The Next Recession Is Going to Be Brutal

Charlemagne

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AUGUST 14, 2019 3:21PM EDT

The Next Recession Is Going to Be Brutal

The economy is showing signs of turning, and the people who saw the least benefit from the latest boom are now the most vulnerable ahead of the next bust

TESSA STUART

Market-watchers enjoying their first sip of coffee around 6 a.m. might have done a spit-take. For a brief period Wednesday morning, yields on two-year Treasury bonds were higher than those on ten-year ones — a short-term investment was seen as riskier than a long term one, and the return therefore higher — a signal that can portend major trouble for the economy. The last time the yields “inverted” was in 2007, before the “great” recession; the two times before that also directly preceded recessions. The dynamic flipped back before markets opened Wednesday, but stocks nevertheless dropped amid new fears of serious economic trouble ahead.

According to research from Credit Suisse (via the Washington Post) recessions historically have followed 18 to 24 months afterthe yield curve inversionslike the one Wednesday morning.

Before we get too carried away, it’s worth mentioning that there are some who argue the yield curve invert isn’t as reliable a recession indicator as it’s generally made out to be. Former Federal Reserve chair Janet Yellen struck a note of caution during a Wednesday morning appearance on Fox Business. “Historically, it has been a pretty good signal of recession, and it think that’s when markets pay attention to it, but I would really urge that on this occasion it may be a less good signal,” Yellen said. “The reason for that is there are a number of factors other than market expectations about the future path of interest rates that are pushing down long-term yields.”

But sooner or later, the current economic expansion — by many measures the longest in U.S. history — is going to end. And that’s particularly troubling when you consider how many Americans continue to fare poorly even in the current “strong economy.”

Some 40 percent of American families struggled to cover the cost of food, health care, housing or utilities last year, according to a report from the Urban Institute. A Fed found four in 10 adultscouldn’t cover a $400 emergency expense. Even at the current low unemployment rate, about 6 million workers are actively looking for jobs right now — and that doesn’t include part-time workers looking for more hours or those who want work but have stopped looking. Men in the prime of their lives are employed at lower rates than they were before the last recession. Suicide rates are spiking, driving down U.S. life expectancy.

A Gallup poll released in January found 48 percent of Americans felt economic conditions were worsening — a trend that had steadily progressed in preceding months — despite the fundamentals remaining strong. At issue was the fact that the benefits of a strong economy were not being broadly shared by all Americans.

Fed Chairman Jerome H. Powell called the dynamic out in two speeches he delivered at the end of last year. “The benefits of this strong economy and sound financial system have not reached all Americans,”he explained. “The aggregate statistics tend to mask important disparities by income, race and geography.”

A recession could take many of those families struggling on the margins and push them squarely into poverty. A family that can’t cover a $400 expense definitely isn’t ready to weather an unexpected layoff. And workers already struggling to find jobs will fare worse if and when the number of openings plummet and the number of unemployed job seekers climbs.

The fact that there are so many Americans still struggling highlights the opportunity President Trump and Republicans missed when they slashed taxes for corporations, businesses and the wealthy, rather than, say, shoring up social safety net accounts, investing in economic development in marginalized communities, funding worker training programs to help them transition to more stable jobs — or even just paying off some of the nation’s debt.

Instead, of course, Republicans promised the working-class and poor would get their share as benefits trickled down in the form of a tax cut-fueled economic explosion. Whether that was a lie or a delusion doesn’t matter now. The economy is showing signs of turning, and the people who saw the least benefit from the latest boom are now the most vulnerable ahead of the next bust.

https://www.rollingstone.com/politics/politics-news/recession-yield-curve-poverty-tax-cuts-trump-871198/
 

Charlemagne

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Dow drops 800 points as Wall Street suffers worst day of year on recession fears

The market selloff was a response to the yield curve inversion in government bonds, triggered by ongoing geopolitical turmoil and sluggish economic growth worldwide.

Aug. 14, 2019, 9:36 AM ET / Updated Aug. 14, 2019, 4:04 PM ET

By Lucy Bayly

Wall Street took a battering on Wednesday, suffering its worst day so far this year after movements in the bond market signaled the sharpest indication yet of an approaching recession.

The Dow Jones Industrial Average, which had already shed 400 points at the opening bell, spent the day in freefall before closing with a decline of 800 points, a drop of over 3 percent. The S&P 500 closed down 2.93 percent, and the Nasdaq posted a decline of just over 3 percent.

The market selloff was the result of an inverted yield curve in government bonds, when the yield on the benchmark 10-year Treasury note falls below the 2-year rate — a phenomenon that has preceded every recession for the past 50 years.

President Donald Trump blamed the Federal Reserve for Wednesday's market plunge, calling Fed Chairman Jerome Powell “clueless” in an afternoon tweet. Trump has consistently lambasted Powell for not cutting rates at a faster pace, and has said "the stock market would be 10,000 points higher" if the Fed had followed a different strategy.

"Spread is way too much as other countries say THANK YOU to clueless Jay Powell and Federal Reserve," President Donald Trump tweeted on Wednesday afternoon. "Germany, and many others, are playing the game! CRAZY INVERTED YIELD CURVE! We should easily be reaping big Rewards & Gains, but the Fed is holding us back. We will Win!" Trump added.

The yield curve marks the difference between how much it costs to borrow over the short term versus the long term. Banks borrow money at a lower short-term rate and then offer those funds to borrowers at a higher rate. When that dynamic is thrown off, it means less profit for banks, leading to tighter lending — and that, in turn, means companies can put their spending plans on hold, freeze hiring, or even lead to layoffs.

While the time frame from yield curve inversion to recession can vary — it has taken anywhere from two to six quarters after an inversion for a recession to occur — all of the past recessions have been preceded by inversions of the yield curve.

“It’s a dangerous and upsetting harbinger of the future of the economy,” said Dan North, chief economist at Euler Hermes North America, when the curve flattened out earlier this year. “Typically, when the yield curve inverts for even a short period of time, we enter a recession about a year later,” he said.

New economic data released Wednesday showed sluggish growth in China and Germany, underscoring the effects of Trump's ongoing trade war, the unresolved crisis around Brexit, and other geopolitical tensions.

https://www.nbcnews.com/business/economy/wall-street-slides-inverted-yield-curve-rings-recession-alarm-bells-n1042211
 

onthebottom

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Economies tend to be LIFO - last in, first out. As employment reaches near full employment (what we have in the US), the most marginal candidates are hired and roles filled. In any downturn they are the first to go. Applies to people (weakest go first) and roles (lowest production get cut first).

It’s not helping that Germany, Brazil and UK are now in recession. Italy is a perennial basket case and China is slowing. It’s getting hard for the US to pull the whole train.
 

danmand

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Economies tend to be LIFO - last in, first out. As employment reaches near full employment (what we have in the US), the most marginal candidates are hired and roles filled. In any downturn they are the first to go. Applies to people (weakest go first) and roles (lowest production get cut first).

It’s not helping that Germany, Brazil and UK are now in recession. Italy is a perennial basket case and China is slowing. It’s getting hard for the US to pull the whole train.
It is such an annoying tragedy that the world outside USA ( the shitholes) are unwilling to do what they are told.
 

K Douglas

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The left is hoping and praying for a recession because they want Trump to lose re election. Think about it - they are wanting a country to fail because they don't like the personality and the politics of its leader.
 

onthebottom

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It is such an annoying tragedy that the world outside USA ( the shitholes) are unwilling to do what they are told.
Wait, they have to be told to grow their economies.
 

onthebottom

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oil&gas

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Ghawar
So long as recession is not going to
worsen into a depression of the magnitude
of 1928 I won't worry too much. I see the most
likely outcome of this recession will be one of
cutting interest to nearly zero eventually. At
least I don't have to worry about a stock
market crash.
 

jcpro

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jcpro

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This is where we are. The "resistance" is so desperate, they're openly hoping for an economic downturn. I guess that the Russia hoax failed.
 

danmand

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This is where we are. The "resistance" is so desperate, they're openly hoping for an economic downturn. I guess that the Russia hoax failed.
They are not hoping for a recession. We are in a recession.
 

rhuarc29

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The left is hoping and praying for a recession because they want Trump to lose re election. Think about it - they are wanting a country to fail because they don't like the personality and the politics of its leader.
Yeah, only the left does that. /s
 

WyattEarp

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It is such an annoying tragedy that the world outside USA ( the shitholes) are unwilling to do what they are told.
Yeah, I hate when arrogant people from developed, capitalist countries wish for economic growth on the world.
 

jcpro

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danmand

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Yeah, I hate when arrogant people from developed, capitalist countries wish for economic growth on the world.
'Cause that is all that USA is trying to do: bring prosperity and democracy to the rest of the world. Too bad they have to kill them to do it.
 
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