re: Yield Curve Un-inverting

quote:

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I hate to say it but a lot of people in this country need to be reminded what suffering looks like.

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I don't disagree, but I think that may end up making things even worse.

When we had the Great Depression, there was no Section 8, SNAP, etc. The federal government created work programs but that was about it (if memory serves). No, I don't think we are heading into another Great Depression, but I can't help but wonder how much worse it will make a possible Recession to have millions more people quickly jumping into the federal coffers.

If we have a bad recession, there will be massive calls to expand public assistance programs (both in who gets covered and how much each tier gets in benefits). People don't go to DC to sacrifice their political careers, so the smart money would be on DC acquiescing to these demands regardless of the dangers.

If this happens, it would have impacts from two different vectors.

1. The first would be the obvious increase in federal deficit spending (not just increasing deficit spending through more spending but also through less revenues coming into the federal coffers). This would mean more debt, thus a greater amount of revenues needed just to service the debt (ie: within 2 years we could be thinking of $1T just in annual debt servicing being "the good old days").

2. The second would be that extra money going into the economy helping to keep inflation sticky. It likely wouldn't be enough to permeate throughout the economy (mid-higher end electronics, for example, would likely take a big hit). This would limit the range and intensity of that suffering many need to be reminded of (we see this already with what looks like a credit card bubble, when looking at consumer debt and the rise in consumer debt defaults).