Earlier this month, the BEA estimated that Disposable Personal Income in the US was $14.4 trillion (SAAR) for April 2017. If the unemployment rate were truly 4.3% as the BLS says, there is no way DPI would be anywhere near to that low level. It would instead total closer to the pre-crisis baseline which in April would have been $19.0 trillion. Even if we factor retiring Baby Boomers in a realistic manner, say $18 trillion instead, what does the world look like with that additional $3.6 trillion of American income?
It is the one that is currently being described, that which earlier this year was supposed to set up the bond market for a 1994-style ‘massacre.’ Reflation was not just some nebulous idea, though it arose out of nothing but faith, rather it was the belief in a realistic trajectory back to $19 or even $18 trillion in income (maybe $17 trillion). At that level of future income, a lot of deficiency about the current economy would quickly vanish.
That would apply, of course, to far more than domestic circumstances. The rest of the world would be awash in US demand in terms of actual spending (the strong consumer in fact rather than just constant description). The feedback and spillover effects would restart what are now painfully broken foreign economies (not just in Brazil).
This post was published at Wall Street Examiner on June 20, 2017.