What Does A "No Landing" Scenario Look Like?
First, I remain in the “Hard Landing” camp. The Hard Landing scenario is best for the economy in the long run. Why? Because it will purge the economy and markets of a significant portion of the excess capital that has been sloshing around since Q2 2020 thanks to the Trump and Biden White Houses, Congress, Treasury and the Fed.
Second, a good old fashioned hard landing will rid the economy, markets, boardrooms and a significant portion of the general population of the moral hazard that has poisoned the United States since the days of FDR. Various social and corporate welfare programs from Social Security to Medicare and Medicaid to QE to the CARES ACT to the Inflation Reduction Act and more have greatly diluted the value of the Dollar and created a welfare class that relies on the U.S. Government printing money out of thin air.
Make no mistake, this welfare class extends far beyond the general population. It includes CEOs and Board members. It includes Venture Capital and Private Equity firms. It includes institutional equity and fixed income investors. Many of these firms received direct capital infusions from the Government during the COVID period, whether it was one of the Fed’s many non-recourse lending facilities, or money sent directly from the U.S. Treasury (PPP loans) or IRS rebates (ERC).
Beyond direct capital injections to specific firms, corporate welfare programs such as QE have created an investor and corporate management class that is dependent upon artificially low rates, that believes stocks only go up, that issue low rate debt to goose stock and options packages, that believe that the Fed will always save the day. The Fed can’t print money in perpetuity without taking the Dollar to zero.
These easy money programs come at great cost. Simply look at the mountain of debt the U.S has created ($33.83 trillion). The interest expense alone is chewing up 20% of Federal Government tax receipts. The U.S. is running multi-Trillion Dollar deficits which ensures that the Treasury Debt mountain will continue to grow as Treasury issues new debt to pay off the old.
So, what does a “No Landing” scenario look like? It is one where the fiscal side (Congress and the Treasury) and the monetary side (the Fed) re-inflate the U.S. economy at great cost. One where the U.S.’ ballooning debt quickly spools to $40 Trillion and continues to climb higher. One where interest expense equals 40%-plus of Government tax receipts. One where price inflation spools up to summer 2022 levels (CPI is woefully understated) and keeps going (how does $15 eggs sound?) It would be much better if the U.S. economy took its medicine now versus putting it off for months or years. The longer the U.S. waits, the more bitter the medicine will be.