Gerstner argues the Fed is behind the curve on recession rather than inflation, citing massive demand destruction.
“I tweeted a few weeks ago, the Fed's probably behind the curve on recession, not inflation. Right? We have massive demand destruction going on right now in The US economy.”
Gerstner illustrates demand destruction: $1,200 monthly mortgage payment bought $350K house in December, only $295K today.
“Today, it buys you a $295,000 house. People's ability, right, to have money, to spend money is getting crushed,”
Gerstner states he is certain the probability of meaningful economic slowing in 2024 has increased.
“I am certain that the probability that we're going to have meaningful slowing in 2024 has gone up.”
Gerstner argues cutting $2 trillion in one year would create negative 7% GDP and trigger recession.
“The problem is every $300,000,000,000 you cut is a 1% headwind to GDP. So if you cut $2,000,000,000,000 in a single year, you have negative 7% GDP, right?”
Gerstner calculates cutting $2 trillion in one year would create 800 basis point GDP headwind.
“You can't just cut 2,000,000,000,000 in a single year. That would be an 800 basis point headwind to GDP.”