(1/17) In the 27 years that Greenspan and Bernanke he were chairs of the Federal (2/17) Reserve annual real GDP growth stopped cold or actually (3/17) fell once every nine years or so. These recessions took place without the Federal Reserve wishing for a (4/17) recession to curb inflation. These recessions took place even though the Federal (5/17) Reserve thought it was following appropriate, stabilizing monetary policy. (6/17) A decade ago I would have said that the American economy had strong equilibrium restoring forces: (7/17) that the chances of another recession before full recovery to no.@TheStalwart small. I cannot say that today. The chances of another recession now look more or less normal (9/17) 50-50 or so in the next five years.
And should such a recession come, the Federal Reserve will not be (10/17) able to lower interest rates to fight it. And should such a recession come, the Federal Reserve has (11/17) shown it has no taste for the extraordinary balance-sheet expansions needed to effectively fight it. (12/17) And should such a recession come, the broken politics of Washington prevent fiscal expansion to (13/17) stabilize aggregate demand. And should such a recession come, Tim Geithner by failing to take (14/17) the equity of the too-bit-to-fail-banks burned up the political will for finance-sector anti-recession (15/17) policies.
A Federal Reserve where a large chunk of the FOMC takes 2%/year as an inflation ceiling. (16/17) A government that is out of ammunition should there be another adverse shock. The lower tail in (17/17) which PCE inflation over the next decade significantly undershoots 2%/year is thick.
The past 17 tweets have been the #inflationbear case. I do not stand behind them as a forecast: they are a scenario only