March 2012
The Yo-Yo Years
“[W]hen an economy shows a pattern of slower and slower growth during economic expansions, along with a spike in cycle volatility, it becomes much easier for growth to drop below zero. … [T]his combination virtually dictates more frequent recessions. … In that case, the massive monetary easing being implemented by the major central banks as bridges to periods when growth is ‘normalized’ may turn out to be bridges to nowhere. … The … Bullwhip Effect … results in relatively small fluctuations in consumer demand growth being amplified up the supply chain into bigger swings in demand as we move away from the end consumer. Thus … global supply chains makes supplier economies – and, even more so, the suppliers to suppliers – highly vulnerable to the lash of the Bullwhip. … This adds up to what we might call the ‘yo-yo years’ for growth in both the developed and developing economies.” - International Cyclical Outlook, March 2012, Vol. XVII, No. 3
February 2016 (Yes, four years later): “This week, St. Louis Fed President James Bullard finally expressed his explicit agreement with the ‘yo-yo years’ thesis that ECRI laid out years ago (ICO, March 2012); namely, that the economy is ‘at a lower trend growth rate,’ implying ‘a higher probability of recession.’ Moreover, with regard to the Fed's options in the face of a sharper downturn, given the lower long-term trend, ‘monetary policy tricks are not going to do it.’ This is because ‘monetary policy is about stabilization … around a trend [which] is lower. [So] you gotta do other things to [boost] the trend.’ Obviously, this is true not only for the Fed, but also for other central banks, who have collectively added some 11 trillion dollars to their balance sheets since before the GFC.” - International Essentials, February 2016, Vol. XXI, No. 2
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