Former Federal Reserve Chairman Alan Greenspan told FOX Business on Thursday that the U.S. economyis poised to slow down very soon.
“Just wait until the fourth quarter number comes out, it’s going to be down around 2.5 percent,” Greenspan said during an exclusive interview with Maria Bartiromo. “We have monthly data which suggests that we are slowing down, we are not going negative, but we are definitely slowing down – the rate of growth as we go into 2019 probably at a 2 to 2.5 percent pace maximum.”
Gross domestic product (GDP) increased 3.5 percent in the third quarter, according to a revised estimate from the Bureau of Economic Analysis, but Greenspan said gross domestic savings, which consists of savings of the household, private corporate and public sectors, is a critical factor in determining his outlook.
“Gross domestic savings is the key funding to capital investment in the Unites States, and as a result we are seeing capital investments slowing down,” he said.
Earlier this week, White House Council of Economic Advisers Chairman Kevin Hassett told FOX Business a capital spending boom is giving the U.S. economy momentum.
“A capital spending boom like the one that we’re in usually takes three to five years,” he told Bartiromo. “We’ve had about a 10 percent increase in capital [spending] since this time last year and that should continue if it’s a normal spending boom for the next three to five years.”
However in Greenspan’s opinion, although a recession is unlikely, the U.S. has entered a period of stagflation driven by runaway spending and entitlement programs.
“We are not funding our entitlements and as a result we have this huge deficit – [a] trillion dollar budget deficit,” he said. “You can’t exist with that sort of phenomenon without inflation re-emerging itself.”
The annual inflation rate in the U.S. fell to 2.2 percent in November from 2.5 percent in October, according to the Labor Department.
Julia Limitone is a Senior Web Producer for FOXBusiness.com.
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Wall Street may have set new record highs this week, but the rally is masking an uncomfortable truth: Corporate America is still in the midst of recession.
Companies have begun announcing earnings for the second quarter, and the results are not expected to be pretty over the next few weeks. Analytics firm FactSet estimates profits in the Standard & Poor’s 500-stock index will fall 5.6 percent compared with a year ago — the fifth straight quarter of decline. The contraction has been so prolonged that investors consider it an “earnings recession.”
[Dow follows S&P to record high]
Corporate earnings are supposed to be the bedrock of stock market value, but at the moment, they appear to be pointing in opposite directions. Energy companies have been devastated by falling oil prices. Multinationals have been hamstrung by the stronger dollar. Banks have been hammered by ultralow interest rates.
The gloomy reality comes amid growing warnings that the risk of a full-blown recession is rising — not only for the United States, but also the broader global economy. Britain’s decision to leave the European Union is also sowing uncertainty in financial markets and threatening to undermine the recovery in the United Kingdom. One of the most pessimistic forecasts came from Deustche Bank this month, predicting a 60 percent chance of a downturn in the United States over the next year.
That all sounds pretty dismal, and it makes the record highs set this week by both the S&P 500 and the blue-chip Dow Jones industrial average even more perplexing. At least part of the rally — and, some analysts argue, most of it — is the result of the signals from the world’s central banks that the era of easy money is far from over. But investors are also betting that corporate America and the broader economy are turning a corner, if they’re not already back on track.
Many analysts think the earnings contraction that started in the second quarter of 2015 bottomed out early this year. Profits fell 6.7 percent in the first quarter compared with a year ago, which makes the 5.6 percent estimate for this quarter look a little rosier. The outlook for the third quarter is even better, with analysts forecasting a milder decline as oil prices and the U.S. dollar stabilize.
Then there was a blockbuster report from the Labor Department showing rock-solid job growth of 287,000 jobs in June. That gave many investors confidence that the U.S. economy was weathering the global storm, especially after the exceptionally weak addition of just 11,000 jobs in May. On top of that, a new prime minister has been selected in Britain, a step toward resolving the political turmoil that has roiled markets.
[Opinion: Theresa May must contain the Brexit damage — and more]
Anthony Valeri, investment strategist for LPL Financial, analyzed the S&P’s 12 earnings recessions since 1954. Nine of them were accompanied by economic recessions a year before or after, although the depth and duration of the downturns varied widely.
Three earnings recessions have not been tied to broader distress. The first two occurred in 1967 and 1985, which he notes are periods in which the federal deficit was increasing, rather than decreasing as it is now.
The third is the one we’re in right now, and it is not done playing out.
Congressional Leaders Agree to Lift 40-Year Ban on Oil Exports
Dec 16, 2015 By Amy Harder And Lynn Cook
Accord is a key component to deal on tax, spending legislation
WASHINGTON—In a move considered unthinkable even a few months ago, congressional leaders have agreed to lift the nation’s 40-year-old ban on oil exports, a historic action that reflects political and economic shifts driven by a boom in U.S. oil drilling.
The measure allowing oil exports is at the center of a deal that Republican leaders announced late Tuesday on spending and tax legislation. However, Democrats haven’t confirmed the agreement. Both the House and Senate still must pass it and President Barack Obama must sign it into law.
The deal would lift the ban, a priority for Republicans and the oil industry, and at the same time adopt environmental and renewable measures that Democrats sought. These include extending wind and solar tax credits; reauthorizing for three years a conservation fund; and excluding any measures that block major Obama administration environmental regulations, according to a GOP aide.
By design or not, the agreement hands the oil industry a long-sought victory within days of a major international climate deal that is aimed at sharply reducing emissions from oil and other fuels, a deal opposed by the industry and one that will arguably require its cooperation.
More than a dozen independent oil companies, including Continental Resources CLR 2.29 % and ConocoPhillips , COP 2.08 % have been lobbying Congress to lift the ban on oil exports for nearly two years, arguing that unfettered oil exports would eliminate market distortions, stimulate the U.S. economy and boost national security.
A handful of Washington lawmakers representing oil-producing states, including Sens. Heidi Heitkamp (D., N.D.) and Lisa Murkowski (R., Alaska), have been working to convince once-wary politicians to back oil exports and allay worries that they will be blamed if gasoline prices were to rise.
Some U.S. refineries oppose oil exports, saying their business would be hit if crude oil is shipped overseas to be refined and warning that higher costs might be passed along to consumers. The U.S. government doesn’t limit exports of refined petroleum products, and those exports have more than doubled since 2007.
To address the refiners’ concerns, expressed most vocally by Democrats from the Northeast where several refineries are located, the spending bill changes an existing tax deduction for domestic manufacturing to benefit independent refineries in particular.
President Barack Obama had threatened to veto separate legislation lifting the export ban, but the White House isn’t expected to oppose the overall spending bill simply because it includes the measure, according to congressional aides.
Congress moved to ban oil exports under most circumstances following a 1973 Arab oil embargo that sent domestic gasoline prices skyrocketing.
With the increased use of fracking and other drilling technologies in recent years, U.S. oil production has shot up nearly 90% since August 2008, helping lower gasoline prices to levels not seen since 2009. Gas prices are less than $2 a gallon in many regions of the country, and the U.S. Energy Information Administration forecasts the price will average $2.04 this month and $2.36 next year.
It took this dramatic drop in oil prices, hovering below $40 a barrel, to catapult the policy change to the top of the Republican agenda. It helped prompt lawmakers of both parties to consider pairing renewable energy support with oil exports, a type of grand Washington deal-making that hasn’t been seen for years on the highly divisive issues of energy and environment.
The same low prices that generated momentum for lifting the ban could reduce its short-term economic impact, however, because the global market is saturated and U.S. oil companies have already slowed drilling in response.
John Hess, chief executive of Hess Corp., said low oil prices have increased the urgency for Congress to lift the ban, but he declined to say whether his company would immediately begin exporting oil if given the opportunity.
“It would be a function of market conditions,” Mr. Hess said in a recent interview. “But I think over time, definitely; If the market signals were there, we would have that option.”
The U.S. is already exporting nearly 400,000 barrels of crude a day to Canada, the biggest exemption under the ban. That is more than nine times as much as in 2008 but still just 3.8% of the U.S. oil produced every day.
A certain type of light oil is also already starting to flow overseas thanks to permission granted in 2014 by the Commerce Department, which allows producers to reclassify a certain type of oil as a refined fuel, similar to gasoline, which is legal to ship abroad.
The logistics of a new surge of oil exports would be relatively manageable, especially compared to exporting natural gas, which takes years of federal permitting and billions of dollars in technology to liquefy the gas.
Extensive networks of oil pipelines and storage tanks already stretch along the Gulf Coast from Corpus Christi, Texas, to St. James Parish, La. Those oil ports, where nearly a third of U.S. refineries are located, are for now geared toward unloading crude from tankers, not loading them. So initially there would be some constrained capacity that caps energy companies’ ability to ship crude out to foreign buyers.
But retrofitting those facilities—adding more deep-water dock space and equipment to load oil tankers—could happen quickly in a place like Texas, where permitting is easy and such projects face little community opposition. The ports of Corpus Christi and Houston are already undergoing dramatic expansions.
Several companies, including Enterprise Products Partners EPD 1.17 % LP, have already been ramping up their ability to export oil from Texas, and Enbridge Energy Partners EEP -0.55 % LP, based in Canada, plans to spend $5 billion to construct three new oil terminals between Houston and New Orleans.
—Kristina Peterson contributed to this article.
China’s inflation figures just hit a five-year low. Price growth is falling for consumers, and companies producing goods are already recording sharp deflation.
Why does it matter? One simple reason: debt.
China’s debts as a proportion of GDP climbed to 245% in 2014 from 144% in 2007. That debt is worth one entire Chinese economy’s total output for a year, accumulated in just seven years. That’s a lot, and it puts the country in a pretty grim situation.
Here’s how it looks:
Debt was actually falling as a portion of GDP for the few years running up to the financial crisis before rapidly picking up afterward.
Deflation and lower inflation only make that worse. What matters for reducing your debts is nominal growth.
The economic growth figures that you usually see strip out the effect of inflation. Nominal GDP doesn’t do that: It is a simple measure of how much money is in the economy without trying to remove the effect of rising or falling prices, and it’s very important for debt.
Michael Pettis, one of the most authoritative voices in the world on the Chinese economy, explained this during the most recent round of Chinese inflation data (emphasis ours):
For nearly two decades, when nominal GDP growth was as high as 20-21% and the GDP deflator at 8-10%, (economists use a deflator to remove the effect of inflation) even if they were horribly mismanaged the nominal value of assets soared relative to debt … Under those conditions it was pretty easy to ignore debt costs, and even easier to pick up very bad investment habits. Now that nominal GDP growth has dropped to around 8-10%, and could be substantially lower in a deflationary environment even if growth did not continue to decline, as I expect it will, those bad habits have become brutally expensive.
In short, it’s easy to keep borrowing if your income is growing by a fifth every year, but those habits (and your existing debts) are a lot harder to deal with if that falls to one-tenth, or one-twentieth. Your debts are suddenly not being inflated and grown away as they previously were. That’s what’s happening in China, and the lower both inflation and growth fall, the worse that will get.