Global| Apr 30 202030 For 30: 30 Million Jobless Claims vs. 30% Gain in Equity Prices
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Summary
The great divide between finance and the economy rolls on. In the past 6 weeks, jobless claims have increased by 30 million, while the S&P 500 index has increased by more than 30%. The last decade saw the greatest divide ever between [...]
The great divide between finance and the economy rolls on. In the past 6 weeks, jobless claims have increased by 30 million, while the S&P 500 index has increased by more than 30%.
The last decade saw the greatest divide ever between finance and the economy. At the end of 2019, household holdings of equities stood 2 times the level of disposable income, an all-time high.
That divergence between finance (stock market) and the economy was fueled by easy money. To be sure, policymakers kept official rates near zero for roughly half of the 130-month economic expansion. Also, except for a brief 6-month period in early 2019, policymakers kept official rates below the core rate of inflation. Never before in any business cycle has official rates remained below the inflation rate for almost an entire growth cycle.
In 2020, the policy of easy money policy has gone to new heights. On March 23, the Federal Reserve announced plans to make unlimited purchases of financial assets to support the financial markets while also indicating they planned to utilize emergency lending powers.
Artificially evaluating finance over the economy does not guarantee a recovery, while it can also lead to financial instability at some point as asset prices become unhinged to underlying corporate profitability.
Cheap money can create the illusion of recovery, but a policy that results in more debt and inflated asset prices is not a bridge to recovery; it's another bubble.
Viewpoint commentaries are the opinions of the author and do not reflect the views of Haver Analytics.
Joseph G. Carson
AuthorMore in Author Profile »Joseph G. Carson, Former Director of Global Economic Research, Alliance Bernstein. Joseph G. Carson joined Alliance Bernstein in 2001. He oversaw the Economic Analysis team for Alliance Bernstein Fixed Income and has primary responsibility for the economic and interest-rate analysis of the US. Previously, Carson was chief economist of the Americas for UBS Warburg, where he was primarily responsible for forecasting the US economy and interest rates. From 1996 to 1999, he was chief US economist at Deutsche Bank. While there, Carson was named to the Institutional Investor All-Star Team for Fixed Income and ranked as one of Best Analysts and Economists by The Global Investor Fixed Income Survey. He began his professional career in 1977 as a staff economist for the chief economist’s office in the US Department of Commerce, where he was designated the department’s representative at the Council on Wage and Price Stability during President Carter’s voluntary wage and price guidelines program. In 1979, Carson joined General Motors as an analyst. He held a variety of roles at GM, including chief forecaster for North America and chief analyst in charge of production recommendations for the Truck Group. From 1981 to 1986, Carson served as vice president and senior economist for the Capital Markets Economics Group at Merrill Lynch. In 1986, he joined Chemical Bank; he later became its chief economist. From 1992 to 1996, Carson served as chief economist at Dean Witter, where he sat on the investment-policy and stock-selection committees. He received his BA and MA from Youngstown State University and did his PhD coursework at George Washington University. Honorary Doctorate Degree, Business Administration Youngstown State University 2016. Location: New York.