Kraken wrote: ↑Fri Jun 30, 2023 12:18 am
Biden has decided to double down on the economy, which is an interesting gambit since his approval on that issue is in the 30s.
Bidenomics is simply defined as repudiating supply-side, trickle-down economics that has failed us since the 1980s in favor of the New Deal philosophy of building the economy "from the ground up and from the middle out," investing in consumers and the middle class. You'd think that would be wildly popular, but....
There are some real headwinds to the sort of progress he is claiming that he is stepping over. Fed policy, federal tax policy, and fiscal support aren't really aimed at the middle class. There has been very little reform of the factors that have been siphoning wealth from the bottom of the wealth curve to the top for 40+ years now. The recently Trump tax changes actually accelerate it. To be fair to Biden this isn't a Biden problem to solve and it needs to be fixed in Congress. But declaring a turn from Reaganomics puts him hip deep in some Grade-A bullshit too.
Frankly IMO he is trying to take credit wherever he can but this 'Bidenomics' stuff isn't on solid ground...yet. It does look like there is a path in that direction in small measure with investing in on-shoring silicon based manufacturing, batteries, and green tech. That fiscal support is mostly filtering through large corporations (for instance helping Intel build factories) which might broaden the middle class over time. But that's still some distance away and is a bet. This is him selling a vision more than a reality right now which is probably decent politics if people buy into it.
“The common explanation for the no-show recession despite the 500bps hike in the federal funds rate is that consumers were still spending their excess savings from the pandemic. But once this cash is spent over the rest of this year, the thinking goes, a consumer-led recession is likely in 2024,” he wrote in a Wednesday note to clients. “I disagree.”
This isn't the common explanation. It is one of the explanations. There are others and they are all probably complimentary. A lot of things happened. The supply chain normalized unlocking economic potential. There is also still a relatively increased amount of federal fiscal support working through the system from ARP, IRA, and the Chips Act. Additionally, there has been historically high investment inflows from foreign sources with global companies investing in the United States instead of laggard European economies such as the UK where growth potential is looking weak at the moment.
Yardeni, an economist by training who previously served as chief investment strategist at both Prudential Financial and Deutsche Bank, now points to another positive sign for the economy—one that could keep consumer spending, which makes up 70% of U.S. GDP, elevated for years to come despite stubborn inflation.
“Consumers’ excess savings of roughly $0.5 trillion currently is dwarfed by the net worth held by the Baby Boom generation that is retiring,” he explained. “They have just started to spend it. Their progeny undoubtedly expects to inherit some of that wealth and therefore can save less.”
This is pretty speculative. Maybe this will happen but I have significant doubts. There is a fairly significant issue out there - wealth inequality. Boomers as a generation have much of the wealth but it is very unequally distributed. Lots of folks will tout the average net worth of a boomer household at $1.4M but the median is actually somewhere nearer to $500K. Much of that being the value of a home. Worse, the median value of their 401(k)s is something like $200K. If they follow the 4% rule, this amounts to a whopping $8K per year. Not very stimulative! So unless there are a spate of reverse mortgages or renting out their homes there isn't necessarily income flows to "spend down" into the economy.
Social security helps here somewhat but that is a balanced factor considering it is being paid by current workers. Still dollars spent by boomers have velocity as they turnover and these dollars are likely to be spent since a retired boomer may very well need every last dollar in that check.
Edit: Extra credit. Just some back of the envelope stuff but the median boomer household will again have approximately ~$700 per month from a 401k and ~$3400/mo from SSI (assuming the median boomer household is a married couple). That's ~$4100/mo. and I'd round that up to $50K/yr. The rosy predictions probably aren't supported by that spend. They'd actually potentially be a drag as it's well below median household income. The median boomer will be well above the poverty line for sure but it's hardly raining dollars from the sky type money though. I'd temper expectations a bit.
Also we should consider all the outlays the young have to spend on supporting their healthcare as well. There will likely be healthcare cost inflation from all the demand which will have an impact on non-boomer household balances. I could probably find a few more areas to convolute this but IMO those predictions build in a faulty assumption that the dragon's horde of the 1% boomer gets spent down which is not likely. A lot of boomer wealth may very well end up tied to dynastic wealth transfers which may have the effect of perpetuating the political unrest in our system.
This resonates with me as a boomer nearing retirement who has a lifetime of savings and investment socked away. It's time to start spending it down. And there are a whole lot of people like me (financially speaking) who have more assets than years remaining.
A boomer thinking the boomers are going to save the world. That's new!
