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Larry Summers points out that Fed tightening is more likely than not to cause a hard landing of a sharper-than-usual drop in GDP
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View above about Model Issue: US real GDP gap % change during ST debt phase relative to mean and phase 5
Former Treasury Secretary Larry Summers, whose out-of-consensus views about the risks of persistent inflation have come true, is reiterating his concerns about a potential U.S. downturn: He now says a recession is “the most likely thing” partly because the Federal Reserve “is going to have to keep going [in its effort to subdue inflation] until we see disinflation.”
In an interview with Bloomberg Economics released on Thursday, Summers, a paid contributor to Bloomberg, said that “the odds on a hard landing within the next two years are certainly better than half, and quite possibly two-thirds or more.” One of the mechanisms that will bring about a recession is the central bank’s response to elevated inflation, Summers said, adding that “we’re not going to see disinflation back toward the target range until we see unemployment rise, meaningfully.”
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Stanley Druckenmiller argues that recession following this tightening is likely to be more severe than most recessions
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View above about Model Issue: US real GDP gap % change during ST debt phase relative to mean and phase 5
Our central case is a hard landing by the end of ’23. I will be stunned if we don’t have recession in ’23. I don’t know the timing but certainly by the end of ’23. I will not be surprised if it’s not larger than the so called average garden variety.
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Druckenmiller points out only 3 of the 11 recessions since 1950 were "soft landings," so the market's strong confidence in that is misplaced
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View above about Model Issue: US real GDP gap % change during ST debt phase relative to mean and phase 5
There's gotta be more dead bodies out there that haven't revealed themselves. And you notice how all these political leaders, and I guess it's their job, and the Treasury Secretary, and Jamie Dimon today, "This is nothing like '08, '09." Excuse me, I don't remember any of you predicting '08, '09 until after the fact. Immodestly, I made 4 billion dollars, because I predicted the whole financial crisis.
And they're now re-remembering, oh they knew all along that banks weren't well-capitalized . . . so look, my guess is that this is not going to be as bad as '08, '09, but the way they cavalierly dismiss it . . . you can't just say, we had the biggest, broadest asset bubble in 500 years, they all have a problem when they go under 2%, and then you lop on 500 basis points in a year and think that there's a 100 percent chance this is not going to get really bad. And then you get everyone on TV, they go "we have no recession risk, soft landing." We've had 3 soft landings since 1950, and they were all preceded by perfectly-timed Fed hikes before you got the inflation taking off!
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