Thursday, 07 June 2018 23:20

Ben Bernanke: The US Economy Is Going To Go Off The Cliff In 2020

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It looks like Ben Bernanke is a subscriber of the Bridgewater Daily Observations.

Recall that earlier this week we reported that in the May 31 "Daily Observations" letter to select clients, authored by Bridgewater co-CIO Greg Jensen, the world's biggest hedge had an ominous, if not outright dire, appraisal of the economic and financial situation facing the US, concluding that "We Are Bearish On Almost All Financial Assets"

While Ray Dalio's co-Chief Investment Officer listed several specific reasons for his unprecedented bearishness, noting that "markets are already vulnerable as the Fed is pulling back liquidity and raising rates, making cash scarcer and more attractive - reversing the easy liquidity and 0% cash rate that helped push money out of the risk curve over the course of the expansion", pointing out that "options pricing reflects little investor demand for protection against the potential for the economy to bubble over and also shows virtually no chance of deflation, which is a high likelihood in the next downturn", what really spooked Bridgewater is what happens after 2019 when the impact from the Trump stimulus peaks, and goes into reverse. This is what Jansen wrote:

"while such strong conditions would call for further Fed tightening, there's almost no further tightening priced in beyond the end of 2019. Bond yields are not priced in to rise much, implying that the yield curve will continue to flatten. This seems to imply an unsustainable set of conditions, given that government deficits will continue growing even after the peak of fiscal stimulation and the Fed is scheduled to continue unwinding is balance sheet, it is difficult to imagine attracting sufficient bond buyers with the yield curve continuing to flatten."

The result was the following ominous conclusion:

"We are bearish on financial assets as the US economy progresses toward the late cycle, liquidity has been removed, and the markets are pricing in a continuation of recent conditions despite the changing backdrop."

Today, none other than former Fed Chair Ben Bernanke repeated the same assessment almost verbatim in explaining his own dire outlook on the economy.

Bernanke, the same man who once charged a room full of bankers $250,000 for the sage projection that interest rates would never normalize during his lifetime , now believes the US economy, which in May entered the second-longest period of expansion in modern history...


... is headed for a "Wile E. Coyote" moment in 2020, just in time for Trump re-election, according to Bloomberg.

Speaking at the American Enterprise Institute, Bernanke echoed Bridgewater's biggest concern about the sugar high facing the US economy for the next 18 months, saying that the stimulative impact from Trump's $1+ trillion fiscal stimulus "makes the Fed's job more difficult all around" because it's happening at a time of very low unemployment;...

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