This interview with Jan Hatzius, chief economist for Goldman-Sachs, is getting some attention. Here’s the headline takeaway from the interview:
Hatzius is bullish on the U.S. economy starting in the second half of 2013, because finally he expects private releveraging to occur at a nice clip, and to not be counteracted by a fiscal drag. Says Hatzius:
“If the business sector is basically trying to reduce its financial surplus at a more rapid pace than the government is trying to reduce its deficit then you’re getting a net positive impulse to spending which then translates into stronger, higher, more income, and ultimately feeds back into spending.”
He has a specific explanation and numbers in mind, to explain the private sector’s inclination to reduce its savings, and spend more.
“Since mid-2009, that surplus has gradually come down as businesses and households have gotten closer to where they need to be from a long-term balance sheet perspective. They’ve paid down debt, they’ve eliminated the excess supply of housing, and that’s basically allowed them to reduce the financial surpluses that they run. They’re still running large surpluses – still 5.5 to 7 percent of GDP, but they’re no longer as large. We expect those figures to come down as the balance sheet adjustment process makes further strides and that’s an underlying source of boost to the economy that’s happening on the one side.”
To my eye the balance of the interview is devoted to an explanation of why a marked expansion is unlikely to take place. GDP growth must, by definition, consist of increases in consumer spending, business investment, government spending, or exports or a decrease in imports. Most of the interview is devoted to explanations of why we’re unlikely to see increases in consumer spending, business investment, or government spending. Marked increases in exports would undoubtedly be met by counter-measures from our trading partners as would a sharp decrease in imports.
Perhaps someone can explain it to me but his viewpoint largely seems to consist of “We’re due”. This is a sentiment that any Cub fan can understand but it’s not particularly satisfying.