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Longbrake Letter

February 2015 

It would seem that everything is coming up roses, at least in the U.S. Is this a goldilocks world? In this month’s letter Bill Longbrake discusses global mega trends, secular stagnation and global monetary policies, the long-run implications of which appear to be at odds with the short-term goldilocks scenario. Bill concludes that it’s hard to say where all this leads but it probably won’t be what the consensus expects.  Read this month's letter.

January 2015 

2014 ended with the “surprising” collapse of oil prices, although there were plenty of warning signals in advance. With the benefit of hindsight, the commodity price boom was just another bubble. It was initiated by substantive changes in the global economy but then carried to unsustainable heights by cheap and abundant money. Now as 2015 commences, bond yields around the world are in free fall and worries of potential deflation abound. Of course, the two sets of developments are related and are the inevitable result of monumental global adoption of market-driven economic systems and by aggressive use of policy to try to tame the extremes of market-driven systems. This has led to an explosion in aggregate global supply that has not been matched entirely by a commensurate expansion in global aggregate demand. Such a mismatch inevitably leads to intense deflationary pressures. In marked contrast with global developments, the U.S. economy seems to be doing just fine and is gaining economic momentum. Bill Longbrake focuses this month’s commentary on developments in the U.S., which for the most part are favorable. Nonetheless, the U.S. outlook is not free altogether from risk and one needs to be careful not to be dismissive of troublesome international developments or their potential consequences.  Read this month's letter.

December 2014 

In this month’s letter, Bill Longbrake provides a brief overview of key global economic themes as we end 2014 and enter 2015. There is also an in-depth assessment of the impacts and potential consequences of the recent 45 percent crash in oil prices. He provides a year-end assessment of observations he made a year ago about how the U.S. and global economies might fare in 2014 – noting what he got right and the many things he didn’t. He then speculates about what might happen in 2015 and outlines key risks to the 2015 outlook.  Read this month's letter.

November 2014 

Markets have shrugged off recent anxieties and have stabilized because market participants still want to believe in market-friendly outcomes. “Hope” is ascendant. But, unfavorable demographic trends, a global excess supply of goods and services relative to underlying demand, monetary profligacy, negative real rates of interest, and huge and rising debt-to-GDP ratios collectively are the hallmarks of a slowly developing global deflationary bust. The climactic moment of capitulation and realization that the status quo is neither fixable nor sustainable is not yet at hand. Also in this month’s letter, Bill Longbrake provides a brief update on economic developments in the U.S., examines U.S. housing and fiscal policy, and discusses the plunge in global oil prices.  Read this month's letter.

October 2014 

In recent days market sentiment has shifted from optimism and complacency to pessimism and fear. Significant and troublesome imbalances have been building in the global economy for a long time but the threats they pose to global economic well-being have largely been ignored. But now the possibilities of much slower growth in China, failure of Abenomics in Japan, and deflation in Europe, not to mention the existential threat to the euro and the European Union, are being discussed more openly. In this month’s letter Bill Longbrake explains why unfavorable demographic trends, excess supply of goods and services relative to underlying demand, monetary profligacy, negative real rates of interest, and huge and rising debt-to-GDP ratios collectively are fostering a global deflationary bust in which increases in prices and output slow, or even fall, and bankruptcy potential rises for firms and countries.  Read this month's letter.

September 2014 

In this month’s letter, Bill Longbrake discusses how the U.S. economy is gradually gaining momentum, while downside risks are diminishing. There are signs that the virtuous circle of higher employment, higher income, higher spending and higher investment may finally be getting underway. But, the pace of improvement remains painfully slow with little indication that the still very large output gap will close quickly. Bill provides detailed commentary about trends in GDP, employment, consumer income and spending, prospects for interest rates and the backlog of tax and spending issues that await the lame duck session of Congress after the November congressional elections.  Read this month's letter.

May 2014 

First Quarter real GDP growth was a barely visible 0.1 percent and appears likely to be revised down to -0.6 or -0.7 percent. In this month’s letter Bill Longbrake explains why significant shortfalls in both residential and business investment were not solely due to bad weather and bode poorly for growth reaching expected levels during the remainder of 2014. Bill’s special topic this month is burgeoning income and wealth inequality and Thomas Piketty’s new book, Capital in the Twenty-First Century, in which Piketty forecasts inexorable increases in income and wealth inequality in industrialized countries with insidious and deleterious impacts on democratic values of justice and fairness. Read this month's letter.

April 2014 

Now that spring has sprung, the U.S. economy is beginning to look a little more spritely. But someone forgot to tell the stock market. Perhaps the stock market’s recent snit is reflecting nascent anxieties that faster economic growth will unleash inflation. In this month’s letter, Bill Longbrake discusses recent improvements in economic activity and examines whether inflation will be the next big problem faced by the U.S. economy, or whether deflation is really the greater threat. To read this month's letter, click here.


To read past issues, click here.