Is this Really the Scariest Chart in the World?

True Economics called it “the scariest chart in the world.”

That may be a little bit of hyperbole, but a chart showing declining average rates of growth during each economic expansionary period since the 1950s is certainly cause for concern.

Almost non-existent economic growth in the US during the first quarter of 2017 didn’t seem to generate much hoopla in the mainstream media. Most analysts seem to think the tepid 7% growth rate was an outlier. In fact, the Atlanta Fed’s early forecast for Q2 growth is over 4%. As Peter Schiff pointed out in a recent podcast, this seems pretty crazy in light of the economic data. Nevertheless, it was enough to put a pause on Federal Reserve rate hikes – at least for the month of May.

But the weak growth number wasn’t really an outlier. Since the Great Recession of 2008, GDP growth has only averaged about 2%. The pre-recession rate was closer to 3%. In fact, the “recovery” has been weak to say the least.

This follows the trend revealed in the “scariest chart in the world.” After each successive recession since 1975, the recovery has been weaker. The trend (the yellow line) has drifted downward since the 1950s.

True Economics adds this bit of analysis.

Now, let me highlight that point: yellow line only considers periods of consistent growth (omitting official recessions, and one unofficial recession of  2001). So, no: the depth of the Great Recession has nothing to do with the yellow line direction. If anything, given the depth of the 2008-2009 crisis, the most current grey bar should have been at around 4%, almost double where it sits today.”

This represents a very disturbing trend in the business cycle. This could be a sign that the “tools” central bankers use to stoke the economy during a downturn – namely low interest rates and stimulus – are becoming less and less effective. In each successive recession, the Federal Reserve has had to push rates lower for longer periods. and the increase in interest rates post-recession have been slower and have peaked at a lower level. Consider that 9 years after the crash, the Fed still hasn’t gotten the interest rate above 1%.

You can see the steady downward trend of the Fed funds rate in the following chart.

So what will happen during the next big downturn? The Fed doesn’t have far to go. Will it turn to negative interest rates? Will it dump so-called helicopter money?

Central bank stimulus is a lot like heroin. The more the addict uses, the more drug it take to get the high. At some point, there is usually an overdose.

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