How this Economic Cycle Differs from the Norm
As the economic expansion enters its fifth year, it is a useful exercise to study the unique drivers of this cycle relative to previous cycles. Whereas most recessions have been countered by the government with a timely fiscal and monetary stimulus response, the amount of stimulus provided in response to the pandemic in 2020 and 2021 was unprecedented. The surge in government-supplied liquidity resulted in a spectacular rise in asset prices, led by global equities, speculative-grade corporate bonds, gold, and crypto currencies. The magnitude of disruptions to the labor force during the past four years of economic recovery has been unprecedented.
The current federal budget cycle is an enormous deviation from norm: The deficit bottomed early in the expansion (2022) at 3.7% of GDP and has moved steadily higher in most recent years, currently at 7.2% of GDP, an all-time record for an economy at full employment. The unique nature of the current economic cycle has enormous investment implications, the most important of which is that the life of the current expansion could be extended for longer than generally perceived by financial markets... READ MORE
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