How the Long-Term Swelling of Household and Business Sector Balance Sheets Has Increasingly Forced Lenders, Investors, and Borrowers to Sacrifice Prudence, Financial Rewards, or Both.

In 2019, gold and silver prices appeared to benefit from some new influences, which could have some staying power as long as the global economy is stumbling but not yet falling.

In the face of developing global distress, global equity markets demonstrated remarkable resilience in the first half of 2019. In this excerpt from the June 2019 issue of The Levy Forecast, David Levy address four popular but faulty rationales for holding equities.

Bond rallies have become progressively bigger during stock market declines, thereby providing more effective hedging. This hedging feature has become more valuable as global balance sheets have swelled relative to incomes and deflationary forces have spread.

Market expectations for Chinese stimulus were high at the beginning of 2019. In this piece, Srinivas Thiruvadanthai takes a closer look at Chinese credit and monetary aggregates data and finds that the early-2019 credit push did not translate into increased economic activity or net increases in profit sources.

Market sentiment had to adjust over the course of the first two-thirds of 2018 to economic surprises in several parts of the world, each tied to foreseeable changes in a region’s profit sources. In this excerpt from the September 2018 issue of The Levy Forecast®, David Levy discussed what to expect in late 2018 and 2019.

Chinese policymakers are once again faced with a familiar dilemma—absent significant stimulus and credit easing, the economy will probably weaken markedly, and financial problems will likely surge. Indeed, the only way China can deleverage its private sector while sustaining economic growth is to run large fiscal deficits.

The two reliable shining knights protecting the stock market and other risk assets during this long economic expansion were suddenly AWOL during the stock market’s volatile first few months of 2018.

Increased government deficit spending will increase imports, expanding the trade deficit, because anything that increases spending and incomes in the economy will result in some additional spending on imports. But, lo and behold, saving and investment balance out automatically—largely through changes in profits—not just in a theoretical closed economy but also in a real one conducting trade with the rest of the world.

There is little discussion of the real constraint on monetary policy: oversized global balance sheets and the consequent dependence of global stability on low interest rates. Sufficient increases in either short- or long-term interest rates would lead to financial instability, and 2018 is likely to bring more of each.