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Yes, there’s clearly an ‘unidentified demand leakage’ to have all this deficit spending with demand only holding at very low levels.

I keep coming back to the depressing effects of low interest rates and a large Fed portfolio shifting interest income from savers to govt., banks, and corporate borrowers with consumers who borrow getting very little benefit as incomes at best stagnate.

As Bernanke stated in his 2004 paper, the fiscal drag from lower interest rates can be offset by a tax cut or fed spending increase.

Karim writes:

Biggest news this morning was surprising drop in Michigan survey. Despite equity rally, lower gas prices and labor market becoming ‘less bad’, Michigan survey drops 2.8pts to lowest level since March. Consumer still nowhere to be found in current ‘recovery’.

  • Michigan Survey falls from 66 to 63.2
  • 1y Fwd Inflation expex drop from 3.0 to 2.9; 5-10yr fwd from 2.9 to 2.8
  • IP for July up 0.5%; aided by auto production; ex-autos -0.1%
  • CPI unchanged m/m for both headline and core; headline -2.1% y/y and core +1.5%
  • OER (Unch) and lodging away from home (-2.1%) offset apparel (0.6%), vehicles (0.3%) and tobacco (2.2%).
  • Look for quirks in vehicle pricing to resolve in coming months and help drive core below 1% by yr-end.