Growth is to be avoided at all costs!

That´s the sort of reasoning a depression can bring about! In “How a Surprise Upturn in U.S. Growth Could Trigger the Next Recession”, we read:

Could the cause of the next U.S. recession be too much growth? That is one risk of an unprecedented environment in which investors are betting heavily on a perpetually weak economic expansion.

If markets are wrong–and the economy surges instead of sputters–the bad bets could roil the financial system, some economists are increasingly warning.

“Ironically, one can think of a scenario where a stronger-than-expected expansion leads to financial trouble, which in turn puts into question the expansion itself,” said former International Monetary Fund chief economist Olivier Blanchard.

Mr. Blanchard is the latest prominent economist to warn that a surprise upturn in growth may force the Federal Reserve to raise rates faster than investors expect. A jump in borrowing costs could catch many off guard, given that much of their portfolios are based on lower rates.

“If the economy were to pick up faster than markets think, which I think has substantial probability, it could lead to some financial turmoil,” Mr. Blanchard, now a senior fellow at the Peterson Institute for International Economics, said in an interview.

……………………………………………………………….

“When the Brexit smoke clears, if, as I expect, it clears, then the Fed should tighten,” said Mr. Blanchard. And given that it takes roughly a year for interest rates to have a substantial effect on the economy, that means the Fed can’t wait too long to raise the cost of borrowing to temper inflation.

“You have to anticipate,” he said. “If I was at the Fed, I would be slightly on the hawkish side.”

The economy is being smothered by the Fed. In that case all the risk is on the downside. Higher growth is a chimera!

3 thoughts on “Growth is to be avoided at all costs!

  1. I read that article this morning and despaired. Olivier Blanchard, for heaven’s sake. Propounding the possibility that “surprise growth” (we should be so lucky) will be a big problem because the Fed’s policy response will make it a big problem.

    What is wrong with these people?

  2. Even if we could have a decade-long stretch of robust economic growth, it would not be worth it as we might end up with inflation above 2%.

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