put on prices. At the current level of roughly 2% price inflation, we are likely near the point that spending intensifies and price inflation could spike to the 3% to 5% range rather rapidly.

Kudlow is either in denial about this or doesn't understand how price inflation accelerates.



1 comment:

  1. Invest in cocaine. I predict 100% chance of relapse with this guy and it won't be subtle.