The "Wait And See" Economy's Moment Of Truth

The defining phrase of the U.S. economy for the past year is "wait and see": every enterprise impacted by the pandemic that didn't close immediately has been in "wait and see" mode, clinging on to the hope that once the pandemic ends then everything will roar back to life, bigger and better than before.

With the promise of herd immunity fast approaching, the moment of truth for "wait and see" is also fast approaching. The conventional view is that the trillions of dollars in stimulus kept business as usual alive and ready to soar back to the good old days. The almost $2 trillion injection of financial smack currently in progress will ignite the afterburners and the economy will rocket higher than anyone can imagine.

The problem with this rosy view is the economy was on fumes before the pandemic, as Gordon Long and I highlighted in our 53-minute presentation, The Coming Deflationary Tsunami. Interest rates had been falling for 40 years and there was little leeway for more of the magic of falling rates. The spending of the upper-middle class had already rolled over as the awareness that the longest expansion in U.S. history was faltering seeped into financial decisions--and no wonder, since every trick in the book had been required to keep it alive: zero interest rates, quantitative easing galore, tax cuts, massive deficit spending and speculative bubbles in every asset class.

Then there was the spot of bother in the repo markets. Something had broken in the financial plumbing (a massive break in the sewers?) and the Federal Reserve rushed freshly printed billions to stop the sewage from seeping into the precarious economy.

Though nobody dared discuss it, the economy was creaking under the burden of overcapacity in just about everything: too many cafes, too many channels of this and that, too many office towers built for get-rich-quick techies planning to sell out to Big Tech and retire at 25, too many resorts, and so on.

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Disclosures: None.

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