I never thought the Great Recession ended, even to this day. The NGDP is around 4% ever since 2008 and that is non-inflationary expansion. The Fed should target NGDP-- business and consumers do not think in real terms, as Keynes taught us.

The Bank of Canada constantly reduces potential GDP and output gap gets wider. The BoC has argued that the recession destroyed a lot of potential because 1) some capacity was permanently destroyed (e.g. oil wells shut down) and new capacity was not coming on stream. Business investment is still falling, yet output is improving--- so much excess capacity allows for this.

They recognize why potential is falling. I never heard these arguments from the Fed, but the same conditions apply.

Yellen has mentioned the poor performance of cap ex as one of the disappointments that hold back rate hikes.

In Canada, cap ex has been dismal, actually declining in successive years.

The worse is that in both countries the weaker the cap ex gets the lower the potential GDP.

Everything changes as potential is downgraded.

Fully in agreement with you.

The lack of specifics on everything tells me that POTUS does not have anything ready to submit to Congress. Still rhetoric prevails. How long can the markets hold up without any concrete plans.?

Humble is a word that is not in #Trump's vocabulary.

The more dysfunctional the Congress and Trump become, the more likely we will bounce around zero growth. The incoming data, so far, shows nothing to support the level of euphoria.

Gary, I suspect you are right about banks internationally holding more Treas. I could not find data on short notice to make the point.

I think your scenario of a full blown crisis is at the extreme end of the spectrum. But I am worried that Trump could blow up both deficits to the point where the rising capital costs will be a killer in many respects.

I am surprised that Trump's chaotic beginning is being totally ignored by the equity and capital markets--- they seem to conduct business as usual!

An excellent overview of the current situation. In particular, I like the chart on the inflation index-- not much is said these days about the collapse of velocity, so this chart raises the issue.

You should add the labor force growth is slowing at such a rate that it is impossible to reach 4%. Demography is destiny in this case.

You identify two very powerful factors. First, the great underlying forces of demography and productivity -- the Gross argument. Second, the chaotic nature of a Trump administration-- we are seeing that already before he even takes office.

Why the business community cannot appreciate the negative impact of these two factors on growth negates the value of all these sentiment indices.