More by the Same Author
2012-04-17 Quarterly Review and Outlook First Quarter 2012 by Van R. Hoisington and Lacy H. Hunt of Hoisington Investment Management
From both economic theory and historical experience the answer is clear; austerity is the solution to too much debt. McKinsey Global Institute examined 32 cases where extreme leverage caused financial crises since the 1930s. In 24, or 75% of these cases austerity was required, which McKinsey defines as a multi-year and sustained increase in the saving rate. Public and/or private borrowers took on too much debt because they lived beyond their means, or they consumed more than they earned. Thus, to reverse the problem spending had to be held below income, increasing the saving rate.
2012-01-13 Quarterly Review and Outlook, Fourth Quarter 2011 by Van R. Hoisington and Lacy H. Hunt of Hoisington Investment Management
As the U.S. economy enters 2012, the gross government debt to GDP ratio stands near 100%. Nominal GDP in the fourth quarter was an estimated $15.3 trillion, approximately equal to debt outstanding by the federal government. In an exhaustive historical study of high debt level economies around the world, it was demonstrated that when a countrys gross government debt rises above 90% of GDP, the median growth rates fall by one percent, and average growth falls considerably more. This study sheds considerable light on recent developments in the US.
2011-07-14 Three Competing Theories by Van R. Hoisington and Lacy H. Hunt of Hoisington Investment Management
While the massive budget deficits and the buildup of federal debt, if not addressed, may someday result in a substantial increase in interest rates, that day is not at hand. The U.S. economy is too fragile to sustain higher interest rates except for interim, transitory periods that have been recurring in recent years. As it stands, deflation is our largest concern, therefore we remain fully committed to the long end of the Treasury bond market.
2011-04-12 No Help by Van R. Hoisington and Lacy H. Hunt of Hoisington Investment Management
If the objectives of QE2 were to: a) raise interest rates; b) slow economic growth; c) encourage speculation, and d) eviscerate the standard of living of the average American family, then it has been enormously successful. Clearly, with the benefit of hindsight these results represent the Fed’s impact on the U.S. economy, regardless of their claims to the contrary. Why the Fed would believe the economy could benefit from the addition of $600 billion in reserves to a banking system that already had over $1.1 trillion in unused, but potentially inflationary reserves on hand defies understanding
2011-01-14 Quarterly Review and Outlook, Fourth Quarter 2010 by Van R. Hoisington and Lacy H. Hunt of Hoisington Investment Management
An even slower growth rate of real GDP should be recorded over the next four quarters, suggesting the unemployment rate will be essentially unchanged a year from now. As we have noted previously, this modest expansion is due to the significant over-indebtedness of the U.S. economy. We see seven main impediments to economic progress in 2011 that will slow real GDP expansion to the 1.5%-2.5% range.
2010-12-10 Interim Update and Comment by Van R. Hoisington and Lacy H. Hunt of Hoisington Investment Management
Federal Reserve Chairman Ben Bernanke said in a recent television interview that economic growth was not “self sustaining.” This description also applies to an economy that is in a classic growth recession. A growth recession is characterized as an economy where GDP grows but the unemployment rate also moves higher. A close look at the U.S. economy bears out Chairman Bernanke's description.
2010-10-08 Still Vulnerable by Van R. Hoisington and Lacy H. Hunt of Hoisington Investment Management
Economic growth has been largely due to an unsustainable, and probably over-extended rebuilding of inventories. The proposed QE2 is unlikely to succeed, and the U.S. economy faces four problems: excess leverage, counterproductive fiscal policies, sub-optimal tax policies and excess bureaucracy. Treasury bonds are not in a bubble and represent good long-term investments.
2010-07-12 Four Major Impediments to Economic Normalcy by Van R. Hoisington and Lacy H. Hunt of Hoisington Investment Management
Although the four coincident indicators that the NBER utilizes in judging recession troughs have turned positive, two of them (income less transfer payments and employment) have only marginally shifted upwards and are subject to significant revisions. Thus, history may come to judge that the NBER was very wise to hold off making this end of recession call. The past several quarters may be nothing more than an interlude in a more sustained economic downturn, with further negative quarters still ahead. Such an outcome will suppress inflation further and quite possibly lead to deflation.
2010-04-14 Quarterly Review and Outlook by Van R. Hoisington and Lacy H. Hunt of Hoisington Investment Management
Massive government spending is unsustainable, and will not lead to economic growth. Recent research says that the multiplier for federal government spending is less than one (each dollar spent results in less than one dollar of growth), whereas the multiplier from tax reductions is greater than one. Other economic research suggests that in an extremely overleveraged economy, monetary policy does not work. With excessive levels of debt and contractionary monetary and fiscal policies in place, inflation will continue to moderate, thereby driving long term treasury yields lower.
2010-01-16 Hard Road Ahead by Van R. Hoisington and Lacy H. Hunt of Hoisington Investment Management
