We are at the stage in the business cycle where pundits are talking about a soft landing for the economy. The Federal Reserve has taken away the punchbowl of cheap credit and now the question is: how bad will the hangover be?
As usual, the markets do not tell us. On the one hand home sales are declining. On the other hand, interest rates are declining. On the one hand the stock market is down. On the other hand it is off its lows.
In other words, we still don’t know what the consequence of the Federal Reserve’s ultra low interest rates followed by an unprecedented increase in the federal funds rate from 1 percent to 5.25 percent in an uninterrupted series of quarter point monthly increases.
Columnist Robert Samuelson is also properly reticent about forecasting the future. Maybe this is the end of the great credit explosion of the last 60 years since World War II, or maybe it isn’t.
In 1946, households had 22 cents of debt for each dollar of disposable income. Now they have $1.26. Behind these numbers lies a profound social upheaval: the "democratization" of debt. Everyone gets to borrow. But this process may now have reached its limits.
Or maybe it hasn’t. The thing about the future is that all you can do is place your bets. If you are right, you get to clean up. If you are wrong. Well, better not think about that.
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