STIMULATORS VS. GREAT INFLATORS: SPECIOUS CIRCULAR BY S E A N C AV E R LY A N D R A N DA L L R OT H Sean Caverly is a professional in the Àeld with experience on both the buy and sell side working with a diverse set of asset classes. Randall Roth is an investment professional whose breadth of experience covers a range of functions from investment strategy and buy-side research to operational risk.
of economic conditions.
Great InÁators contend that propo-
nents of additional stimulus are Àghting the
that more forward looking data suggests
wallets and psyches have thrown
last war. With over $11 trillion of liquidity
a different picture.
the investment punditry spin-cycle into
already injected into the economy, InÁators
are struggling, corporate America is doing
overdrive. Usually, as per the old adage,
argue that spurring capital availability is
well. Cash hoards on corporate balance
talk is cheap because supply exceeds
less of an impediment to a resumption of
sheets are already at historic highs and free
However, when direction is
growth than spurring capital deployment.
cash Áow generation continues to mount
lacking, the natural inclination is to look
SpeciÀcally, job-creating investment won’t
in the wake of higher productivity and cost-cutting programs implemented since
for a schema that makes sense of the world in unvarnished terms.
Even if households
Were one to go
Eventually, Áush balance sheets
shopping for an opinion, there would be an
should translate into jobs as productivity
option for every budget and ideology.
increases and the rest should take care of main
itself. The outstanding question is whether
The Stimulators versus the
government and consumers will choose to
The Great InÁators. The Stimuli crowd
consume or save once the good times are
argues that priming the demand pump
here again. InÁators think they already
is the imperative necessary to change the
have the answer according to the gospel
consumption and investment zeitgeist and
of history and foresee proÁigacy as the
beat back the symptoms of thrift that have
order of the day once conditions normalize.
ground growth to a standstill. InÁation
It is best now to start dispensing with
expectations remain anchored, TIPS-Long
the cotton-blended softness of the U.S.
Bond spreads remain muted, industrial
dollar toward something harder and more
capacity utilization remains below the
Both the Stimulators and InÁators
balance sheets are still in tatters, and most
occur until the uncertainty on the future
bring to mind shades of the acrimony
importantly, the labor market remains
of the tax code is removed. In the interim,
surrounding the Panic of 1837. Now, as
mired in a funk with the broadest based
more bouts of stimulus can only stoke the
then, concerns persist over the health of the
measure, U6, hovering in the high teens.
Áames of future inÁation.
nation’s medium of exchange. A speculative
Neither consumption nor the savings that
Though inÁation pressure may not be
fervor arose in response to loose credit
lead to capital formation and investment
appearing in indicators that Stimulators
meant encourage westward expansion of
can improve if there is no income feeding
like to cite, it is only because that data
America’s frontier as it sought to grow into
down to households.
provides at best a coincident description
its manifest destiny.
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I N T E R N AT I O N A L B U S I N E S S R E V I E W
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Fall edition of the IBR magazine at the Wharton School.