Thread by @EPBResearch

The Greatest Pull Forward In History:

An article and a thread 👇

seekingalpha.com/article/436771…

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Unlike all recessions in the past, income growth has soared this recession as one-time stimulus checks and enhanced unemployment benefits created a rise in disposable income.

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Government transfer payments, which include stimulus checks, unemployment benefits, social security & more, surged to 30% of total personal income before cooling to about 1/4 of total personal income.

This ratio will normalize, but will likely settle at a new peak.

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These transfer payments were facilitated by an enormous increase in public sector debt.

Total nonfinancial debt has soared to 310% of GDP in Q2 (estimate) which will breach all critical thresholds outlined in various research papers.

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The rise in public and private debt is not without consequence, even if the debt ultimately resides on the Fed b/s.

We have to grapple with diminishing marginal returns of overusing one factor of production, namely debt capital or more specifically, govt debt capital.

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We have evidence of diminishing marginal returns on full display.

Real income growth (during only expansions) has fallen from a trend level of 3.0% to 1.9%.

As the economy overused debt capital, we lost over 36% of our real disposable income growth.

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As govt budget deficits continue to rise, unless we offset the dis-savings with private sector savings or foreign savings, it will result in a continued decline in the rate of investment in structures & equipment.

This will continue to erode productivity growth over time.

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Without productivity growth, lasting income growth will be difficult to achieve and we will have simply pulled our income growth forward, resulting in weaker growth during the next expansion.

Full article on SA: seekingalpha.com/article/436771…

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