In this article, I am trying to demonstrate how to use only the price theory, but not the traditional macro-economics, to forecast the future economy progress of the United States.
Here are three interesting numbers we should pay attention to:
1. The total credit-card balances grow $20B in the second quarter to $784B, highest record since the late 2009.
2. Overall debts — including mortgages, auto loans, and students loans– hit a record $12.8T.
3. Personal saving rate fell to 3.8% in Junes, down from a recent peak of 6.3% in Oct. 2015.
The raising of personal debts and reduction of savings means American are more eager to spend, which implies three possibilities:
A. the anticipated inflation rate increases, or;
B. the anticipated income grows, or;
C. the information cost of the future progress decreases.
The problem here is which factor weighs more over the others? If the factor A stands out, then, according to I. Fisher’s theory of the interest, the total wealth of the American will decrease. In a lucky situation, the Fed may sense it about six months later and stop raising the Fed Fund Rate to save the economy as it had done before. In a bad situation as the Fed blindly continuing raising the interest rate, we can predict a bear market coming for a while until the Fed realize the real situation. No matter which one happened, the recent economic expansion would not last for long.
If the factor B or C weighs more than the factor A, the total wealth will increase and the prosperity could be foreseen. There are two major causes to make it happen: one is the growth of productivity and the other is the decrease of transaction costs, including but not limited to the more friendly laws to businesses, over-haul lower tax burdens, and lower immigrant limits (including illegal Mexican immigrants).
Right now, I am confident in that the later two factors playing more important roles in the formation of the massively optimistic anticipation. But as long as the real improvement does not catch it up in time, the positive mood could dissipate quickly. It could cost a lot of energy and time to recall it back again. What a shame, president Trump!
Therefore, I believe that we are at the crossroads of the U.S. economy progress. In only couple months, we will figure out which path do we take.