The Pandemic's Wrongest Man, an occasional series

Special economics edition!

Janet Yellen, May 31, 2022:

Let’s give Janet a break, amirite? After all, no one could have seen inflation coming -

Oh.

By the way, if you think $5 a gallon - and rising - gas isn’t going to put the United States into a recession, you apparently weren’t alive in 2008. (Which would make you under 14 and probably not reading this.)

Keep in mind that prediction is a lead-pipe lock NO MATTER WHAT HAPPENS TO INTEREST RATES. And remember - the Federal Reserve has just started a TIGHTENING cycle right now, and no matter what happens to the economy, that tightening MUST continue for a while because inflation is such a problem. In other words the Fed is not going to be able to come to the rescue with cheap money even if we go into recession.

This is bad for the real economy but WORSE for the stock market, because it means the Fed put is dead. In other words, this feels like 2008 all over again, but worse. The banks are better capitalized but the risk has actually moved UP a level, to the Fed’s balance sheet. No one is left to bail us out if everything goes wrong.

Fortunately all that risk is priced in! It’s not like the market is up six-fold since its 2008 lows and trading at price-earnings ratio that suggests we have permanently banished the business cycle (I am old enough to remember when we had permanently banished the business cycle, until we hadn’t).

But what do I know?

This has been The Pandemic’s Wrongest Man, an occasional series.