A Look Back at 2015

Back in late 2014, early 2015 everyone was optimistic on the U.S. economy.

I wrote in June 2015, two months before China pulled the rug out: What Are the Odds The U.S. Economy Pulls A Crazy Ivan?
What are the odds that an interest rate hike by the Federal Reserve causes confidence to increase such that higher interest rates cause higher inflation? In this scenario, rate hikes signal greater confidence and increase inflation expectations. An inflationary spiral ensues, with the Fed unable to hike fast enough.

I don't think the odds are good because it requires credit growth at a pace closer to pre-2007 levels and we're not there yet. However, zero percent interest rates causes great psychological damage to many savers and investors who are responsible for the bulk of economic activity. The people who really set inflation expectations are worried because rates are zero (they might worry about inflation, deflation, or just feel that zero percent interest signals something deep and fundamentally wrong with the economy) and they are worried rising rates will be bad for the economy. If they're wrong, those millions of people controlling trillions in wealth are going to switch from fear to greed, from risk aversion to risk taking. Credit growth will be the first sign. Inflation will quickly follow.
I think to some extent this scenario played out in the equity markets, but not in credit growth. Trump winning increased business optimism, passing tax cuts and increasing deficit spending lifted optimism further in early 2018, but all we got was a blow-off rally in stocks and interest rates, not (yet) a rise in credit growht.

I also linked to this story from Yahoo Finance: IT'S OFFICIAL: America is back! Sound familiar?

There are differences today: the dollar is falling, interest rates are higher (although is the 10-year at 2.9 instead of 2.5 percent that big a difference?), oil is a little cheaper, taxes fell and deficits will rise. I posted yesterday that a good reason for expecting inflation is the federal debt. I don't see a lot of projections based on what ifs though, rather the market strikes me as overly optimistic and assumes inflation increases that haven't materialized.

I finished the 2015 post with:
We have seen false dawns several times since 2008, but never with a Federal Reserve hiking rates. President Obama is leaving office in 18 months. No serious candidate from either party will be worse than Obama on the economy, so even if people complain about "uncertainty" with the election, it will make sense to bet on saner economic policies.
It was a false dawn in 2015. We got better economic policies and where they're worse ($1 trillion deficits for a decade), they're at least pointed in an inflationary direction. But how much is already priced into interest rates and equity prices? What happens if Chinese growth slows again?

Finally, is this news below inflationary for the U.S. more than it is deflationary for the rest of the world?

ZH: Global Trade Wars Begin: Ross Recommends Major Tariffs On Steel, Aluminum Focusing On China, Russia
Secretary Ross has recommended to the President that he consider the following alternative remedies to address the problem of steel imports:

1. A global tariff of at least 24% on all steel imports from all countries, or
2. A tariff of at least 53% on all steel imports from 12 countries (Brazil, China, Costa Rica, Egypt, India, Malaysia, Republic of Korea, Russia, South Africa, Thailand, Turkey and Vietnam) with a quota by product on steel imports from all other countries equal to 100% of their 2017 exports to the United States, or
3. A quota on all steel products from all countries equal to 63% of each country’s 2017 exports to the United States.

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