September 4, 2018 Patrick Oliver-Kelley

Second quarters GDP growth was revised to 4.2%, making it the best in four years.

Our current bull market, a period of rising stock prices is 3455 days driven by strong profits, low inflation and stable economic growth. The S&P is up fourfold.

The 1990s boom generated a return of 417%, while the Obama/Trump rally has produced a return of 324%. Investors are sanguine and this market will possibly become the longest on record, yet just recently, we experienced an inverted yield curve which is highly predictive.

In all three of our recent recessions, the yield curve for governments ‘inverted’. There are reasons to heed signs flashing across bond markets, now. First central bankers often overestimate the durability of a boom. Second, central bankers generally worry more about high inflation than about rising unemployment. Why be concerned? The unemployment rate is now unsustainably low. A slowing of growth sufficient to bring unemployment up to a rate the Fed deems natural, say 4.5% is needed.

We have experienced four post-2008 themes:
1.The immediate post-crisis response in which banks were rescued and the monetary and fiscal taps were opened;
2.The Euro-zone crisis which hit Greece, Ireland, Portugal, Italy and Spain;
3.Shift to the developed world with a more austere fiscal policy;
4.The rise of populist politics in Europe and America.

The immediate post-crisis response saved capitalism and was necessary, but the banking industry paid too low a price for its greed and hypocrisy. All in All, the backlash against bankers, the EU, governments and the impact of austerity led to the rise of populism and to its unlikely bandleader, Donald Trump.

Initially, European politicians dismissed the crisis as an American phenomenon generated by Wall Street, though European Banks were filled to the gunnels with dodgy American real estate loans. Now the most significant failure has been the inability of the Banking Industry, Wall Street, or the US government to deal with problems which lie at the heart of the system and persist today. The financial sector looks incredibly unaltered. Bank have more capital but have recently have been allowed to return to the self-dealing tactics of that era. It is true that bonuses are tied to longer-term performance, but bonuses are still huge and stories of banks’ bad behavior continue to come to light.

The biggest change has come in the public mood. Americans, even Republicans, have swallowed our free-market instincts and tolerate Trump’s protectionist, clap-trap measures and accept his threatening behavior! This change of mood raises fears about what will happen when another storm hits the world economy. The next attack could be even more severe and the remedial techniques that worked ten years ago may not be successful the second time around.

we need to invest in a lot more public infrastructure and investment in underserved communities, job training, more jobs, more lateral thinking. And a lot of this needs to be focused on the transition to a greener economy.

We also need to make sure that workers are empowered so that the benefits will flow to them rather than to corporate profits. Elizabeth Warren just came out with a whole set of policies to improve corporate responsibility. So, there’s a whole lot of things that we need to do to focus around public investment, increasing labor’s role at the bargaining table and raising taxes back up on the wealthiest so that we can fund public services for the rest of us.

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