Daily Reckoning: "How can the economy be headed into recession after such strong growth recently?
The Credit Crunch Reckoning Begins
The riddle is solved by the fact that the economy has been propped up by the consumer. That explains the growth. But the consumer has been on a non-sustainable path. That explains the warning signs.The consumer came out of the pandemic with a head of steam provided by handouts from Trump ($1,800 per adult), and Biden (also about $1,400 per adult) between April 2020 and March 2021. That was supplemented by $900 billion of Paycheck Protection Program loans, which were forgiven one year later.Student loan payments were suspended from 2020–2023. The Federal Reserve held interest rates at zero from 2020–2022. Then the misnamed Inflation Reduction Act of August 2022 handed $1 trillion of taxpayer money to Green New Scam businesses and other pet projects.With that money, Americans were able to pay down credit card balances and build up savings. It was a powerful double-dose of fiscal and monetary stimulus. Much of this operates with a lag so the growth momentum carried over into 2023. Now it’s all gone. Short-term interest rates are over 5%. Mortgage rates are over 7%. Student loan repayments have started again. There are no more pandemic handouts. Americans’ savings are depleted, and their credit cards are tapped out. Now the reckoning begins. In fact, the recession may already be here."
