I respect Larry Summers as a maverick intellect – someone who exits the beaten path to express his occasionally politically incorrect views, but he seems to have fallen into the trap of ‘vague alarmist punditry’ that so commonly afflicts online financial journalism (and is why I long since stopped reading many news websites. I don’t actually read economic forecasts (because 99.9% of forecasts are useless and wrong) when making investment decisions, rather I develop models using data and risk management, and then test them under a variety of conditions).

From Washington Post, by Larry Summers: The global economy has entered unexplored, dangerous territory

Every year, pundits say the economy is ‘entering unexplored and dangerous territory’, and every year (save for 2008 or 2011) nothing happens. And then the cycle repeats, of more incorrect predictions and intimations of ‘impending crisis’ and ‘recession’ that never come.

there was no imminent crisis. Instead, the pervasive concern was that traditional ideas and leaders are losing their grip and the global economy is entering unexplored and dangerous territory.

Every year it’s a ‘paradigm change’, ‘the election of the century/decade’, ‘losing grip’, ‘uncharted/dangerous territory’ etc…and every year the world doesn’t come to an end, and we get through it. Brexit was supposed to doom the economy, but US stocks still near 52-week highs. So much for that. Someone phone Google and Facebook and tell them to take a break from counting their money be worried about ‘economic uncertainty’ – the media said so. lol.

Speaking of Facebook, recall in 2012 , after Facebook’s weak IPO in which the stock closed at $38 and then a few weeks later fell as low as the $29, the financial media became very pessimistic about Facebook, calling it a bubble and that it would be unable to monetize mobile. Now it’s at $132, having fully monetized mobile. Media wrong again.

The International Monetary Fund’s growth forecast released just before the meeting was once again revised downward.

Yaawn they have been ‘revising growth downward’ since 2008, yet the S&P 500 is up 200% since then. So much for that. We’re talking rounding errors here…the difference between 2.2% GDP growth vs. 2.3% – imperceptible.

Wasn’t the US consumer supposed to be ‘dead’ and ‘maxed out’ in 2007…yet they keep spending. Media wrong again.

The economy is never growing fast enough, but so what. Slow GDP growth isn’t stopping Tesla from inventing the future. It’s not stopping Uber, Facebook, or Snapchat. And compared to the rest to the world, America is still doing pretty well.

Unless the economy is growing at like 10% a year, the media will always complain about ‘slow growth’. What matters more is real growth. The media only focuses on nominal figures. High nominal GPD figures often come with equally high inflation. America has among the highest real GDP growth of much of the developed world. Countries like Brazil and Russia have higher nominal figures, but they are burning cash to prop up their economies and have poor credit rantings, meaning they have to borrow at very unfavorable rates to keep their nominal growth up. America doesn’t have that problem, being able to borrow at very favorable rates.

Recessions come intermittently and unpredictably. Containing them generally requires 5 percentage points of rate cuts. Nowhere in the industrial world do central banks have anything like this kind of room, even allowing for the effects of unconventional policies such as quantitative easing. Market expectations suggest that it is unlikely they will gain much room for years.

There are other options: negative interest rates, more bond purchases, and tax cuts. The economy can still recover on its own even after the ‘zero lower bound’ has been hit. Japan has had rates at zero for almost two decades, yet they have successfully navigated many boom-bust cycles:

After seven years of consistent over-optimism about economic prospects, there is a growing awareness that growth challenges are not so much a matter of the lingering effects of the crisis as they are of structural changes in the global economy that contributed to the crisis and the problems in its aftermath. There is increasing reason to doubt that the industrial world can simultaneously enjoy interest rates that support savers, financial stability and adequate growth. Saving has become overabundant, new investment insufficient and stagnation secular rather than transient.

Every year there is the same ‘doubt’, ‘growth challenges’, and ‘awareness’ and every year (save for a few exceptions like 2008) nothing happens.

It can hardly come as a great surprise that when economic growth falls short year after year, and when its beneficiaries are a small subset of the population, electorates turn surly.

This has more to do with the imprecise science of estimating GDP growth. Often there is a huge range and if one chooses the ‘high end’ of the range as the estimate, the actual will almost always fall below it.

In the same way — with Brexit, the rise of Donald Trump and Bernie Sanders, the strength of right-wing nationalists in Europe, Vladi­mir Putin’s strength in Russia, and the return of Mao worship in China — it’s hard to escape the conclusion that the world is seeing a renaissance of populist authoritarianism.

Every year it’s something different, a ‘new paradigm’, and more turmoil and civil war in the same hotbed regions that have been at other’s throats for generations. Now it’s Trump, Isis, Syria, and Brexit. A couple decades ago it was Milosevic (Serbia vs. Bosnia). And then also Palestine vs. Israel. Pakistan vs. Bangladesh. Lebanese Civil War. Iraq invading Kuwait. Remember Jean-Marie Le Pen? Then there was Ross Perot and Pat Buchanan. It’s always going to be something. People have such short memories, I suppose. But maybe it’s also a backlash against a paternalistic elite, that perhaps looks down upon commoners, with condescension – ‘pity the poor, stupid people for not understanding the irrationality of their anger’.

And from Dissenting SociologistWeaving the Basket of Deplorables: On the Effort to reduce the White Working Class to an Untouchable Caste in America:

Hence the eruption amongst the ranks of the workers, joined by rebellious students and some disaffected intellectuals, of the arch-iconoclastic and antinomian alt-Right, which has set out to break every taboo in the book, to mock every piety, defile every sanctity, desecrate all that is “sacred”, speak incorrectly and with intentional grotesque poor form, to the extent humanly possible, and reject democratic and Modernist orthodoxy altogether and revive heretical and long-condemned doctrines such as Reaction. The revolt against the new ritualism soon found a public figurehead in Donald Trump, who quickly won legions of supporters precisely by dispensing with rote ritualistic platitudes read from teleprompters in conventional political address and talking to the people in a spontaneous free-form manner.

The US economy is driven primarily by three things: consumption, production, and innovation, all of which tend to remain constant regardless of whatever the latest media generated crisis is. And most economic data is very volatile. Sometimes durable goods may be up 1% and a quarter later it’s down. Same for consumer spending. This sort of stuff happens all the time, due to the imprecise science of calculating this data, yet the financial and general media will latch onto the negative data as evidence the economy is doomed or in recession, without putting it into the larger context.

From Why the News Is Still Mostly Pointless:

6. Following the news can be perilous to your financial health. Had you sold your stocks in 2008, at the depths of the crisis when the media had nearly everyone convinced capitalism and America was doomed, you would have not only sold at the bottom but missed out on the 2nd-greatest bull market ever – a bull market which continues to this day. The S&P 500 is up 80% (including dividends) since 2005, despite the crisis. Had you sold your stocks following the Brexit vote, you would have sold at the bottom and missed the 4% rally that immediately followed. Had you listened to the media and sold stocks in 2013 on fears of QE ending, you would have missed out an additional 25% gains in the S&P 500. Other examples include numerous predictions since 2008 of hyperinflation and dollar collapse, neither of which happened.

As many have noted, most financial commentary is advertising disguised as content, and much of it is wrong.