But that means private domestic investment is the leg that takes the fall.
That is exactly what has been happening and it accelerated in Q3, even with the positive GDP print
If we use debt to force consumption, we're making a choice to forego other parts of the economy
4/n
Private investment in structures and equipment was over 13% of GDP in 1980.
There has been a trend of lower highs and lower lows in terms of investment in structures and equipment as a % of GDP.
5/n
Investment in structures and equipment includes things like hospitals, power plants, manufacturing plants, industrial supplies, transportation equipment, construction machinery, and more.
It would seem it comes down to the government expenditure multiplier. If the "fiscal QE" is for a government spending initiative with a positive multiplier, real growth will improve.
At these levels of debt (130%+ of GDP) is there anything that has a positive multiplier?
We have many studies that cut against gov spending at these levels of debt. The Ricardian equivalence works against debt-funded tax cuts in the long run
Based on the research, fiscal QE won't raise the trend rate of real GDP per cap because the gov multiplier is too negative
Long-term, structural forces remain in play. Weaker rate of trend growth, more disinflation, and a fall in productivity will come as a result of an unproductive debt overhang
In the short-term, however, we have a pent-up demand rebound
1/n
We can see the rebound clearly in the growth rate of commodities, particularly metals used for industrial processes.
The growth rate in the CRB Metals index has risen to the highest level since 2018 and this is the biggest rebound in growth since the 2016 upturn.
Inflation expectations have risen accordingly to the increase in broad baskets of commodities.
Does this growth upturn have legs, or is it more related to a weaker dollar and lower real rates?