The low interest rate, slow-growth economy is saying that it needs less spending and more savings to pay down massive debts in the world. Don't hope for a takeoff in growth because it's not coming. Demand for loans has already peaked. At this late stage of an expansion, lenders have a tougher time to find credit-worthy borrowers. Many high-credit-quality companies have already stopped investing in their expansion, expecting a prolonged low-growth world. They're not taking out new loans.
This is going to last for years, until debt gets reduced significantly. A recession should be expected in the first half of 2020.
7
The "anti-deficit" Republican Party has already provided a pro-cyclical stimulus package when one was not needed. If an anti-cyclical one is needed in the near future, one can be sure they will be fiscal haws again.
The world turned upside down for the benefit of the plutocrats and their puppets in the legislature. And we did it folks!
11
This is what happens when the rich like Tump and corporations don’t pay their taxes and get more back. With a September default coming i look to see Trump and Mitch McConnel privatize the VA, cancel Social Security and Medicare and you know they will get away with it. When that happens i hope the Catholic Church and evangelicals have to start paying taxes also and get no more tax breaks.
7
If interest rates are low and the economy still shows strain, then rates are probably not the problem; lowering rates will not be a solution. A recession will likely need a fiscal remedy. Interest rate manipulation is not a cure-all if business cannot repay the principal. The popularity of stock buy-backs indicate no shortage of money.
7
Every Republican administration since Reagan repeats the same disasterous pattern. Tax cuts combined with runaway spending. They want to create an illusion of prosperity for political gain. But the results are always the same: a stock market crash followed by recession.
12
@Barton. No, Reagan's tax cuts are overblown. He actually INCREASED taxes on the wealthiest Americans by increasing capital gains tax to 28% from 20% despite cutting the top personal income tax bracket. Federal Revenue double overall during Reagan's years because of the growing economy and increased capital gains taxes. The main GOP disasters of tax cut + increased spending is mostly Bush and probably Trump (to be seen).
2
It's a Mathematical fact none of American Banks are ready. In fact don't be surprised to find the big banks colluding on disrupting the United States of America Markets & the world markets in order to make more money. The nation the figures out the principles of manipulation of markets or Companies will make a fortune. The old Adage is true follow the money you follow the crime.
2
Europeans are snapping up junk bonds and getting paid to do so.
A reckoning is coming!
3
It is most irritating to read citations by Trump on any subject, let alone global monetary policy. It's Kafka-esque.
3
Translation: Printing yet more money to buoy things won't work forever.
4
Two percent, two percent! Whose numbers are these, how did they calculate it, and why doesn't it reflect the reality of most people's finances? Why does the BLS have the right to undercount inflation through the magic of hedonics? Minimum wage is going up to $15 an hour and there's insufficient inflationary pressures? Give me a break. Everyone in financial services and the government are crooks!
5
@Bill
Certainly raising the minimum wage will inject money into the pockets of those mostly likely to spend it but your inflamed reaction doesn't mean it's guaranteed to have a sufficient effect to be discernible in the inflation numbers. That's most likely a drop in the bucket compared to other secret financial meddling going on in the background.
2
@J.I.M. Seriously, how can you trust the government's inflation numbers when they claim very little inflation in cars or any other matter, and that more interest rate cuts are needed to further raise prices?
https://www.zerohedge.com/news/2019-06-29/fake-flation-no-autos-are-not-cheaper-now
@Bill OK numbers, but what I mean is real inflation that makes stuff cost more. Of course the inflation numbers from the government are politically baked but there is a real process that causes prices to go up. That's called inflation and it has a discernible affect on peoples lives and wipes out wage increases.
2
Every time a republican gets in ... a recession and the rich end up buying our lost homes and bankrupt businesses for pennies on the dollar while getting more tax cuts. Senator Elizabeth Warren understands this rigged game inside and out and that is exactly why they’re scared of her. I’ll vote for Warren to break this corrupt attack on working Americans who just want to work and take care of their families. Unlike the depraved billionaires like Epstein and Trump who enrich themselves while destroying our country.
13
I have seen many recessions over the decades and after a while they become relatively predictable. Among many warnings, the stock market discards fundamentals and prices increase irrationally, just because. Everybody joins the party which might involve home mortgages and complicated and unregulated derivatives, bank and investment house gambling, commercial real estate booms and bond purchases by the truckloads. And so on. Obvious bubbles form but don't worry, be happy.
Then something happens, economically or in geopolitics. A crisis occurs (a crisis always occurs) that those at the top of government or banking didn't see coming, or did but just ignored it except to hopefully take advantage of it. What to do?
If you're a Republican, cut the deficit (that you ran up to stratospheric heights during peacetime and economic expansion), cut Social Security and Medicare (always), while giving more money to the already incredibly wealthy and corporations (adding to the debt), and sell (rather than directly fund) infrastructure development to the private sector (who will start doing things like adding tolls to highways which become profit centers). Distract with social issues (abortion, race, crime) and especially, always, blame someone else.
Trump is already preparing his base for the "it's the fault of those 'others'". Or it's the fault of the Fed. Or foreign countries. Or Democrats. Or immigrants. Or (pick your villain). It's never, never him.
And it's all so predictable.
22
Zero interest rates to banks who charge us 8 percent on parent student loans and 20 percent on credit cards. So unfair.
7
Approaches based on economic can work only if the system has fair-minded players. I think that cannot be assumed to be true today. Few decades ago, when economies got into trouble (inflation, recession, etc) it was due to inequlibria at system level. Today, the system is being played. Parties (investment banks, et al) know that when things go bad they will survive perhaps with a little damage. They believe the damages are worth paying for - it is like insurance. Therefore they engage in risky behaviors - hidden and camouflaged in different ways. When they get discovered, it is too late, the boat is sinking and we have to come and help out.
5
Since 2008 the watchword for all central banks has been crisis prevention. Judging by the concerns expressed here and elsewhere, however, one is left with the inescapable conclusion that contraction has now become synonymous with crisis. And so it would seem that the strategy of central banks has quietly morphed from being janitors ready to clean up a mess to helicopter parents making sure the mess never happens. That’s no way to parent and as we read here, that’s no way to manage an economy.
6
Duh! Increase taxes on the very wealthy and upon huge fortunes! Simultaneously increase spending upon needed infrastructure.
This is not rocket science. Instead of giving Laffer the Presidential Medal of Freedom he should be consigned to the dustbin of economic theory history.
We cannot run huge deficits forever and wealth inequality has grown to become a danger both to our democracy and to our economy. Policies such as those advanced by Senator Warren provide a real cure to these problems.
9
@Gary A. You seem to be under the impression that the very wealthy have enough money to make a perfect world possible. They don't.
If the Walton family gave ALL their wealth to their employees, each would get a few thousand dollars. But that would never happen. The minute you start confiscatory policy ( Wealth tax) in order to make things "fair", that wealth will disappear. Wealth is social agreement, not a physical standard. Stocks will collapse because there will be no point in owning them.
3
Not to worry. The stock market is not included in the GDP nor in inflation calculations. The economy will do fine.
2
No one is arguing that C suite members should just give their money to employees in some one-time check to fix everything. The debate is about increasing wealth inequality. And many have rightfully noted here that the only people faring relatively well off during economic downturns are the rich buying things (stocks, foreclosures, etc.) for pennies on the dollar, while the vast majority of Americans have their pensions riding the S&P and wake up to find their retirement severely diminished. An unfortunate group of these people actually reach retirement during these economic crises and wind up selling at massive losses to hedge funds that actually have sizable cash positions going into these recessions, the same hedge funds that get first notice of impending crises, selling their own massive positions that exacerbate the drop.
Economic policy is complex and affects most Americans (not just disgruntled low level employees), requiring good faith actors to avoid the massive bubble currently inflating.
3
It sounds as if the Congress should quickly(sic) bring back the Glass-Steagall Act. They never should have gotten rid of it.
And while they are at it another WPA for Infrastructure projects to pay people a decent wage and get really back to working one job with results that are needed.
The last Great Recession was really a Depression, but no one wants to admit it, at least not anyone who was in power.
Next, the Congress has to get rid of the onerous Tax Reform bill that has so has robbed our Treasury of much needed revenue.
Then cut back on privatizing of what rightly is and should be run by the Government, such as prisons, Social safety net programs and cut out those companies who are doing the third party work that used to be done by Government workers.
Furthermore let the Post Office open up a bank, which was proposed by the Postmaster General a few years back.
Stop financing wars that have not chance of being won or we shouldn't have gotten into in the first place
Our out of control Capitalistic society is what has caused all this harm. And I believe in Capitalism and profits, just not in what it now has become. People having to work 80 hours a week for meager wages. Even those making a decent living, if they divided the hours they worked into the money they earned they would soon figure out not only are they not making what they thought they were for time spent, but it might help rebuild family relationships and stability.
Do something sensible please.
15
@Jean In order to do something sensible we will have to vote a woman into the presidency. Warren/Harris 2020. And by the way, thank you for being the one commenter with practical suggestions.
3
@Jean Good luck with that. Glas-Steagal was repealed in the Senate by a vote of 98-1-1. Half the members of Congress are entwined with the financial services industry. In my state (CA) both Speaker Pelosi and Senator Feinstein are married to hedge fund managers, and up until several years ago, Congressmen/women were exempt from insider trading laws.
5
@Jean It's not just out of control capitalism, it's a dysfunctional political class, with an irresponsible corporate class, and an electorate that does not vote in their own best interests.
5
Always interesting to read these articles that never mention Canada or the Bank of Canada, despite the fact that (a) we had virtually no downturn in 2008; and (b) our then Governor of the Bank met with American bankers to explain how our banks remained unscathed and was drummed out of the meeting because American bankers refused to even consider the regulations governing our banks. It might be a good idea to write an article about that.
19
Regulation is an illusion. You don't have to look very far to see that every single provision that is in place to deal with problems of all sorts has been corrupted. Look at Flint Michigan. There were clear unequivocal regulations that required corrosion control chemicals to be added and they weren't. Then when it was discovered that they didn't have corrosion control they did nothing because it would be an admission of failure. The banking system is no different. It still relies on people following the rules and trump has made it blatantly clear that you don't have to follow the rules.
7
In the long run, governments and central banks cannot do nothing for the people that the people are unwilling or unable to do for themselves. The generations born since the end of WWII in the liberal democracies have brought this upon their themselves.
2
On a fundamental basis, growth is population growth plus productivity growth-- you don't grow "faster" unless it is at someone else's expense, or unless wages grow faster than productivity providing more buying power. Inflation can give the illusion of what one can call fiat growth; fiat units are more numerous but the value is less, net result null. OECD population is flat and wages certainly are not increasing and even fiat derived inflationary growth is low despite poor fiscal policies particularly in the United States.
This is the Goldilocks Zone. Why change this? Why reduce financial system regulations to ... what? Make a few more billionaires? Why increase fiat inflation to a higher level, because a few academic papers claim 2% is the magical inflation number despite where we are now? Gradual adjustments by central banks is needed as time passes, and preparations for the inevitable upset caused by parochialism and greed is needed, but making systemic changes in the Goldilocks Zone is likely hazardous to your personal financial health.
4
@MH Goldilocks is on a collision course with climate change. We need a declining population and slowing GDP in order to meet the challenges of a warming planet.
1
Of course they are up. Banks and corporations have had free reign. There is no substantial regulation of corporate conduct or corporate greed.
Our “leaders” have sold us out for their own greed.
7
For the past 7-8 years, every financial guru has looked into their Chrystal ball and declared ‘Odds of recession increasing!’ ‘Growth is slowing!!’ ‘Deep signs of uncertainty!’ ... and been dead wrong. Yet the news media continues to report their proclamations, and obfuscates further by attributing the inevitability to some bogeyman for everyone to agonize over. I guess it drives clicks / sells papers.
The financial emperor has no clothes. With everyone making predictions all the time, eventually someone’s will be spot on, and we’ll celebrate him/her for their wisdom (eg John Paulson) until they continue making bets and inevitably fail to replicate their luck (eg John Paulson).
4
The Trump tax cuts were a stimulus spike for short term bragging rights. The Trump tariffs paid by US consumers are massively destructive to economic growth. The Trump geopolitical arrogance is disturbing. The Trump pressures and criticism of the press, the Supreme Court, the Fed, the DOJ, the FBI - it's all simply exhausting, every day is a sickening drama show. The global uncertainty of what's coming next from Trump is destabilizing. Of course there's going to be a Trump recession!
There's no other possible outcome.
33
Re : And the Central Bank’s are not ready.
1. The authors underestimate the inventiveness of the Central Banks, After inventing QE they are now inventing ways to make deep negative interest rates work, From the IMF blog, ‘Cashing In: How to Make Negative Interest Rates Work” 2/5/10:
"a recent IMF staff study shows how central banks can
set up a system that would make deeply negative
interest rates a feasible option.”
https://blogs.imf.org/2019/02/05/cashing-in-how-to-make-negative-interest-rates-work/
Re Deflation and Japan. The GDP per capita (slice of economy per person) grew faster in Japan, 2001 to 2008 under deflation, than the GDP per capita , under the housing bubble and inflation, Much of the misinformation on Japan is due to Krugman who failed in his analysis to adjust for demographic changes and finally apologized (NY Times, "Apologizing to Japan" P.K. 0/30/2014)
In the defence of the Central Banks one can argue, as Blanchard does, that the Central Banks acted where politicians failed. However, sometimes the
cure (a sequence of bubbling blowing , the tech bubble, the housing bubble, the stock market bubble, each to cure the collapse of the previous) is worse than the disease.
2
Thanks for this upbeat news today as I shuffle off to work realizing I spent a bucket load of cash on a new condo that will most surely drop in price in a big money way with a recession. Have been waiting for the economy to tank for 10 years before this purchase. Sigh .......
1
The key words in an economic downturn is CONFIDENCE...….and DISCIPLINE. Does AMERICA have that now?
1
In the USA, a downtown will be extremely profitable for billionaire clowns like Wilbur Ross & treasury secretary Steven Mnuchin - who both made billions buying assets for pennies on the dollar during the last downturn. They bought many of their assets from taxpayers.
The biggest mistake by the Obama administration was to hold no one accountable for the pyromaniacs who torched the economy the last time, and who then who’s friends bought the assets on the cheap while millions of Americans got wiped out.
5
I’m sure that Ivanka and Jared have all answers and solutions.
5
Its time to put some % of your portfolio into cryptocurrency. I have already.
2
@John S.
Cryptocurrency will be the first to collapse heading into a recession. Why? Because there is absolutely nothing backing it up at all.. not currencies, not commodities (other then the cryptocurrency itself). The traditional safe haven is precious metals commodities.. as they have real intrinsic value in industry beyond just investors claiming it is a hedge to inflation and other economic pressures (it's not. Gold has been touted since the 1970s as the salvation to runaway inflation... yet has never effectively served such a function.. not even during the period of hyperinflation of the late 70s.
Cryptocurrency exists for one reason... to hide assets or to make trading them invisible... hence they are a tool in the toolbox of the wealthy.... and everyone else sticking their foot in them will pullout a badly injured foot.
3
Thank God we elected a Democrat in 2008 to clean up the financial disaster of the Republican administration under Bush. Obama saved us and the world from the greatest economic collapse since the Great Depression. Now the illegitimate Republican president in the White House is once again destroying our economy and will likely take the world down with us. It will truly take a miracle to save us from Republican destruction this time around. Every Republican needs to be voted out of office for the survival of our country.
11
America’s budget deficit is on track to surpass $1 trillion this year, thanks to reckless Robber Baron Republicanism that loves to spend like a drunken right-wing 0.1% sailor.
The time to raise taxes is when the sun is shining...now.
Most of the world refuses to tax the rich its fair share, preferring to let the filthy rich stash their $30 trillion in offshore tax havens outside the reach of civilization.
The world needs higher tax rates, particularly on the rich and ultra-rich who treat tax codes like thugs pounding a parking meter with a baseball bat.
The top 26 wealthiest people own $1.4 trillion, as much as the world's 3.8 billion poorest people.
This kind of math requires adjustment in the form of a wealth tax to help society cope with destructive vulture capitalism.
Human greed is a serious mental disorder.
Taxation treatment is available.
80
Germany is actually still experiencing the lowest unemployment rates in 39 years. (https://statistik.arbeitsagentur.de/Navigation/Statistik/Statistik-nach-Themen/Arbeitsmarkt-im-Ueberblick/Arbeitsmarkt-im-Ueberblick-Nav.html)
3
The Economist got it right when it said that "America and China are at each other's throats, but also in each other's pockets." Trump's tariffs and trade wars are hurting the world's two biggest economies, raising the specter of global recession. And our $1 trillion budget deficit, caused by his idiotic tax cut for the rich, leaves us ill prepared to deal with it. Wake up GOP, your wrecking ball is bad for business.
6
It's obvious that Christine Lagarde should listen to what Ivanka has to say on this problem.
Ivanks's expertise is not limited to shoes and handbags and world peace. She can ask Jared to get some money from Mohammed and save us all.
4
More loans and grants to poor black people to buy housing as Harris proposed, will keep the US economy going no matter what happens in other countries.
2
@Richard Winchester
You have to be incredibly careful about this. It was weaponized last time.. against lower income Americans and was designed to drain them of everything they had.
Easy credit access in the housing finance markets.. was a major contributor to the great recession of 2007-2009.. precisely because loan providers stopped managing risk and simply started writing 100% 0-down loans for homes, with flexible interest rates with poison pill rate increases buried inside them. They made it so people who could not actually afford to buy a home... suddenly qualified due to artificially low starting interest rates with huge rate cap increases in subsequent years.
3
WE NEED A STRONG FED. The handwriting is one the wall, as it has been for quite some time. Trumponomics is an unfair, unstable, unsustainable atrocity. For those who remember 2008 and the ensuing recovery, our Fed saved us (along with Sheila Bair and the FDIC who sounded the alarm early but was unheeded) with the help of Obama's wise policies.
Trump, of course, disagrees as he would if Obama had cured cancer. Without arrows in its quiver, the Fed has little power to ease the effects of a recession. Our overheated economy cannot sustain this artificial pace - the pace that Trump lauds as his and his alone. Were it not for Obama there would have been no upward curve to continue through the past 2-1/2 years. It also has already cost US $1.4 TRILLION in debt to pour lighter fluid on a hot economy, artificially making Trump's policies look great to the ignorant while overfilling the coffers of his rich friends but not the average American.
WE must be prepared for the inevitable. Trump is timing his manipulation to try to carry him though the 2020 election, then all hell will break loose. It's NOT THE ECONOMY, stupid!
7
@RealTRUTH
We do need a strong central bank.. precisely because the federal governments fiscal restraint is almost non-existent.
That said... we need a SMART central bank even more.. one that has embraced what has worked in the past and avoid what has failed in the past. Timely and thoughtful action by the FED is one of the smartest things they can do. Inaction, or notable delay in action... as history has shown.. is a ticking time bomb that will explode with fury after some time passes.
1
"Fed officials say they are prepared to revive large-scale bond-buying programs to stoke economic activity when the next downturn comes."
Wow. $4T sitting on the Fed's balance sheet that they cannot unload and they say they are ready and willing to buy more? At what point does the central bank of the United States of America lose credibility? $5T? $10T? The Federal Reserve has become a giant vacuum cleaner for bad paper.
9
@rls
It's not bad paper.. because it is backed by the full faith and credit of the US.
Soaked up long enough.. by enough debt holders though... and full faitn and credit of the US becomes 2nd class in world financial markets... and that would mean irrecoverable federal debt due to resulting premiums on interest rates (or in the case of Treasury notes.... sold at steep discount just to get buyers).
Why is inflation good for me?
I never understood why should prices be always going up and why is that good policy . And why is this never questioned but always reported as if it is the holy grail.
The mandate of the Fed is for ZERO inflation not 2 or 3 percents , such inflation will double price levels in aggregate every generation, this is not price stability by any means. Fed is clearly operating outside their mandate and has become politicized by choosing to punish savers and favor debtors.
Inflation is theft by other means , counterfeiting currency out of thin air to bail out failed institutions and individuals or support ineffective government spending while we get to compute and work hard for our dollars is a crime. The Fed is not the solution, it is the problem.
7
@Memento mori This is the actual Fed Mandate: “To promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.” Stable prices does not mean 0% inflation, nor historically has it ever meant that. Furthermore, there are 3 common reasons the inflation target is positive, not zero: 1.) Statistically speaking, inflation data is often an overestimate, and the true, underlying data is closer to zero, 2) Inflation and interest rates track together, so positive inflation leads to steady growth in interest rates, which allows the Fed to respond more forcefully with cuts during recessions, and 3.) Moderate positive inflation is better for the economy than persistent deflation, which harms debtors and compels workers to save rather than to spend, and can lead to a deflationary spiral. The Fed thinks about the economy on a national level, not the individual level, and persistent 0% inflation would be more likely to harm the economy in the long run compared to persistent positive inflation.
15
@Memento mori
You are asking the wrong question.
The correct question is.. what is the impact of negative inflation (ie: deflation)? For any given individual the answer could be... "nothing" directly. However.. for the economies we all as individuals rely on to buy/sell goods and services suffers tremendously under stagflation or negative inflation movements. It does not have to be this way, in theory, but in practice.. this is exactly how it is and is bad overall for everyone.
Economies under stagflation or worse simply fail to grow, and that results in loss of jobs, inability to repay debt (even if it is held a very low interest rates), and economies spiral into decade long doldrums and people suffer because of it.
2
@Memento mori
In layman's terms....Inflation is intentional so that people don't just squirrel away their money. Inflation, the rising cost of goods and devalue of the dollar, forces people to spend their money and invest if they want it to retain value. Without inflation, no one would have any incentive to pull money from their savings and inject it into U.S. businesses. It's the little guy that forces the average person to take a little risk with their money, because the fear of now not doing so means they're losing value. The economy needs to be stimulated daily with new capital. While there is much corruption in our current world, the basic concept of inflation is what keeps our country and economy churning. In terms of how it's good for YOU - well, you live in a country that recycles its money into it's businesses which SHOULD make the country more prosperous. I agree, in our current state and unequal distribution of wealth this isn't helping the average person like it should be. But ultimately, the confidence to invest in our country's businesses is what helps America be arguably the best place to DO business in our world.
3
"Central bankers have a favorite mantra: Patch the roof while the sun is shining."
And politicians have a favorite mantra too: While I'm in office, let the good times roll...."
20
@Virginia
Something like, "Take credit for the sunshine and give out giant contracts to my cronies to fix the roof."
6
The solutions require changes in fiscal policy. Briefly, Germany needs to run a deficit not a surplus and the US must stimulate investment via public infrastructure programs while clawing back the $1.5 Trillion tax cut.
9
@van schayk
That would be a good starting point. Not sure it applies to every nation though.
Well - duuuuuhhhhh! Only been saying this for the past year. A 4th grader could have predicted this.
Oh, but central banks are ready for a global recession. They already went on gold shopping sprees before using dovish speeches to drive up prices. They’ve helped erode the backstops of “non-banking” financial institutions used by the Big Banks to offload “nonprimes.” And, we’re now seeing more relaxed lending practices targeting bottom-of-the-barrel borrowers whom will not have their unmanageable debts inflated away once unemployed and paying more for basic staples. Vulture capitalism’s greatest strength is in asking us to believe that everyone is hurting at an even pace.
4
GDP (Y) is defined as [Y = C + I + G + (X -M)]; where: C = Consumption spending; I = Investment spending by businesses, G = Government spending, and (X - M) = (Exports - Imports). In the US, Consumption spending makes up about 70% of this GDP.
During the first quarter of 2019, rising equity prices provided a robust source of funds for consumers to spend. During the second quarter of 2019, this growth in equity prices slowed. Thus, the ATM provided consumers by rising equity prices will have to be replaced to maintain the first quarter's GDP growth rate of approximately 3%. Also, new G, or Government spending, was partially financed by significant growth in capital gains at both the state and federal levels during the first quarter. This source of funds acted to reduce the deficit and provide a source of additional fiscal stimulus that should have declined in the second quarter of 2019 in the US.
Policymakers, possessing asymmetrical info, are able to fine tune fiscal and monetary strategies instantaneously in anticipation of future events. Increasing levels of stock buybacks give corporate managers greater control of their own equity prices. In the US, tighter regulation by the Fed and other agencies of financial institutions have avoided many of the problems of accounting for sovereign bonds, and other issues, that many European banks may be vulnerable to. After 120 months of continuous growth, the economy may need a break.
7/9 Tu 10:40 am Greenville NC
2
Question...I recall from my econ classes that inflation is caused by too much money chasing too few goods. One way more money becomes available is through low interest rates, but Japan is already negative (mind blowing!) and the USA has little room to drop. The other way is for the Government to simply print and spend more money, on say infrastructure. What's preventing that and the benefits it would bring?
2
You give the money supply story. There is also a input factor supply story. As economic growth picks up, higher demand for capital and labour drives factor prices up and in turn producers are incentivised to raise prices to cover higher costs. The problem with printing money is that it’s not ‘real’. It would just push prices up and potentially harm economic growth.
2
@BD:
You may enjoy reading a recent column in The NY Times Digital issue from June 15, 2019 titled: "When Dead Companies Don't Die" by Ruchir Sharma. In his analysis, Mr. Sharma adroitly and incisively addresses many of the topics you raise in your own insightful response.
John 7/9 Tu 12:19pm Greenville NC
2
I like the idea of reducing income inequality and putting money in people’s hands who will spend it. But with consumer debt at record highs, any additional income will go to paying down that debt, not buying things. That doesn’t stimulate growth. The problem is bigger than we think given the amount if individual and corporate debt.
9
@HeyJoe
While what you state makes sense.. it is undercut by the fact that many consumers don't actually try to pay down debt until it is too late and they are drowning.
A large number of consumers, when handed some cash.. rather then save for a rainy day, or pay down their debt loads... they instead double down and spend it. It does not help that the government actually encourages them to spend rather then save or pay down personal debt.
Until there is a systemic approach to encourage consumers to save and remove personal debt loads.. nothing changes.. and banks.. certainly don't want people paying down debt and they have huge lobby presence in Washington to help get their needs/wants positioned for top priority.
@HeyJoeNot to mention Government debt.
1
The older I get the more obvious it becomes that economists are clueless. They have no better ability to devise effective policy than ancient oracles. And like ancient oracles their vague pronouncements reflect the wishes of their patrons.
12
@David
I think this is a case of you blaming the wrong parties here. Your issue is with elected officials and their policies and the fact that they largely ignore economists unless it suits their political narrative. In other words.. all things economy... has been hijacked by partisan politics.
Economists analyze and advise... but cannot actually do anything directly other then try to influence better fiscal policies by governments. But for every sensible economist there is an nonsense one waiting to pitch whatever message politicians wish... to further deflect and confuse.
Good i hope it is a deep and long recession for the GOP supporters to feel it. Since 1945 there has been a major recession in every Republican administration and they keep getting voted in. Sick. Maybe this time with us loosing the trade wars will be the end of fake economics theories every thing for the rich which is the ideology of the troubled GOP.
28
@D.j.j.k.
It will only hurts blue collar republicans. Wealthy republicans actually flourish in a long protracted recession because they use stored wealth to buy everything up for pennies on the dollar from distressed businesses and consumers.
Besides.. everyone else who is not wealthy... regardless of political affiliation... they suffer too... often badly.
2
The world is awash with liquidities, but all these liquidities can't be put to productive uses, otherwise the interest rates would be high not low. In fact, the highest yielding investments currently are speculation (shares, real estate, art...), donations to political parties or top notch universities (to curry favors, lower your taxes or get your kids in) and mergers/acquisitions to create monopolies.
Why would anyone want to take risks and invest in RD (never sure it will work), when so much money can be made the other ways?
The only path to reverse this situation would be to give the middle class some purchasing power back. But this would require breaking up monopolies and reinforce redistributionist policies (healthcare, higher taxes for the rich...).
For now the only candidate i've heard about that really has a plan for all this is Elisabeth Warren.
62
@SJP
This is a direct artifact of wealth accumulation by the top 1%. They hoard wealth on the sidelines and sit out every responsible act to actually invest in and help a nations economy thrive.
Robber Barons 2.0 in action.
1
Central banks are not the power they are thought to be. The massive intervention and the tepid recovery are proof. Their permanent intervention has now emasculated them for future dealings.
The MASSIVE tax cuts in the US prevented investment. Investment is the only thing that will help when the looming recession kicks in with a deadly impact.
Remember, in 2008 the climate emergency was still on the horizon, now it is impacting us at over 500Billion a year and soon well more than that.
This next recession ...the Great Panic and Migration.
10
The title is misleading if not totally incorrect. The correct diagnosis is that governments are totally unprepared for global recession risks and the central banks unfortunately do not have the ability to combat a crisis even if they make maximum effort.
That said, our Fed was tone deaf to the market, particularly there cerebral bond market expressed its displeasure before the last rate hike. The Fed has been slow to reverse that error.
The real problem is the world economy has been more fragile than American optimists have realized. A Trump approach has to be heavy handed, ignoring the diminished state of the world economic stability compared to pre-2008. Trump's goal was a good one but he lacked the ability to bring others along to help arrive where we hope to be.
Though this article states that a global recession is not inevitable, I would have to disagree. The president is too focused on winning against China to realize that he is helping to accelerate a general decline in which there will be no victor. That obliviousness to his own inabilities will allow him to say with honesty that it was the fault of others, if they had listed to him it would all have turned out better. My response would be if he listened to others and brought them along, the crisis conditions would never have materialized.
7
Any argument that states that Trump can say something with honesty is to be instantly disregarded.
29
The central bankers were a major enablers of the crisis in 2008, and their response was even more catastrophic.
All those dinosaur academic economists failed to understand the profound structural changes that were underway in the global economy. They assumed the world works like those silly, utterly useless economics textbooks say it does, so they implemented 20th Century solutions to 21st Century problems.
And that's why they've been repeatedly "puzzled " and "perplexed" ever since.
They spent trillions of dollars to rescue and painstakingly restore a fundamentally broken economic model, much to the detriment of future generations, and poured fuel on the already raging wildfire of inequality to the point where it has reached society-destabilizing levels.
It will go down as one of the most reckless and irresponsible policy responses in economic history.
25
@TB
This analysis is completely backwards. In Europe, the ECB at first refused to pursue expansionary monetary policies, while also refusing to allow expansionary fiscal policies in the PIGS (Portugal, Italy, Greece, Spain) nations -- and they suffered deep and very long recession, just like the textbooks you deride predicted. In the US, on the other hand, the Fed pursued a very aggressive expansionary monetary policy, including two rounds of quantitative easing (Fed buying up financial products, such as mortgage-backed securities). We also had an expansionary fiscal policy in the form of the American Recovery Act (the "Stimulus"), although it was half the size recommended by "textbook" economists. And we recovered from the recession MUCH more quickly than the Europeans did. It was a massive natural experiment whose results totally vindicated the textbook, Keynesian approach.
20
@Rachel Kreier
And it is about to blow up as the Ponzi scheme they created, which has distorted Capitalism beyond recognition, collapses.
And our quick "recovery" has been so wonderful that we elected Trump in 2016.
Our economy is broken.
We need to re-architect it to align it with 21st century realities and the Digital Revolution, which will dwarf the first and second Industrial Revolutions, quite soon.
The opportunity cost of wasting the last decade on Centrally-Planned accounting gimmicks will be staggering.
And bloody. Very, very bloody.
2
@TB Actually, it was those experts, particularly Ben Bernanke, Hank Paulson and Tim Geithner that saved the world economy. (And incidentally, managing the American/World economy is NOT as simple as you suggest)
It was American leadership at its very best. The rescue of the world economy was coordinated brilliantly by the world's central banks led by the US.
However, the big question now, is whether the world follow American leadership with Donald Trump in power. Sorry America, but if you put a complete imbecile in power to run things and muck things up, don't expect much cooperation from the rest of the world. This, by far and away, is the greatest risk to world political and economic stability going forward.
Donald Trump has been a wrecking ball, destroying relationships and confidence in America with America's most important Allies. Until you get rid of him, America is NOT secure. Quite the contrary.
6
Let's clear one thing up. The idea that the federal gov has to pay for things, good & bad, with taxes or borrowing is just plain wrong. That's "kitchen table" economics
The gov doesn't need your money. It can (thru the FED) create as much as it needs out of thin air. Just think about where money you pay your taxes with came from in the first place. Unless you have a printing press in your basement, it originally came from the federal gov.
But there's a catch. If the gov needs to create too much money to do
the things we want it to do, we may not be able to make enough stuff
to soak that money up & will have too much money chasing not enough
stuff, i.e. excessive inflation. This is rare & is usually caused by
shortages, e,g, of oil.
But that's easy to solve & where taxes come in. Taxes allow the gov to take back the excess money & prevent inflation. The purpose of taxes is to adjust the amount of money in the private sector. The more we can produce, the lower taxes can be.
So the way to run things is to spend money to facilitate production. Tax cuts do this, but in an inefficient way. If we cut Daddy Warbuck's taxes, he does not need to spend the money; he uses it for financial speculation. If we cut poor Joe's taxes, he spends the money on stuff--food, house paint, etc.etc. This promotes production of food, etc.
Even better if we pay Joe to fix a bridge, the money still gets into the economy, AND we get the bridge fixed.
43
In short, governments may have to actually act and put in place policy rather than relying on the magicians sitting in central banks.
The article would do well to mention the role of demographics in developed economies (Ie. Increasingly older) as a headwind to inflation. Old people spend less money because they are on a fixed income. Japan, example, which is not only old but could do a lot more to encourage women in the workplace, would certainly help with productivity and growth.
4
It is not the central bank's role to prevent recessions. Their role is to preserve the banking system. It is the role of the fed gov to prevent recessions & depressions.
What has happened before & during each of our 6 depressions & what happened in 2008 & 2009 shows how this works.
Before each of our depressions & 2008, there was a period during which money flowed OUT of the private sector. In the 6 earlier cases it was because of a period in which the gov had surpluses, it taxed (which took money out), more than it spent (which sent money to the private sector). In 2008, from 1996 to 2008, except for a brief period in 2003, the trade deficit, which took money out, was larger that the fed deficit which put money in, net.
In all of the cases, private debt exploded. Banks lent out way more than they had in reserves. In the case of the depressions, we did not have a central bank able & willing to pour zillions of dollars into the banking system to save it. In 2008, we had the FED that did just that saving us from a real depression, but it wasn't pretty.
What we should do is clear. Except in very special circumstances, we should have fed deficits large enough so that enough money is sent to the private sector net to support commerce in a growing economy.
This should not only be done AFTER a recession has happened, but, if it is done BEFORE a recession, why, their won't be a recession at all.
BUT to support commerce, fed spending must get to the people who will spend it.
6
@Len Charlap The FEDS job is to support the stock market. It might have been implicit before but it is clearly explicit and focused since this past December.
4
@Len Charlap
In the United States, by law, the Fed has a dual mandate -- to promote price stability AND full employment. (The ECB only has a single mandate - price stability. That's part of the problem in Europe.)
3
@Louis J - I trust you are being sarcastic. But look Louis, the FED really has no way to get money to the people who need it directly. It can only get it to the banks. And the banks only want to lend it to the rich who use it to speculate and we get a booming stock market, and a slow economy.
13
"America’s budget deficit is on track to surpass $1 trillion this year, and some lawmakers are already looking for ways to cut, not add to, federal spending."
How about looking at ways to roll back the ruinous tax cuts to the wealthiest, so that we can afford more spending on infrastructure, reducing government debt, etc, which will help offset the impending recession?
67
It is time to face the truth: low interest rates depress economic activity.
Why is this? Low interest rates allow investors to make money through financial manipulation, rather than by running businesses and selling goods and services. This leads to stagnation, as the existing real economy is frozen and new competitors don't enter the market. Zombie companies are kept alive by cheap financing, allowing them to operate at a loss for years.
Japan has been experiencing this for 20 year or more. They have rock-bottom interest rates, and have engaged in huge fiscal stimulus. This has made the yen carry trade their biggest industry.
29
@Jonathan
It's much more complicated then you are portraying it.
No single aspect of financial control within economies represents the total cause of liability or malfunction, any more then there is any silver bullet one move tactic to help a central bank help and economy stabilize and remain stable.
1
Why is it that in article after article about the risks of a downturn and why everyone is “stumped” about why world wide economic growth isn’t stronger, there is no mention of wealth inequality?
The United States added nearly a trillion dollars to the debt last year, CEO pay continues to increase by more than 10% per year, while Netflix, Apple, and Google pay nothing in taxes, and the median American wage is still in the toilet. How is this a mystery to people who supposedly went to the best business schools in the world?
When people don’t have money to spend, they can’t buy the things that drive the economy. It really is as simple as that. Give one CEO a billion dollars, and they shove it in a bank. Give 100,000 people each an equal share of a billion dollars and it’ll drive double digit economic growth.
This isn’t rocket science. BUT, as the old saying goes, “It is difficult to get a man to understand something, when his salary depends on his not understanding it.”
Central banks, economists, and politicians don’t want to start taxing the rich, and passing policies that will truly reduce wealth inequality. Because then their billionaire friends will stop donating to their pet causes or campaigns. The whole system is rotten to the core!
162
@Austin Ouellette - You have the right idea, but the problem of inequality has NOTHING to do with the national debt. If federal spending gets money to the people who need it and will spend it, rather than the people who do not need it and will speculate with it, then the federal deficit is not only good for the economy, but it is necessary to supply the money we need to conduct commerce in a growing economy.
7
@Len Charlap
How do you figure that wealth inequality has nothing to do with the national debt when the national debt is paid down through revenues collected via taxes?
I agree that deficit spending in order to get money into the hands of consumers is not only useful policy but is also humanitarian, but that’s not what happens in reality. It’s fantasy. When the banks got bailed out in 2008, they continued to wrongfully foreclose on veterans’ homes (see the lawsuit against Wells Fargo) while at the same time they used their bailout money to load up on more debt without investing anything into real American’s pockets.
Wealth inequality has EVERYTHING to do with the current economic uncertainty and the low economic growth across the world. Like I said above, this isn’t rocket science. It’s very simple. When all of the money is held by 10 people, there’s no currency velocity, and no economic growth. If that same money is split equally through the population of a country, you get 1990s expansion.
17
@Austin Ouellette Neoliberalism started about 1980 with Reagan and Thatcher and their ilk.
The idea of All money and power to the elite is now firmly in place.
The elite are not worried about the next downturn/recession/panic....it is an opportunity for them and a disaster for the 99%.
25
No one wants a recession in three quarters. But if it helps usher Trump out the door - bring it on.
43
Small price to pay to get him OUT!
1
Here's a fiscal policy that would work if we hit another deep recession in 2020: Turn the 2017 tax cut inside out. Raise taxes on the top 20%, and use the money to provide infrastructure investment, creating jobs for the 80%. Throw in some tax cuts for 80%. The middle class people would immediately spend it, creating a flurry of economic activity. Of course this is politically impossible when the top 20% literally own the government.
127
@Ken L
The problem with your proposal is that that's not how the capitalist system should work.
Capitalism is the system where value that self-valorizes reign. It is using money to generate more money (for yourself, an individual).
There's no such thing as a collective wealth: each person engages each person as independent, atomistically separate individual in the "free market". What happens to the other individual doesn't matter to you.
If you interfere with individual wealth, you're violating the capitalist system, causing it to malfunction.
1
@Ken L, Check out the actual data on US income distribution by household. You'll find that raising taxes on the "top 20%" would hit more "middle class" Americans than "wealthy" Americans. But most of the increased tax revenue would come from the wealthy, anyway, so the net effect would be to penalize the middle class -- needlessly. Yes, the US income distribution is THAT skewed.
@VK, You're joking, right? The United States isn't a capitalist country -- it's got more in common with organized crime than with actual capitalism (sensu Adam Smith). "Capitalism" is merely the lie told by the wealthy/powerful to the rest of us, to keep us fooled.
4
“While the Fed is in comparatively good shape because it has gotten rates off rock bottom — they’re at 2.25 to 2.5 percent — that leaves it just half as much room to cut borrowing costs as policymakers had back in 2007.”
Ever consider that high rates helped cause that crash in the first place?
1
@Jay Lincoln
Or consider that low rates caused the bubble that led to the crash?
10
@Jay Lincoln NO, useless, exploitative financial engineering caused the crash. Exploiting home mortgages caused the crash. Neoliberalism came home to roost.
It is too bad the Republican party gave into Trump's penchant for creating a lot of debt---it may work in real estate, but, it remains the silent killer of economic growth.
33
@Amanda Jones - Private debt (household & corporate) is bad because it puts stress on the banking system. BUT public debt is necessary because that is how money gets from the printing press to us so we can conduct commerce.
Just remember that the federal government will run out of money the day after the NFL runs out of points.
3
@Len Charlap
The Fed will run out of money the minute foreigners don't want to buy U.S. Bonds, Len. That will occur when two things come to pass: the reserve currency status of the dollar weakens and an alternative low risk investment emerges that can beat the return on Treasury bonds.
With digital currencies developing and treasury bond rates on course to continue dropping in order to keep juicing the economy, it's only a matter of time before these things come to pass. It will happen because you'll never find a politician with the guts to tell people the truth that they got robbed by the generations of people that came before. People that wanted a constant state of bloated budgets to feed their pet projects and continue to prop up a bunch of crooks on Wall Street that ran around telling people to invest their money in the baseball-card trade that is the stock market.
All this done on the alluring promise that the largest sector of a society could kick back and not work for the last two to three decades of their lives while they live a life of independence rather than expecting a continued need to stay close to and be useful to their family. It was a dumb idea in the first place and it's not working out too well already. Give it a decade.
2
@Edward - The FED doesn't need foreigners to buy bonds. In fact, when they do buy bonds, that money goes to the Treasury, not the FED. We could run the country without selling any bonds to the public simply by creating it out of thin air. If inflation seems to be rising too much, we could then tax some back.
But if we spend the money so that it increases production since prices are inversely proportional to production, we will not need to tax very much.
3
The president apparently wants the Federal Reserve to cut interest rates when, by measures that exclude the economic health of the majority of our population, the economy is technically "booming". He wants to do that to goose up the performance of the financial markets in the run up to the 2020 elections. But, by doing so, he would be encouraging the Fed to give up one of its key weapons in an economic downturn--the ability to significantly cut interest rates to promote growth. If the rates are cut now, while the economy is strong (at least for the wealthiest part of the population) then the Fed will not have many interest rate "bullets" left to deal with the eventual downturn.
But the president does not care about that. He only cares about taking a kind of economic drug to improve his short term chances for re-election. He does not care about the future of the country. Is it just me, or does that sound like an economic form of treason?
90
A rerun of the 1930's awaits us. The Central bankers acting as "lifeguards' begs the question: Who will save the lifeguards?
17
The behavior of the ECB in 2008-10 mirrored the 1930s to an extent, but just to an extent. The Fed certainly behaved far differently. Hence, the US economy began to grow and picked up steam two years before Europe. Europe did learn, however, backing off austerity measures and instituting Keynesian monetary approaches before it was too late.
The issue isn’t who will police the central banks, but will the US Federal Government have the political will to cooperate with them by instituting real fiscal stimuli when things go south.
4