The ‘Road to Recovery’ Fallacy

  1. The economy was doing great pre-Covid
    A year ago, we were hit with a once-in-a-lifetime economic shock that took an otherwise-stable economy into shaky territory.
  2. Covid hit, and now we’re on the road to recovery
    After necessary stimulus, stocks are climbing again and unemployment is back down to reasonable levels. The world is emerging from hibernation, ready to spend, and the economy is slowly but surely getting back on solid footing.
  1. The economy was already on poor footing pre-Covid
    We came into this on very shaky ground, evidenced by an inflated money supply and an increasing wealth gap.
  2. We are not on the road to recovery — rather, the crisis justified and accelerated an already-loose monetary policy
    The US dollar devaluation has accelerated rapidly and the wealth gap has worsened. In spite of how things look on the surface, we’re in for a really tough decade ahead.

The ‘Road to Recovery’ Case

  • GDP per Capita
  • Unemployment Rate
Source: https://fred.stlouisfed.org/series/A939RX0Q048SBEA
Source: https://www.bls.gov/charts/employment-situation/civilian-unemployment-rate.htm
  • Would we rebound quickly and have a ‘V-shaped’ recovery?
  • Might the effect linger on and look more like a ‘U’?
  • Will we have a mini rebound and then crash again, creating a ‘W’?

The ‘Doom and Gloom’ Case

  • For GDP per Capita → The Money Supply
  • For Unemployment Rate → The Wealth Gap
Source: https://fred.stlouisfed.org/series/M2SL
  • Green = Unadjusted S&P 500
  • Blue = M1, aka the amount of USD in circulation (M1 is yet another money supply measure that sits between M0 and M2 — don’t worry about the nuances here too much, I’m using M1 since Inflation Chart doesn’t offer an M2 view)
  • Red = S&P 500 normalized for the amount of USD in circulation (aka the green line divided by the blue line)
Source: New York Times
Source: https://fred.stlouisfed.org/series/M2SL

What’s ahead?

In Closing

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