An American recession is unlikely
The economic forecast calls for thunderstorms. But there are few financial clouds on America’s horizon.
The financial world has braced for a slowdown. The Fed has raised rates at breakneck speed and has stopped bond purchases. If a recession hits America, pundits reckon profits will tank, and stocks will fall by a third. But if they're wrong, markets will continue their rise, and the nay-sayers will have missed out. Is the economy more potent than most expect? Yes, and a recession this year is unlikely.
First, rate hikes have stimulated, not snuffed, the economy. They have increased the government's interest bill and deficit. That means more money going into the private sector. Over the past year, the nation's interest payments have risen by a third to $1.2trn, an increase of 1% of GDP. Interest payments on government debt are now 4.5% of the nation's income. Unless it finances it with taxes, the deficit, the gap between government spending and taxes, goes up. That creates new money. With the deficit at 5% of national income already and set to increase, that's a lot of cash in the privat…