Interest on debt huge threat… Fiscal tsunami… Goldman Sachs releases recession manual

The justifiable and unavoidable focus on the highest inflation in 40 years should look beyond its visible impact on the economy and the cost of goods and services. While the most noticeable sign of increased prices appears at gas stations, where they are reaching record highs every day, there are less noticeable but more destructive long-term consequences of higher costs that should be made clearer to the American people.

Over the past two years, $4.6 trillion has been provided by Congress in response to the COVID-19 pandemic. The impact on inflation, particularly the timing of the $1.9 trillion American Rescue Plan Act in March 2021, is subject to some debate, but what cannot be denied is the impact this spending has had on the interest paid on the national debt. Between 2011-2018, interest on debt held by the public averaged $272 billion annually. Between 2019-2021, annual interest on the debt averaged $389 billion, an increase of $117 billion, or 43 percent. The president’s fiscal 2022 budget, which is the first to project deficits of more than $1 trillion for 10 consecutive years, estimates that FY 2022 interest on debt of $26.3 trillion will be $305 billion and reach $941 billion in FY 2031, or more than triple the amount for the current fiscal year. By that time, interest payments will account for 59 percent of the projected $1.6 trillion deficit.

Goldman Sachs economists believe the chances of the economy entering a recession in the next two years are still low, even as the investment bank’s equity team has just released a recession manual for its clients on how to prepare for a downturn.“A recession is not inevitable, but clients constantly ask what to expect from equities in the event of a recession,” chief U.S. equity strategist David Kostin wrote in a note to clients on May 19. “Our economists estimate a 35% probability that the U.S. economy will enter a recession during the next two years and believe the yield curve is pricing a similar likelihood of a contraction.”
Kostin pointed out that the latest rotations in the U.S. equity market suggest that traders are pricing growing odds of a recession that doesn’t mirror “the strength of recent economic data.” The research note cited that the divi …

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Thru the Cycle President John Lonski warns inflation ‘could speed up again if the U.S. economy regains momentum.’ Sky-high inflation is expected to persist for the remainder of the year, further burdening U.S. households as they face steeper prices for everyday necessities, the Congressional Budget Office said Wednesday. The CBO, in its latest budget and economic outlook, projected that key measures of inflation will show signs of easing this year compared to 2021 but will remain uncomfortably high because of strong consumer demand and continued disruptions in the supply chain. The nonpartisan budget office estimated that the consumer price index, a wide-ranging measure of goods and services, including food, autos, gasoline, health care and rent, will hit 4.7% for the entirety of 2022. While that is down slightly from the 6.7% recorded in 2021 — the highest level in four decades — it’s still significantly higher than the Federal Reserve wants.Inflation is not expected to fall to the Fed’s preferred level of 2% until 20 …

EY Global Chairman and CEO Carmine Di Sibio weighs in on the economy and the possibility of a recession from Davos. During an interview on “Mornings with Maria” EY Global Chairman and CEO Carmine Di Sibio weighed in on the possibility of a recession, saying that the economic slowdown will last only six months.  CARMINE DI SIBIO: The first thing I would say is in any economic cycle where we used to think, economic cycles go on for two years, five years, ten years. Today, everything is much shorter. The time frame is much shorter. The amount of data and the use of technology and how well people are connected globally, it forces the time frame to be much shorter.  EY Global Chairman and CEO Carmine Di Sibio discusses when the U.S. economy will bounce back at the World Economic Forum in Davos. (iStock / iStock)So we have people on all sides, there’s a lot of headwinds going on, and I do think the economy will come down across the board. But will we be in a recession? Personally, I don’t think so. And you know what …


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