Barry Sternlicht says, “Powell loses control,” when the interest on the debt goes from $2T, to $2.5T and then to $3T. “The economy is going to explode.” He and Becky Quick then ponder if Powell will need to start QE again, because, “Who’s gonna buy the stuff?”

 Mr. Sternlicht admits that he underestimated the effect of government stimulus, and the infrastructure bill alone is adding 50 bps to GDP.  A construction CEO member of his board says 70% of all his projects are public, and he’s never been busier.  Construction jobs were up 130,000 YTD, but in 2008 over 1M construction jobs were lost when the Fed raised rates.

Mr. Sternlicht also says private real estate guys are completing their projects, but nothing else is penciling out.  Joe Kernan jokes that maybe Fed Chairman Powell is raising rates to make it tougher for Congress to spend. 

Then, Mr. Sternlicht shows a slide of specific contributions to the overall deficit increase of over $600B this year: the first bar is a huge loss of capital gains receipts of $171B, interest payments on the debt are up $146B, Medicare and Medicaid are up $133B, Social Security is up $111B, and there a reduction in the balance sheet of $98B through QT.

“This is gonna get far worse,” says Mr. Sternlicht.  He then shows the net interest on the debt for FY 2023 at $687B which is up over $200B from last year.

He disagrees (and specifically mentions Bill Ackman’s call) that inflation will be 3.5-4% and thinks it’s closer to 2% now because of the lag effect of rents in the CPI.  But he also caveats his own prediction with the potential growth of wages.