Corporations trying to undercut small businesses by selling products and services below their true cost in order to increase market share are the ones who will be hurt in the event of a pullback in the availability of credit . This could help small businesses although the public will pay a little more .
If antitrust laws were enforced though, these corporations wouldn’t be trying to be a monopoly in the first place and people wouldn’t need to suffer through so much of a boom and bust cycle
I see that the wealthy have been planning a recession(just like in the Crash of 1929). Who developed the plan and what do they hope to accomplish? That's what I want to know. They pulled out their money in 1929.
When I shop for groceries now - I notice a rise in prices - some rather substantial - I really don't care what the inflation numbers show - real inflation is a great deal more than 2%
7
Causes assigned to recessions are fraught with hindsight bias. The true answer is usually “all of the above” plus several factors no one even considered. Markets are cyclic. Another cycle will occur. That covers everything rational that can be said about the next recession.
2
The problem with this analysis is that it does not consider the consumer and working people of this country. It is a top down description of possibilities that seems to ignore the over extension of personal debt and the precariousness of individual workers trying to survive in an economy less and less friendly to them. The things companies make must be affordable to those who must buy them. An economy based only on the top 10 percent and ignores the burdens to everyone else is at risk of a crash and this includes the burdens of the elderly who often can not afford the explosion of rents and the cost health care not covered by Medicare which itself is at risk of collapse.
8
Politicians and economists love mentioning the GDP when touting economic growth. It is a measure of economic activity, reflecting drug deals, corporate deals, and the purchase of multi-million dollar luxuries as well as the spending of the average American. There is no correlation between GDP and our overall well-being. Please find another anachronym to reflect how 90% of us live.
5
It appears to this reader that the Republican mantra of regulations being bad for business, the consumer and the economy is in fact quite the opposite, a lie. Every meltdown I have witnessed S&L scandals, deregulation of the financial sector and repeal of basic, protective legislation has in fact resulted in catastrophic losses borne by the public whether it be job losses or bailouts.
The best and lowest cost, in the long term, for the American public and economy would be to put the GOP out of office since the have proven themselves ill-equipped to be representatives of the public good.
13
What will cause the next recession is uncertain. What is certain is fiscal and monetary policies will be less effective addressing it with debt at 100% of GDP and real fed funds at 0%.
5
The premise that the high risk trade war items would be taken off the table is questionable given the apparent irrational behavior routinely demonstrated by POTUS. There seems no limit to his willingness to win at all costs.
3
Student loan debt may also be a driving factor as many 25 to 40 year olds cannot get mortgages,their parents may help but such help endangers their credit. I am happy economy is showing signs of life but student loan debt is an underlying sign of weakness that may effect the housing industry.
11
This is truly rich.
The party that looked at a DJIA around 18000 when Trump defeated Hillary told us that the economy would go through a disaster immediately.
Instead, the DJIA is 25-to- 26000 and the Nasdaq has doubled since American workers won the elections. But now the party outlets want to jump past all the money building up in 401-k's and learn to fear what MIGHT happen.
No, progressives, if you WANT a recession or worse, all you have to do is elect Democrats to high office. They will slow down the economy immediately and double the debt like it's a religion to them.
Nothing else is as clear a difference between the parties today as which means happiness for workers' families and which will blow up the power and control of our corrupt federal overseers.
Well I suspect a recession will come because of Trump's irresponsible handling of the economy specifically the trarriffs. The damage will ripple through the economy and hurt us all.
8
To all those making posts here, we're talking recession not depression. Take a deep breath - recession is as inevitable as rainfall. On the evidence, however, one can argue that it may not be deep and it may not be long lasting - now - breath out.
1
A recession is imminent. Whether it's in 6 months or a year. The real issue is, how prepared are we to mitigate the effects. Trump is spending our rainy day fund now, by running a overly stimulate fiscal policy. Interest rates are also low, so monetary policy is limited. Our tool box is empty, and idiots are navigating the ship of state.
8
Good job, Neil
1
Good summary. This is like weather forecasting - reducing a greater set of uncertainties to a smaller one - and there is great value in that.
A possible early sign that things are changing: A slowdown in housing markets. Volume is slowing faster than price, but volume usually precedes price.
3
We’re really sorry the sky isn’t falling, but American business owners (myself included) are working hard to innovate and grow, adding new jobs — with good benefits— as we go. We will work around Chinese and European tariffs as best we can; they’re a painful but necessary correction.
Here’s what we won’t be doing: Obsessing about partisan politics. Let’s dial back the hysterics and get on with it.
7
Tarriffs (trade war) and debt. Yup, that's it.
2
The tax break was badly planned and timed to give welfare to all the rich who don't need it and the workers by taking it are only making the next recession coming more painful. The Catholic Church and evangelicals all get yearly tax breaks for their churches and that is just unsustainable and needs to stop for the survival of the country. A country that does not collect taxes ceases to exist.
17
Thanks, Neil. But the Traitor Trump Mob will blame it on the Democrats. Especially since they have neither sufficient intelligence to understand this article, nor are they Times readers.
11
Wile E. Coyote is in the Oval Office.
Manage your portfolio accordingly. His next bankruptcy includes us.
26
Capitalism is intrinsically unstable depending as it does in the confidence of the value of assets. This confidence is like ether: not describable and not directly measurable. It, however, leaves its mark in the credit markets. A reduction in "confidence" results in higher interest rates and a reduction in asset values and thence a reduction in economic activity.
In the early 20th Century and even more so since WWII it became politically intolerable to have the economy and the living standards of the now wide electorate held hostage to this ether.
Enter the activist FED!
Mechanically through its open market operations the FED is able to impact interest rates independent of any other factor. As has often been pointed out nearly every recession has been precipitated by the FED's action in the prevailing state of confidence of the day but that the impact of the FED's action is transmitted through the prevailing financial structures of the day built on that state of confidence. High confidence results in rickety structures!
Interest rates are rising but it is unclear whether the FED is yet a Leader rather than a Follower but there are undoubtedly rickety structures, in corners of: corporate debt, emerging market debt, real estate debt, consumer debt and local government debt.
The FED is on track to raise short term rates at a 1% per year pace. In terms of percentage change this is high and we are already flirting with an inverted rate curve.
DANGER!!!
2
Time to read or reread Henry George’s classic Progress and Poverty (1879). Still true.
2
Wages are stagnant. Period. More and more people are shopping thrift stores, yard sales, etc. Bartering. Working for cash. It is an unintentional resistance to the inequality and greed. The bottom half are slowing realizing they are living in a Depression. What happens next is anyone's guess. Perhaps looking back to history may give some clues.
19
Too many two handed economists for me. It ends when in ends. Everyone of these experts will claim they saw it coming, though none of them will.
1
Recently Wall Street said Trumps major recession is soon.
With Trumps making America great again failing with all these tariffs with Europe and China getting worse this will be a major and long one and the GOP supporters will Reap what they sow.
2
What about good old fashioned escalation of the trade war? China decides to stop buying our debt ... then imagine the debt auctions start seeing less and less buyers until 2 buyers are left looking at each other wondering who will be holding the bag?
What's America's biggest export? Surprise surprise it's debt!! far and above anything else. all USD are born into existence thru debt.
And probably because of debt our economy will be less likely to sustain growth as we become enslaved to the banks. Follow the yellow brick road ...
6
Agree with the comments that say the consumer has been left out of this macro analysis. I think we may have won that race to the bottom. Full employment? Yeah, but student loan debt, grown children living with their parents, workers getting only minimum wages....where’s the buying power? Low interest rates....aka, price controls for the stock market ( no competition for investors, so forced into a risky market for returns above 1/2% ...for years now).
Price controls have an end. Call it inflation, call it alternative safe investments, the massive forced infusion into this gambling market will end. The search for higher returns...now aimed at high risk options, will have a safe, CD, T-bill, T-bond outlet. The market will crash. And the cautious FED will get the blame. Raise interest rates faster...now. A gradual rise, along with increasing wages, may- may- provide a softer landing. Yup, just a layperson’s opinion. From the bottom.
4
@Len Charlap , Joseph McCauley author of his upcoming book "Detroit's Grand River & Greenfield Neighborhood" to be out on October 22, 2018 told me "I would have liked to have less facts and more nostalgia."
Thank you, Len Charlap, and I looked up the definition of "Bank Run" at various sources. One definition at https://www.investopedia.com/terms/b/bankrun.asp
Reminded me of the 1946 movie "It's A Wonderful Life" starring actor Jimmy Stewart as character "George Bailey" and actor Lionel Barrymore as character "Mr. Potter".
https://www.imdb.com/title/tt0038650/?ref_=nv_sr_1
Another great analytic piece from Irwin.
2
"Pop Goes the Debt Bubble" - said China when they accept that busting USA debt will hurt us more than them.
5
What will cause the next recession? Two words: Donald Trump.
15
This cycle repeats itself with every Republican administration. The Republicans rush to deregulate and build a "pump and dump" economy
where their cronies can pump the wealth out of the nation and leave the broken pieces for the taxpayer to clean up. We have seen this pattern over and over since the 1980's...yet the American people still fall for the Republican siren song of tax cuts every time. I'm 47 now and here's what I have to say about my fellow Americans...if they are too dumb to see the pattern over and over, and only care about themselves and paying as little in taxes as possible, then they deserve a bubble economy that bursts and wreaks havoc with their lives at regular intervals. It takes sacrifice and thinking about others to build and maintain a nation, we lost that ethos the minute Reagan got elected.
23
I’d suggest you rename this space The Downshot, as the nattering nabobs of negativism so often inhabit it.
The economy is growing, strongly but sustainably. Unemployment of the willing is nearly nonexistent. American manufacturing, in particular, is expanding, giving those on lower economic rungs the chance to climb upward.
Geez, lighten up.
2
Reason 1: I
Reason 2: Me
Reason 3: Mine
Even those tears...
4
If you believe in Wall Street -- a good solid recession would result in a buying opportunity!!
I personally detest this latest bout of laissez-faire capitalism. It doesn't matter what happens to the workers so long as the investors realize a profit. I also detest the garbage economy -- everything a throw-away.... and everywhere.
I am well acquainted with many of the struggles of my fellow Americans... in Appalachi, in the Rust Belt and frankly sick of there not being enough WELL-MADE affordable housing. Another institution that would bode well for the future of one and all IMO would be FREE online law school.
This is all nonsense in the end. Most people will be fine -- but some will need help -- and the problem really is distribution -- so much goes directly into the garbage --- food, clothes, furniture, you name it..... There is no reason that people do not have semi-decent lives....(altho what that might consist of needs definition.)
4
The Trade war Cometh is in my view the single most potentially recession generating issue out there today. Irwin's interesting analysis fails to recognize the fact that the US has been importing deflation from China for over twenty years. If President Trump goes ahead and imposes 25% tariffs on $200 Billion worth of Chinese goods, the effect on overall inflation could be massive. We need to remember that Inflation does not respond to math alone, it is also driven by expectations, and these would change dramatically if a 25% tariff scenario becomes reality.
1
I think what some will find surprising is that many people do not realize that there has been an expansion. Lots of people are still struggling like the recession never ended.
8
"The economic expansion in the United States celebrated its ninth birthday last month. If it survives another year, it will be the longest on record."
Most interesting is that it took Bush II eight years to kill the Clinton expansion with its first time ever consecutive budget surpluses. It took Obama eight years to get the US to recovery from the GOP Great Recession.
With massive military deficits and debt, tariffs pushing $1T and reduction in Wall St financial regulations, Trump is pursuing the same GOP policies that caused the last Great Recession.
How long do we have?
2018 Trump
2017 Obama
2016 Obama
2015 Obama
2014 Obama
2013 Obama
2012 Obama
2011 Obama
2010 Obama
2009 Obama
2008 Bush and beginning of GOP Great Recession.
14
I don't think we're going to a see a (mild) recession until Democrats are forced to actually fund our Medicare and Social Security programs with higher taxes on the rich and cuts to defense spending.
A sustainable deficit trajectory will lower interest rates in the long-run and reduce the risk of fiscal crisis, two huge positives for the economy. Securing those two big programs will also ease concerns for vast parts of the population. However, the transition may cause GDP growth to be negative for a couple of quarters.
The economy has historically performed better under Democrats, in terms of GDP growth, job creation, and stock market returns. Clinton balanced the budget for four years and the budget deficit was back to the historical average as % GDP by 2014. Voters should remember that.
14
If you wanted budget surpluses, then you would have voted for Hillary as Democrats under Bill Clinton managed to reverse the years of Reaganomics deficits for the first consecutive budget surpluses in the US.
SS and Medicare never contributed to US deficits or debt and still have a $2T surplus before we need to raise SS and Medicare taxes. About 2035.
Current $20T debt is due Reaganomics over the last thirty years, tax cuts for the rich and over spending on unproductive weapons and oil wars.
30
@EaglesPDX I graduated to the Reagan recession - NO JOBS. so don't BS me about how great Reagan was, He was just another trickel down jerk, give money to the rich and to the military., te workers can be screwed....I was there..NO JOBS.. The reagan recession. 1986 1987 et al..You can look it up.
4
@EaglesPDX
Social Security: The government spent the Trust Fund money, so we either raise taxes and cut spending on defense now or we have $3 trillion in borrowing to do before 2035, as we replace the Trust Fund IOU's with real debt.
Medicare: Already partially funded by tax dollars, so not quite the same as Social Security. It's already adds to the real debt.
We agree that tax cuts and defense spending are most of why we have a $20 trillion debt.
1
The recession will be slow rolling this time. All sectors will be effected in one way or another. High interest rates will slow borrowing...people will pull their money out of stocks and squirrel it away for safe keeping in low yield CDs and cash, and the over built "bust response" real estate market will go though a shake out. Apartment building construction will stall as a result and current inflated rents will decrease 30% or be frozen for three to 5 years. In the boom markets ( SF,Oak, Portland, LA and NYC) this is already happening since no one can afford to live close to where they work.
Employment will go though another round of reductions. We will be back at 5-7% unemployment. If a new POTUS gets elected and reverses Trump's interim delusional stuff we will correct much more quickly....reinstate old tax rates, close coal mines, invest in natural gas, and put people back to work on infrastructure across the country....financed by the US Treasury....
8
@Harley Leiber
"If a new POTUS gets elected and reverses Trump's interim delusional stuff we will correct much more quickly....reinstate old tax rates, close coal mines, invest in natural gas, and put people back to work on infrastructure across the country....financed by the US Treasury...."
In other words,: we elect a Democrat!
I think the situation is even more dire than Irwin describes.
The cyclical economic pattern tends to be that the longer an economy expands.
Inflated stock market prices and over-investment in high-end urban real estate stimulated by zero interest rates are the next bubbles waiting to burst.
Lower interest rates and tax cuts have been used in the past as tools to minimize a recession and to promote a recovery but they will not work this time because they have already been used to fuel the current economic growth.
Irwin does not discuss the global debt of countries which is also at astronomical levels or potential panic caused either by expanded war or a climate catastrophe.
My underlying concern is what I call a “Crisis of Over-Capacity,” a chronic problem with global capitalism. The world today has the ability to produce far more goods than people with money can possibly use. Companies and nations with state-directed economies have invested in productive capacity that they can never utilize. Essentially, those investments, fueled by zero-interest loans, are worthless, and these companies and national economies (China?) could fall like a house of cards. While the stock market bubble was the immediate cause of the Great Depression, an underlying cause was over-capacity and worthless investments. That round of over-capacity was “resolved” by the immense destruction of World War II.
15
What will cause another recession as in 1973 or an outright economic Depression as we recently had is oil prices going out of control over night.
I remember in 1973 when gas prices doubled over night. Then President Nixon or anyone else in government did nothing.
Worse in 2005. Gas went from 80-something cents to $4 a gallon in a short while. Businesses couldn't afford to ship items at a reasonable price. The price of anything plastic went way up. The recreational boating industry came to a complete stop.
The recent Depression might not have happened if people could have afforded energy. I can't imagine why so many so called "economists" completely ignore this fact.
Speculators should not have such control on the price of oil. And domestic oil prices should not be tied to some vague numbers dictated by 3rd world countries.
9
@mrmeat Perhaps more thought and planning should go into alternative energy. Our government's current policy of seeking new oil fields and rewarding producers is short sighted and will not benefit most Americans, just the oil companies. The permanent destruction of the land is a high price to pay for a temporary independence from foreign oil. As soon as I can afford a new car, it will be electric.
1
The next economic catastrophe will result from a single cause with multiple dimensions. The cause is president Trump's drive to erase or negate the legacy of his predecessors, principally, Obama. Actions like negating the Paris Climate agreement, or the Iran Nuclear accord, or the Affordable Care Act drive and amplify instability and decrease the trust value of the U.S.
As an example - the Iran Nuclear accord was an integrated package incorporating a comprehensive sanctions regime built by the Obama administration in 2009-2011 with a mechanism for rewarding Iran for complying in the Iran nuclear agreement of 2015. Trump has chosen to retain the sanctions regime but to negate the reward mechanism. Now, he says he is ready to talk with Iran with no preconditions. But Iran's nuclear capacity is an international matter, not a U.S. - Iran bilateral issue. Trump has nothing to talk about with Iran other than bilateral issues unless he first engages the Security Council. There is zero likelihood of SC backing for Trump in this matter. They would say - start from the Iran Nuclear accord because that was backed by the UN. Trump's economic war against Iran can destabilize the country, but without UN backing it has no possibility of success with the continued decline in the trust in the U.S. The value of the U.S. brand is being decreased, eventually weakening the capacity for economic deals at all levels despite the underlying strengths of the country.
20
An important, basic problem of the United States economy is stagnation of wages for about the bottom half of the country. While the top 50% of the families in the economy are doing fine; the bottom forty-five to fifty percent of the families in the economy have not seen a real increase in income in about 30 years. It is reported that about 45% of the people in the country could not raise $450.00 if they had an emergency without borrowing or selling something. These people live paycheck to paycheck; if they have a health emergency or divorce or other crisis it could be catastrophic. Many families that once were counted as middle class are slipping into lower class as salaries for many groups such as teachers are actually being cut because salaries remain the same but costs for health insurance continue up.
There were many factors which led to the Donald winning the Presidency but a major one was this problem of economic insecurity/income stagnation. The question is how to deal with this situation. The Donald and the republicans have pretty much ignored it other than to blame immigrants, free trade, etc. They have no clue how to deal with income stagnation. The democrats have and would spend more money on education and retrain the laided-off and left behind. That had a mixed record when it was tried.
When (or if ) the economically insecure realize that the Donald can't help them, who will they turn to?
17
@Aubrey A major problem is that neither party has a good solution to the problem of stagnate wages. The democrats proposed the infrastructure program which the country has needed for 20 years and which would provide jobs for construction type people. And they would continue retraining and encourage education.
But nothing really constructive will happen because Congress (other than cutting taxes for the wealthy and confirming reactionary judges) is pretty much dysfunctional.
The democrats would like to see a second FDR. But remember that FDR was an unusually good politician and leader. And he had huge democratic majorities in the House and Senate. At one time in the 1930"s the U. S. Senate was about 70% democratic. That is filibuster-proof Senate.
So we may have a democratic president after the Donald but expect Congress to remain divided and, as far as constructive legislation goes, pretty much dysfunctional. (As an aside, if Hillary had won in 2016 we would have better judicial and cabinet appointments, but she would still be obstructed and blocked at every turn by the republicans in congress.)
I enjoyed Neil Irwin's column. As I see it the economy is pretty much on automatic pilot -- except for a little input from the FED. The Donald doesn't have a clue and he refuses to deal with people that know anything.
18
@Aubrey et al
A 3rd problem, the result of may shortsighted decisions over time, is thateven when some manufacturers are looking to hire skilled workers, the underemployed or unemployed in the US do not HAVE skills needed. It's a result of failing to provide genuine high quality "trade" education across the country, or understanding that intelligent, technologically skilled people we necessary - and may end up with better jobs. than by going the college route. And that is related to a failure of national commitment to education, of the sort that developed in the late 50's . ( and also of the idea that an academic education was the only route to support, and that standard old style manufacturing would go on forever)
[ And Donald doesn't care about this, which is why DeVos is in his cabinet)
5
@cheryl Good comment, I agree completely.
The news gets worse and worse and certainly the recently passed tax plan will have a major effect.
Returning good judgment and common sense to the government would be a start.
13
We almost certainly would have gone into an ordinary, not severe recession, if Clinton won. But income inequality puts a lot of economic leverage in the wealthiest pockets, and Trump's election pushed them to expand. Tax cuts pumped money into the stock markets. It's all supply side stuff. Because of that, an ordinary recession is avoided, and instead we'll get a severe one, a little later.
There's a regular, cyclical cause of recessions. When better companies have been thoroughly recognized, money flows into less healthy firms; eventually the market falls and separates them. Workers grow out of old jobs and move into new ones, where they're initially less productive; if that's driven by tech or culture, it'll depress output for a year or two. Experienced older generations retire and are replaced by the inexperienced young, which happens over a decade, and also reduces productivity. Population bulges pass from periods of high consumption to low.
Lower productivity from generational shifts takes it's toll on output, which will become too obvious to ignore. Ditto secular change in consumption. When that shows up on bottom lines, the market will fall, taking down all. Unfortunately, today's irrational exuberance means it'll fall farther, harder.
Inflation, however, is another thing. Many people would laugh at the CPI, when they fork out huge increases for health care, college, and homes.
3
@Brian ~ You wrote: "We almost certainly would have gone into an ordinary, not severe recession, if Clinton won."
Why do you think this? Willing to share your thoughts?
1
Although only 8% of the US economy may be attributed to trade, that does not mean it is insignificant to economic stability. Trade represents true and traditional value creation such as agricultural commodities, natural resource extraction, manufacturing. The trillion dollar valuation of Apple, an example of imaginary value creation, will not last if there is a recession in the heartland and industrial mid-west. Trade underpins the entire economy, just like economists have been telling us in lectures, interviews and textbooks for decades.
Government spending, G, may decrease a little as well as some self-inflicted decline in net exports. Business investment may not have much more room to grow as we approach the end of the credit cycle and as the bond yield gets inverted. This will make it harder for banks to lend profitably in the short term.
Consumption by households will be constrained by medical costs (a bubble that will pop someday), student loans, high rents, and another overvalued housing market in the wealthier regions.
The problem is stagnant wages not keeping pace with inflation. More people are entering the job market for now from a reservoir of discouraged job seekers. The newly hired will increase their consumption and boost GDP. Eventually that pool of workers will dwindle and wages will hopefully increase with the pace of inflation.
In the real world wages will not increase with inflation except for the new hires, the people who move companies. Most companies will offer raises a point or two below the rate of inflation to give the appearance of wage growth.
This subtle wage deflation while raising their prices to match the rate of inflation reduces C in the GDP equation. The majority of the workforce will reduce spending over the next few years and that reduction will most likely be on their basic healthcare. This decrease in consumption will force businesses to lay off employees and those laid off employees will drastically reduce their spending forcing us into a recession.
4
The GOP tax cuts for the rich were extremely badly timed as they basically kick in at a time of close to full employment and rising inflation. Add to that the current "tough on immigration" policies and we will be looking at serious labor shortages. That will further increase inflation. The feds will have no choice but to increase rates, and precipitate the debt crisis. The trade war will pour gasoline on the fire if Trump actually "wins" it. Without a trade deficit there will be no foreign costumers for our treasuries - further putting upward pressure on interest rates.
7
It appears that most recessions are somewhat based on previous greed. I am not saying greed is good or bad, just a fact.
Where is someone or industry making a bunch of money?
The last recession was based a least on part of all the money being made writing subprime mortgages with high up front costs and high refinancing cost so they could be sold at a large profit.
Everyone was making money until they weren't.
So where is the easy money being made right now?
4
@altair
College debt.
$1.5 Trillion, and essentially non-dischargeable in bankruptcy.
The retired CEO of Sallie Mae built himself a $30 Million, private golf course.
The Department of Education makes $50 Billion a year in profit from college debt.
College debt is now bigger than credit cards or auto loans. It is the single biggest form of consumer debt other than mortgages.
The official default rate on student loans is about 13%. And that is the official number that the government admits to. It does not include any loans that go into default 3 years after initial repayment begins. The real, lifetime default rate is approximately 35%.
Credit card debt, at its worst times, has a default rate of 4%.
11
But according to Donald Trump, the expansion only started January 19th. Of last year!
7
It's cyclic. Let's talk about what might make the sun rise.
4
Once its clear that China will not be backing down, and that they have zero intention of reworking their economy to suit Trump, and that Americans are taking the bigger hit. Are not in any way truly up for or financially prepared for deprivations, begin to see their farms, and small factories start to fail...what then?
More billion dollar "hold on tight, I know what Im doing" bailouts? Will Trump demand the release of the millions of tons of stockpiled foods, etc...to ease the pain? Or will he double down?
Compounded by the EU and Asia Pacific nations, maybe throw in South America, Canada making deals without us, and thriving as a result....
Personally, I think Trump and his bloated ego are our biggest threat and likely cause of the next recession...
23
@Boregard
In other words, President Xi is such a hard core Marxist that he will gladly pull down his country rather than to admit market reform.
2
@Boregard
And that ego is being nursed by the likes of Hannity, Sanders, Bolton, Kuldlow, Conway, Kelly, Pompeo, Nunes-compoop, Jordan, Giuliani, his kids of course, all his hotel, golf course staff...
Bigly enablers...
2
This article should have been much shorter and more concise. The 3 most likely causes of the next recession? Trump, Trump, and Trump.
30
Giving huge tax breaks to corporation that really pay no taxes. The repatriation of $$$ to the USA is yet one more fraud brought on by Trump. The huge tax breaks given to Trump's million and billionaire buddies help deplete our economy. The idea that the rich pay 0% or take refunds is stomach churning.
Not paying in to fire..police..road work and all sorts of tax funded projects make Trump happy, after all he brags that not paying taxes is his goal.
The whole idea stinks...Make The Pay! should be the chant! MAKE THEM PAY! Fair sharing of taxes is patriotic.
21
Dear Sam,
the rich actually pays most of federal taxes in the U.S. It's the bottom half of the population that doesn't pay anything in federal taxes.
1
@liberty . . . That MAY be true for income tax, but it is definitely NOT true of FICA taxes which are limited for the wealthy, while paid on 100% of lower wage people's taxes. When you make a goofy Fox News/Talk Radio statement like that, you are ignoring FICA, which for many people (including self-employed me) is MORE than my income tax.
2
If we ignore discoveries in the field of medicine, we put our health at risk.
If we ignore discovery in the field of economics, we put our nation's economic health at risk.
President Obama understood this and left office with little risk of his economic policies, developed with reliance on giants in the field of economics.
President Trump understands nothing other than lining his pockets and those of his cronies, and playing to his political base, which has placed our economy on the road to perdition.
30
Whatever the actual cause of the next recession, if it occurs during Trump's reign, rest assured he will blame Obama.
33
@mjbarr
Right. Or he'll blame any or all on the list of scapegoated suspects: Hillary (and the emails of course) or the 'hateful' press or the (minority) Dems or his advisors or the "biased FBI" or Kim or Mueller or the "coffee boy" or . . .
1
The basic flaw in US economic policy is entanglement of fiscal and monetary policies to perform the orthogonal functions to maintain stable yield curves on loans, and maintain full employment of labor, with the "dual mandate" to the Federal Reserve Bank, to do both by tinkering with interest rates, which by its very nature disrupts yield curves.
6
@Steve Bolger
No, the basic flaw in U.S. economic policy is the failure to prioritize the financial prosperity of Americans beneath the wealthy producer classes. A few of our Founding Americans feared something like this might happen.
30
Every bull market ends in recession and every recession since 1975 was triggered by an oil spike of 80 % or more year over year. So if oil prices rise above $95 in the next year a recession is likely in 2019/2020.
13
The factors examined here are all deemed of insufficient strength to burst the economic bubble. However, we live in a multi-factorial world where it's not always just one cause, but a combination of them. That's commonly referred to a the "perfect storm" explanation where a number of separate events converge or co-occur to produce a catastrophe. That's the scenario that is most likely. As with the multi-factorial perfect storm of 2008 that produced The Great Recession we have some of the very same factors at play in financial deregulation, a huge tax cut with more being floated by the Treasury Department, and instead of a mortgage crisis we have a combination of a debt crisis and a trade war. And with North Korea violating its promise to denuclearize maybe even an Iraq War there or with Iran. The "wild card" here in all senses, of course, is Donald Trump. Will he escalate the trade war with China; will he feel betrayed by North Korea's Kim Jong-un; or will he with his neo-con advisers John Bolton and Mike Pompeo be drawn into another even more major Middle East war with Iran? So, there's a lot of uncertainty with an erratic, impulsive President ready at any moment to push the pin that will burst the bubble.
7
There is a factor left out of this discussion. Something we likely never considered in the past as a threat to our economy. We are learning now that Russia has made strong inroads not only into our election process but also into the grids of our major infrastructure. If applied, this would cause chaos the likes we have never seen before. Including to our economy,
I may sound like an alarmist. But we need only to look to the heretofore unimaged consequences of Putin’s success so far in undermining our democracy to understand his ability to do the same to our economy. Especially when, by most accounts, he is pulling the strings of our Executive branch.
31
@Jane Harris You may be right. But if Putin "pulls that trigger" the bullet will undoubtedly ricochet and kill his economy too.
2
@Jane Harris
This is crazy. Now Russia will also be responsible for the next economic crisis. The media has converted Americans into zombies.
2
@Jane Harris
You do sound like an alarmist, for good reason. Putin can’t fix his own economy, but you think he can derail ours?
Debt, debt, and more debt. Weaken the protections afforded consumers, as Trump & Co. are now doing, loosen regulations on banks, and borrow a trillion dollars a year in federal debt, and both consumer and the government will find themselves in deep trouble shortly. Interest rates on mortgages and credit cards will go up, and having given a tax cut already, Republicans will have no stimulus at their disposal to boost the economy in a downturn.
Americans seem to forget this lesson every so often: the Republicans have a knack for ruining the economy—Hoover, Nixon (sky-high interest rates in the 70s), the end of Reagan (savings & loan crisis in the late 80s), Bush (the collapse of the housing market) all caused severe downturns as a result of their laissez-faire philosophy.
30
@Wilton Traveler The "tax cuts are free money" fallacy follows from belief that someone else will do for profit the things with distant future payouts that government does because it doesn't make decisions based on discounted present value.
5
@Wilton Traveler- This is what we get EVERY time with the Republicans. They literally scream in the streets about debt and deficit non-stop while Dems are in. But when the GOP gets back in, they explode the debt beyond all reason by instituting tax cuts that aren't balanced with spending cuts, or worse, putting wars on the credit card. Like Reagan and W before him, Trump is now blowing the national debt out of the water. And not a peep is heard from the Tea Party. Next step is they use the debt created by their tax cuts on the rich as an excuse to take our Social Security and Medicare. They will both ways . . .
1
Interesting and informative article. I think there’s also a fourth possibility: There will be major political instability in the US and/or a major geopolitical crisis. This will be exacerbated by Fearless Leader’s response, leading to substantial economic and financial instability.
24
"The question is which of them will grow into a problem big enough to matter."
Perhaps this is better stated not as "which" but "how many" of them. Many of the world's great human-caused setbacks occur from a confluence of problems, a bad storm caused by several ominous precursors. They may all matter.
6
Donald Trump will wind up being the Herbert Hoover of our time.
Other than the much needed trade Trump is now pursuing to re-establish a home based manufacturing economy, there will be little to blame DJT for when the next economic and market crash comes. Both crashes are going to be massive. As the sitting President, it will rightfully fall on Trump to bear the blame for the whole mess that will ensue. God help us as to how he reacts.
Yet, in the long run, it will be best we can have happen to him, the Republican Party and America. It will be creative-destruction not seen since the Great Depression.
The real question is - who among the Democrats will rise to meet the ensuing crisis? As it is, none of the ‘leaders’ in the Democratic Party - not Warren, not Cuomo, not Biden and certainly not Sanders - have the gravitas of a FDR to step in and step up to what will be needed.
The best hope - Republican governor of Ohio, John Kasich.
8
@Common Sense, Oh no, not another visionary who purports to have insight into the mind of the eternal Republican on the far side of the sky who allegedly plays with Earth as a bad child toasts ants with a magnifying glass.
3
@Common Sense
Nope. Need someone younger. Think Joe Kennedy or Beto.
You are right, however, about the all hot air and no action Bernie and Warren, self-aggrandizing DINO Cuomo, and BAPCPA Biden.
And don't even get me started on Booker or Harris.
2
@Common Sense I wouldn't even have hope for any person from either parties. To me the end is near for this two party system.
Rising interest rates leading to a slowdown in home and auto sales will likely be the culprit for the next recession. As borrowing costs rise, demand for big ticket items will suffer as well as equity purchases from people who like to buy stock with borrowed money. Rising interest rates will also negatively affect people with student loans. As their payments rise, these people will have less money to spend.
A trade war won’t affect the economy much. Tariffs are just taxes. The tax money collected by governments is still spent on goods and services. It’s just the government doing more spending rather than consumers.
But, you shouldn’t worry much. This economy has a lot more room to run. People are way too pessimistic right now and that says to me that a recession is nowhere in sight.
1
@Mark
Rising interest rates are a good thing for conservative investors and seniors, who have been subsidizing dept-prone risk-takers for the past decade. When short-term bank CD rates return to at least 5%, which was a historical low, perhaps then there will be some incentive for young people to save their money long-term, without the high risks inherent in the stock market.
3
The immediate cause of all of our 6 depressions and the Great Recession of 2008 was too much private debt--the sum of household debt & business debt.. Nouriel Rubini & Ann Pettifor independently predicted the crisis of 2008 based on the explosion of private debt.
Too much private debt means that banks are creating too much money in loans wrt their reserves. In 2007, the big banks had 27 or 28 times the amount in outstanding loans as they had in reserves. As in the 6 previous depression, the banking system cannot support such a level of leverage. We would had had a 7th real depression in 2008 if the FED had not poured TRILLIONS into the banking system, but it wasn't pretty.
Go to https://tradingeconomics.com/united-states/private-debt-to-gdp The column graph that comes up shows that private debt came down from 2009 to 2013, but has been rising ever since. If you set the range to max, you will see a line graph that shows the huge rise in private debt from 1996 to 2009. I think the next recession will be caused by the rise in private debt starting 2013. BTW if you look at graph on slide 6 at https://www.slideshare.net/MitchGreen/mmt-basics-you-cannot-consider-the..., you will see that the private sector balance declined (i.e. private debt went up) before each recession from 1952 to 2008.
The reason for the increase in private debt has usually (always?) been a decrease in the federal deficit which sends money from the federal government to the private sector
8
@Len Charlap Let me clarify the last sentence. When the federal government spend, it send money FROM the government TO the private sector. When it taxes it, does just the opposite. The deficit measures how much money flows FROM the federal government TO the private sector NET of taxes.
4
Ah the old GDP ruse. Averages and aggregates...where aggregates hide nuances, esp.of income inequality, and averages...well they dont tell us much at all. What good is an average, really?
Income inequality is completely ignored by the GDP hawks. To their own demise. It is and will remain a critical issue, economically and politically. Both of which are completely ignored by the GDP. The Boom ain't being experienced by the vast majority of Americans, and that hints at disasters on the horizon. Which Stiglitz and Sarkozy effectively explained over a decade ago. The expert opinions are being viewed as deceptive, which the anti-democracy folks are using to their benefit. "You're being lied to! They failed you!"
Plus the GDP only measures physical production, as it was born in the days of our huge physical production industries. Not the currently dominating service economies. Where's health care? Where's the metric for all the services that now serve so many sectors,and employ so many?
Even Kuznets the "inventor" of the GDP metric, never thought it was a good enough measurement to rally around. It does not measure the actual wellness of an economy. Wellness of the general health of the nation. Which is why we have the Trump Circus offering to add more toxins toan environment already awash in them. What politician would sacrifice GDP to something as better health care, or cheaper goods? (Despite the fact there are millions of pounds of stockpiled foodstuffs around the nation.)
4
Wasn't Trump supposed to invest in infrastructures instead of tax cuts... ?
Hopefully, Democrats will remember all the forgotten promises Trump made for midterm elections.
12
I'm sorry Mr. Irwin but the three possibilities that will cause the next recession are Donald Trump then Donald Trump and finally Donald Trump.
7
Why did we fail to predict the Great Recession? In great part because we relied on static models. We failed to simulate the behavior of key players and missed crucial levers and leverage. Trump’s toxic mix of perverse fiscal, trade policy and fractious geopolitics is unprecedented creating a degree of uncertainty and paralysis that may in itself be sufficient to precipitate a global recession.
5
Quick Answer. Republicans, Republicans, Republicans.
8
Excessive Greed and a Republican in the Oval Office. As usual.
15
This Time is Different... Reinhart and Rogoff wrote an excellent book covering 800 years of irrational exuberance in economics, investment and finance.
Although Nassim Taleb names the Beast, (the dreaded Black Swan) the crash is a set of events discerned but not understood.
First, worldwide industrial capacity to manufacture microprocessors and phones to autos, aircraft, satellites and spacecraft has never been this great.
Ever.
Second, robotics and AI are dislocating workers and eliminating jobs around the globe. Australian mines run with robot trucks. Japanese medical professionals are displaced with AI and automated attendants.
Mechanization eliminated family farms, and robotics eliminated factory jobs. 880,000 men mined coal in 1933 in the US, but we mine the same amount of coal with 70-90,000 now.
Who would you like to blame for that?
Third, investments managed by third parties are prone to gaming the system, and skew investment decisions in directions that run counter to the interests of both their investors and their investments.
What is to be done?
I don't know.
9
@UTBG
It's an interesting economic puzzle... and the solution may well involve more entitlements -- guaranteed basic income, medical care, etc. for part of the population. ( How many children should a pair of humans have???? ) It may well be ugly -- as more and more dislocation occurs. The rich IMO add nothing to the economy in most cases. The wannabees are encouraged and shouldn't be. I would like to see an end to the garbage economy and all kinds of other silliness.. but no one care what an old lady thinks. How should one live one's life? How should one spend one's $$? How many beggars from the ones on the street to the NFPs can one endure? Does Pope Francis have any answers??
Behind the scenes there are rumbling of amending our Constitution to favor a system of government controlled by oligarchs, like Russia. This would have to be approved by a Conservative Supreme Court, which Trump and the GOP know quite well. Debates about Economics are just a diversion.
6
Excellent article. However, history also provides guidance in the 1937-38 recession.
4
The corporate tax cut was said to increase investment in the US economy. What have the increases been and are they, so far, as great as was promised by Trump? We all know how much of the cut went into stock buy-backs (helping Apple to get to $1 trillion mark?) that have increased stock prices. Have average wages increased, or is it only corporate bonuses that have grown? How much of the 4.1% growth in GDP is invisible to middle America except in the news?
17
@Dick M
The story is always the same. Corporations get tax cuts, say they'll increase wages as a result and the invisible worker ends up getting nothing.
17
It will be the stock market, and it could happen this fall. Facebook showed what can happen to a stock with an earnings miss. The market seems to have managed a drop of $100 + billions in Facebook stock value, in one day. But if this happens not only to Facebook, but also to Google, Apple, and Amazon, the stock market is unlikely to recover, and the predicted recession will begin.
5
Wasn't it the Federal Reserve the reason there was a Great Depression? I wasn't born yet. I was born in 1954. The baby boom generation. After WWII and what became a win for America. But after Vietnam there have been many wars including Vietnam War that did not bring our economy up to par after WWII. I'm not saying that we should have another. A WWIII. But the next war may be a war like the Civil War during President Abraham Lincoln's Administration. If only President Barack Obama could have been President for a third term. He could have been recognized for a (MBA) Master of Business Administration degree. Still could. But now we're heading into what I see as a conflict of interest with President Donald Trump. And there are two years left until the next President election in 2020. In photos during the Civil War in the United States it looked bleak with how people lived. It hit home among the north and the south and how we survived with our economy. Maybe that's one thing to look at. We did. As we did with the American Revolution. But who is going to be around to reap the benefits and what class of people will be strong enough to survive?
@Joanne Rumford - The Great Depression was caused because the federal government had surpluses from 1919 - 1929, i.e. it taxed more than it spent. Thus money was sucked away from the private sector. This forced people, businesses, and state & local governments. to borrow huge sums from banks. The banking system then had too much money in outstanding loans wrt their reserves.
When people, etc. tried to get their money out of their banks, the banks simply did not have enough (see "bank runs"). Unlike 2008 when the banks similarly had too much money in loans, the FED in 1929 could not pour money in the system to save it because we were on the gold standard. The banking system failed, and a little while later people began to live in tens on the Mall.
3
@Len Charlap , Joseph McCauley author of his upcoming book "Detroit's Grand River & Greenfield Neighborhood" to be out on October 22, 2018 told me "I would have liked to have less facts and more nostalgia."
Thank you, Len Charlap, and I looked up the definition of "Bank Run" at various sources. One definition at https://www.investopedia.com/terms/b/bankrun.asp
Reminded me of the 1946 movie "It's A Wonderful Life" starring actor Jimmy Stewart as character "George Bailey" and actor Lionel Barrymore as character "Mr. Potter".
https://www.imdb.com/title/tt0038650/?ref_=nv_sr_1
@Len Charlap, Sorry, I meant "live in tents on the Mall.)
Forgot to mention the possibility of a purely political crisis, such as attacks on the Federal Reserve, or the dissolution of NATO, or a Russian move somewhere like Turkey or the Baltics, or chaos in the Arab world disrupting the oil supply, brought on by Trump's incompetent meddling and paranoid fantasies.
7
You talked about asset bubbles and debt bubbles but you forgot about political bubbles or “The Trump Bubble”
One thing all bubbles have in common is the language used to describe the “investment”. Sayings like:
- “Its a game changer”
- “Things are different this time”
- “You’d be stupid to bet against this”
- “Look at all the naysayers the said it couldn’t keep going up”
- “It’s unstopable”
That is the same language describing Trump (and Republican dominance) and he has been tied to the current economic successes (“The Trump Bump”)
Well a wise man once said to me “if a trend can’t continue it won’t”
Just listen to the language and you’ll know a bubble when you hear it...
6
The fact that Repubs couldnt get an Infrastructure plan together when they control all 3 houses of govt and interest rates hovered around 0% is just utter malfeasance.
20
Whatever role our president might play in setting up a recession, expect Trump’s actions to mysteriously align with Putin’s aim to knock America off its perch.
5
Given Trump's propensity for breaking stuff, going bankrupt, and undoing everything his predecessor did -- just because he's bitter and can -- I'd say another colossal failure is on the horizon unless #46 can step in quick to fix the mess Trump created. Fixing stuff has never been one of Trump's abilities. It's impossible to fix stuff in a state of chaos, as we've seen.
And, as some commentators have already expressed, most Americans are not witnessing this "gangbuster" economy you speak of. Perhaps you are one of the few who actually believe government statistics on unemployment and wage growth, therefore ignoring your own eyes.
15
Or maybe it'll be all three—plus the addition of something even worse that the unpredictable moron in La Casa Blanca and/or his economic brain trust does.
4
Unnecessary federal tax cuts and stupendous (and stupid) over-spending combined with rapidly rising interest rates on the national debt.
16
@Me
And these people are the experts making decisions for all of us. You'd think with all their experience as economists, they would have figured how the economy works by now. We know why it doesn't work: inflated stock market, inflated housing market, too much corporate debt, low wages.
5
@D: Economists are not deciding this; our oligarchs are. After the crash they will want to buy, for pennies on the dollar, most of the 50% of assets that they don't already own. If we let them our grandchildren will be born, live, and die as serfs.
Gee. all of this economic wisdom and absolute nothing mentioned about global climate change.
19
Remember the outcry, the howls of (self-)righteous indignation from the right when Obama spent like crazy to keep the country from nose-dive-crashing into a Hoover-style epic depression? Hear the total silence now as Trump spends and tax-cuts his way into ever more shocking indebtedness during an already loudly humming upturn? Extremely bad, venal, narcissistic economic policy that we (our children, our grandchildren) will pay for in spades, for decades.
How ignorant and greedy most people are. How grossly irresponsible, poorly motivated, and purely self-aggrandizing the lying party of self-proclaimed financial prudence and frugality has become. As an economist, I am disgusted by what I see. I expect irresponsible financial policy from the Democrats; frugality has never been its strong suit. But the Republicans? Apparently their whole ethos of conservatism and prudence has been nothing more than a charade, simple ruse to pull the wool over the rubes' eyes. And, as Trump might say, they are "winning".
Well done, America.
16
Looking only at the vagaries of US monetary policies, corporate debt and trade wars and their interaction is not enough in predicting US economy trends and its global reciprocal impacts. We have to place the US economy and its global connections or the lack thereof in the context of a looming climate catastrophe, particularly given the onslaught by the Trump Administration on a clean energy path.
I have recommended to the Green Party USA to present their 2016 platform at http://gp.org/cgi-bin/vote/propdetail?pid=835 as sustainability platform and connect it with David Brook’s third-party option with its emphasis on local councils. Cf. https://www.nytimes.com/2018/07/30/opinion/third-party-2020-election-loc.... This grassroots approach is also invited to deal with the changing climate by discussing the conceptual, institutional, ethical and strategic dimensions of a carbon-based international monetary system as proposed in Verhagen 2012 "The Tierra Solution: Resolving the climate crisis through monetary transformation" with its monetary standard of a specific tonnage of CO2e per person. A noted climate specialist and economics author believes: “The further into the global warming area we go, the more physics and politics narrows our possible paths of action. Here’s a very cogent and well-argued account of one of the remaining possibilities.” Bill McKibben, May 17, 2011
1
It's a good article...though I think you're grossly underestimating Trump and his staffers' talents as fools. This is a guy who believes in churning the everything and flailing around incompetently to try and take advantage, and I simply have faith that if these clowns stay in charge, they'll figure out how to blow things up.
Heck, the Bush Admin did.
I'd also point out--though they're not exactly financial--that we're about to hit at least three big walls.
1. Aging pop, particularly in key demographics such as doctors, nurses and skilled machinists. This is, by the way, precisely why we desperately need the immigration that fool Miller wants to stop.
2. Aged and obsolete infrastructure. At some point, this refusal to ante up and build the wireless, power, rail and mass transit, not to mention modernze what we already have, is gonna bite us right in the new business. And any American who thinks it won't seriously needs to take a trip to Rotterdam.
3. And worst: what we're doing to our air, water, earth. Wait'll we suck the last drop from, say, the Ogallalla Aquifer. Wait'll the next oil rig goes up. Wait'll Keystone blows, which it will. Oh, and wait'll the medical bills arrive for more junk in the sky.
Oh, and what's the bill for keeping Florida above water? Briefly put, we're living off seed corn, and shoving the bills under rugs.
31
@Robert
Yes Robert, spot on.
The next recession will being in Q1 -2021, when Sen. Elizabeth Warren is sworn in as president.
2
He forgot one major thing....There is a growing economic justice movement in the Democratic Party that was triggered two years ago by the presidential campaign of Vermont Senator Bernie Sanders. This movement advocates living wages, basic income, Medicare for all and free public college among other measures designed to make this a more just society. The movement has already placed a great deal of pressure on corporations to dedicate more of their profits to increasing worker wages. If Democrats regain control of the Congress later this year, these economic populists will expand their influence. As a result, more wage and income increase bills will be introduced. The movement has already influenced most of the major potential 2020 Democratic presidential candidates in the Congress to either sponsor or sign onto wage increase bills. In this scenario, if corporations begin to fear a Democratic presidential victory in 2020 may lead to the passage of such a bill, they may begin to take actions that lead to a recession.
3
@Howard Gregory
"The movement has already placed a great deal of pressure on corporations to dedicate more of their profits to increasing worker wages."
Yet its not really pushing wages up in real impactful ways. Some might be forced, due to increases in the minimum wage (MW), if they are beholden to such a wage. But those not, who might have already been higher then the MW, are not really doing much to bump up those employees on the cusp or slightly higher then the MW. Retail is one such example. Those that hired above the MW, are now in places where the MW is on the rise, not keeping ahead for those older employees (in chronology of events, not actual age) about to be devalued by the increases.
Whats to keep a $17hr worker motivated if the MW around them is $15. Several years on a job to reach $17, and now new emps are coming in at $15...! And you're locked into the Company's miserly yearly percentage raises...at 1-2%...?
Not good for several reasons.
4
@Boregard
I said the economic justice warriors are placing pressure on the corporations to significantly increase wages, not that they are succeeding. I believe they will succeed and sooner than we all think. This is why. Ultimately, we humans are moral beings. However, economic expediency has caused us to subjugate our humanitarian impulse. It took us a while to abolish slavery. Our economic system is wonderful in so many ways. Unfortunately, it is also extremely unfair. Economic populists have won the living wage argument. The issue now is, can corporations pay significantly better wages to their workers without unacceptably spiking inflation. In the early 80s, Paul Volcker proved to America that inflation can be controlled. If the economic populists can convince us that living wages will not cause runaway inflation, I think living wages could happen.
People borrow money. If it's easy they borrow more. They keep borrowing and borrowing. Eventually they reach the point where they can't possibly pay it back. So the question is- when do they have to pay it back? When are the ones doing the lending going to NEED the money they lent? The dot-com bubble were a bunch of companies that promised to make money if you bought their stock, then didn't make money. The housing crises in 2017 happened when people who got mortgages with borrowed money couldn't pay it back when it was due. So when is the next planet sized debt bubble going to come due? There's about 1.5 trillion in auto debt. Another 1.5 trillion in student loans. 1+ trillion in credit card debt owed. And economists still can't imagine a scenario where this all comes to a head? We know what people make and what they owe. Is this article listing things that might cause everyone to panic? Because it seems to be implying it could be anything. Because student loan debt is not forgivable by law (bribery) then I'd go with the auto industry or the price of gas. just a guess, but that's what all these comments are.
7
"The expansion is nine years old. An ill-timed end of fiscal stimulus, a corporate debt bubble and the trade war are the things that could most easily end it." i.e. Trump and the Republicans.
1
What if our trade war with China prompts Beijing to demand immediate repayment of the $1.19 trillion we owe them? Wouldn't that cause a depression, let alone a recession?
1
@Christy
We can ask Apple for that trillion.
The next asset bubble will be student loans and title loans. We have mired an entire generation with insanely high college debt. Students are leaving college and grad school with student loans the size of mortgages but without the low mortgage interest rate. Many of these student loans have a ‘progressive payoff’ feature which causes the monthly payment to skyrocket some 7-10 years down the road. For example, my own son has a student loan that costs $200 per month today but will be $800 per month in 8 years. That’s ludicrous and akin to those sub prime mortgages that ballooned payments in five years which caused the Great Recession. We sold an entire generation on the need for a higher education (a dubious assumption in the 21st century) and saddled them with insurmountable debt before they even got started in the job field. Who thought this was a good idea? The banks of course - those same wonderful people who brought us the Great Recession. You’ve been warned.
13
With Clinton in office we he had a strong economy and a budget surplus.
With Bush in office we had budget deficits and the economy tanked.
With Obama in office we spent eight years digging us out of the hole Bush left behind.
With Trump in office which might not be too much longer, he'll create another mess Democrats will have to clean up once again.
4
We can not even begin to discuss the economy until we are honest about the numbers and what the Fed has done.
1- Full employment is a myth. If you stop registering at the Unemployment Office you drop off the rolls. The labor participation rate is 62.9%, that does not sound like full employment to me. Anyone can run around on any weekday and see how many adults are doing nothing productive and know this is not true.
2- Wall Street is not Main Street and Main Street in the heartland is still shrinking or on life support. Most of what has happened on Wall Street was fueled by the injection of Trillions of imaginary Dollars handed out to Banksters by the Fed without the permission of any elected official or "We the people". QE should have never happened and the same is true for TARP.
3- There has yet to be a trade war- just a lot of hype from Trumpov and the lapdog press. What has happened is the Republicans have larded the Treasury with a massive new debt burden thanks to the GOP Tax Scam.
4- In reality based America, a large chunk of our families cannot afford a $400-500 unexpected expense without a visit to the Pawn Shop or the Payday Loan Sharks- many of which are underwritten by banks we bailed out under QE and TARP. The irony is tragic.
5- Student Debt is an economic bomb with an ever shortening fuse. The same is true for the sub-prime car loan business.
6- Inflation at the consumer facing level is significant. Go to the grocery store and pay attention.
17
There is another scenario - political instability. Trump may not ever be impeached but it’s only going to get darker as the various investigations pump out more bad news for Mr Trump.
This of course will lead to more desperate attempts by Mr Trump to create larger and more inflammatory distractions which will only create more national instability. This will also drive a further wedge between him and the Republican party which will further exacerbate that instability.
Remember the vast majorities of businesses the Trumps have run have ended in bankruptcy (et tu Ivanka). Now that Trump’s latest business is the United States what makes you think the escapes the Trump Business Curse?
4
I believe the recession will occur much sooner than most people think. The tariff war will boost inflation in the coming months, a probable mid-term victory for the Democrats will create gridlock, while the top heavy stock market (held aloft by the FAANGS) will correct at least 20 % in the first phase of the downturn. I seriously predict a Great Recession as the U.S. tries to solve its massive debt overload through higher taxes and reduced spending.
Not mentioned in the article is the possibility of Mueller's revelation of a smoking gun -- a fourth scenario -- that would put paid to the nation's recent capitalist orgy and bring Trumponomics to an even more abrupt end.
5
I have to laugh. The macro, future-predicting perspective has not a word about workers, about wages decreasing in the second quarter, the reality on the ground for everyday people. This is an article for the fat cats.
9
We are really in a race to see our Constitution amended to favor a system of government controlled by oligarchs, like Russia. Economics is just a diversion.
So many comments here about privatizing the gains and socializing the losses. I am so tired of hearing this false narrative.
Look at the stock value of AIG or Bank of America:
AIG: Over $1,100 a share before the great recession, $54 today.
BAC: $54 in 2007, $3 in 2009, $31.50 today. You still don't have your money back.
The tax payers were fully repaid with interest for the bailout. The owners of the financial institutions that caused the mess still have not been paid back.
Are CEO salaries gross? Absolutely. But don't confuse corporate executive compensation (that the shareholders do need to fix) with the the owners of the company. My 401k paid for the great recession, not the US taxpayer (who is also me).
1
@Tom Stoltz
You are looking at this too narrowly. The issue is not about AIG or other bailouts.
Step back and look at the view from 30,000 feet. The national debt doubled under Bush, and doubled again under Obama. Meanwhile, those of us who are financially fortunate continue to do very well. And the bottom half of wage earners have not seen a real increase in wages in over 20 years.
So, yes.
- Socialize the losses (in the form of the national debt).
- Privatize the profits (in terms of your 401(k) and my portfolio).
The tax cut bill of 2017 only accelerates these trends.
It is not raining today. It's time to pay our bills.
7
Hope is fungible, when we lose hope in the future and start to pull back the bubble will burst. We (as a country, rightfully or wrongly) are willing to spend on walls and military (hope to keep safe), health care (hope to stave of the inevitable), college (hope for employment) and entertainment (hope to escape for awhile).
Right now people are gloriously ignorant and and plowing forward. If they start to think we might be in serious trouble. If people start to question college, or the portion of their income they waste on entertainment things will collapse. Irrational exuberance is our only hope!!
3
@Awake
In other words, our economy relies on confidence and is a confidence game. Wile E. Coyote is ten feet out beyond the edge of the cliff, sweating bullets and grinning that grin we find so funny. He knows what will happen as soon as he looks down.
This is a stupid way to run an economy. We should be able to come up with something better.
6
Yup, fake it until you make it... the current investment in machine learning. Everyone is hoping something will work. Help us Obi-Elon...your our only hope :-)
2
What expansion? Many people I know are still reeling from 2008.
13
Every Republican president in more than a century has brought on a recession or a depression. Trump's irresponsible tax cuts and childish trade wars almost guarantee that he will continue that record.
8
Don't worry, corporate managers will buy back their debts for cents on the dollars. Trump has done it several times.
3
"... To be clear, the economy is going gangbusters right now. The nation’s G.D.P. rose at an annual rate of 4.1 percent in the second quarter ..."
Sorry, 'gangbuster' is a mirrage.
Top 4 reasons for the 'great' economy mirage:
1) extreme deficit spending:
"Look ma, I borrowed one trillion from China, I'm rich!"
2) reduce corporate tax by one third:
Companies log higher profits (due to lower tax)
3) front-loading:
Distribute or allocate (costs, effort, etc.) unevenly, with the greater proportion at the beginning of an enterprise or process.. Every business had to 'stock up' to ride out the looming disaster (trade war) due to the levying of new taxes (tariff) on the 99%..
4) proprietary trading (Volcker rule repeal).
Reckless trading (gambling) by a few rich guys with FDIC insured depositer's money (privatized profit, socialized losses) is inflating another stock market bubble. The market is not the economy.
The 4.1% is a pretty dismal given the above. I expected over 5%. Doing nothing at all since January 2017 would have produced numbers like this even if puttin-puppet had done nothing at all.
13
So how about this as an indicator. There are more sells and buys in the stock market according to the WJ. Chinese debt has hit an all-time high and is slowing which means slowing of investments into our real estate and that leaves millennials having high debt load who can't buy houses. Oh, its coming sooner than you think.
2
WOR might decide that intransigence in trade works best because it will affect U.S. politics the most. Focus on election 2018 and 2020. Punish the midwest first.
1
Given the number of companies having gone private with LBOs over the past decade, I vote that this is where the conflagration begins. Maybe it already has: in the retail industry.
3
@Larry L
Private equity is a disaster waiting to happen. They buy companies that have existed for years and were well run load them with debt and fire the actual workers. The company falls apart. Small run manufacturing companies that supply the large US Defense contractors are all being bought up by private equity.
9
@Larry L The sweetheart capital gains tax gift that Bush 2nd and the Republicans gave to private equity companies has led to damage in local economies. Even one LBO that results in bankruptcy, loss of jobs, wages, or pensions; spreads the pain through out the community. And with the 60 cent a gallon gas hike, more money is removed.
2
An even greater recession would be triggered by a major war with Iran or North Korea. Closing the Straits of Hormuz even briefly could lead to world wide Depression. The price of oil would go through the roof!
3
For poor people the last recession never really ended
27
Just call the next recession fake, ignore it, and move on. That's the answer to everything, isn't it?
5
It's simple. Debt's best friend is inflation. If you borrow $10,000 to buy an artwork or a rare stamp or an ostrich jacket and the value of that item soars to $20,000 - you can sell it, pay off your debt, and pocket the rest. Rinse and repeat. The housing market is the best example. Inflation and recession are closely linked. Today's debt based economy, with the King of Debt at its head, will hurl us into a deep recession so that those of us with savings and no job (i.e., retired) will see them drained. I too would be pleased to see a 4 point something growth, had i not seen the price tag. With Trump's tax cuts I personally am better off for a short while. But then I have the ability (or just the willingness) to look beyond a one or two year horizon.
4
I remember a wealthy friend saying how much he appreciated recessions as he could pick up things on the cheap. Not every one suffers when the economy goes bust and many emerge (after some years) lots richer (the buy low syndrome in the stock market). You just have to some years ahead of you to wait it out. That's if you haven't lost everything, of course.
3
"To be clear, the economy is going gangbusters right now."
To be clear, the economy is going gangbusters for the top quintile - everyone else is in a more or less precarious state.
Wages are stagnant in part because the "official" unemployment rate understates unemployment significantly - the consensus of independent economists is that real unemployment is close to double the "official" rate, and then there's the abysmal labor participation rate, now at depression levels.
What jobs are being created are mostly low-wage jobs, mostly in the retail sector in which employers can depress wages - and have their employees on various government assistance programs so they can make it to work each day with some food in their stomachs.
Worker leverage and bargaining power have been eroded by Republican anti-union, so-called "right to work" legislation while the Democrats maintain their ambivalence toward labor - too fearful of angering their corporate masters to attempt anything to counter the Republican assault.
And when the next recession hits, pundits like Irwin will never think to question the sanity of an economic system which regularly bottoms out, rendering the precarious class even more precarious - while the top quintile sits comfortably, waiting for the stock value rebound.
11
History repeats and bubbles burst, but just like cookies they crumble in different ways. If we could foresee cause of the next recession we would, at least, attempt to stop it. However, the expert can only explain it away after it happens.
All economic expansions are alike, but all economic recessions and depressions occur for their own reasons.
4
There are facts and then there are delusions. Unfortunately, facts will always eventually win. There is going to be a recession soon, you can set your watch by them; Mr. Irwin summarizes the causes and symptoms.
We've had recessions nearly exactly every 10 years for many decades. But the Great Recession was claimed to be a big surprise to economists and businessmen, in spite of the fact that all the symptoms are there. Fact vs. delusion.
Much of economic expansion is fueled by consumer confidence. Yet the economic measures quoted by Wall street to bolster that confidence and fuel that expansion notably leave out the fact that wages are not increasing. Yet consumers are spending more. So where does the money come from? Loans, credit cards. New loans will dry up and defaults will blossom as soon as there is a whiff of a recession. Consumers can virtually instantly stop spending and fuel the downturn with positive feedback to cause ever more defaults.
So the next recession is going to be, again, a "big surprise", allegedly. But as pointed out by Mr. Irwin, the factors to cause it are as clear as day and have been repeated many times. Delusions vs. facts.
11
We are in the late stages of the current economic cycle today. This would be true regardless of who was in the White House, and regardless of fiscal or Fed policy.
Unemployment is down to 3.9%. The 10yr-2yr Treasury yield curve is down to 0.30%, and continuing to flatten. When short-term interest rates are higher than long-term interest rates (inversion), an economic downturn usually follows.
These two economic indicators are typical of the late stages of an economic expansion, the period just before a recession.
Act accordingly. If you have debt, pay it down. If you are a saver, save more. If you an investor, take a more defensive position.
13
When people realize that due to the rising deficit they could lose entitlements like social security and medicare and when they see that tax cuts were only a temporary ploy and they are no further ahead than they were under the previous administration. then the bubble will pop.
4
Considering how little our political leaders, corporations, etc., value employees and the average American (despite the lovely lies they tell in their ads about us being number one on their list), the next recession will start for the same reason they all start: out of control greed. Who loses? The most vulnerable people of all: those in debt, those who were enticed into buying or investing in shady deals, those who are unemployed or are fired as a result of the downturn, retired people. Who pays the price? Not the greedy hucksters who caused the downturn with their criminal activity, their false promises. We do.
Who gets the lion's share of the benefits from the government? Not the average American. It's usually the very people who created the problem. Wash, rinse and repeat for the next recession. All this does is hurt people who are trying to make an honest living, to improve their lives and the lives of their families and, who have done nothing wrong.
31
1. The 2008 recession was not foreseen either by the Fed
nor the overwhelming majority of macro-economists.
It was , however, forecast by a substantial number of
traders - people who read balance sheets and
understand debt
2. Left out, in the otherwise excellent discussion is the US
National debt . It needs to be adressed
Of the 45 countries for which The Economist publishes
numbers, only 4 have higher budget deficits
Country Budget balance as % of GDP 2018
US -4.6 %
Turkey -5.9%
Pakistan -5.4 %
Argentina - 5.3%
Egypt -9.6%
For comparison,
Germany + 1.1 %
Sweden + 1.1 %
Norway + 5.4 %
South Korea + 0.9
Hong Kong + 1.9
Countries with comparable budget deficits to the US pay interests rates on their 10 year bonds of 17.94% (Turkey) 10% (Pakistan) 9.09 % (Argentina ) . Such interest rates on the Nation's debt would ruin the US. For comparison Germany pays 0.4%. The US pays 2.85% - 7 times as much. FY 18, interest to be paid on the US debt : $ 310 billion
The budget situation of the US is not sustainable. At some point her credit (on which she lives now) will run out.
19
There’s no problem here for the people that count, just so long as we privatize the interim gains and socialize the inevitable losses when the next recession hits.
16
Maybe this is covered in one of your general categories, but my immediate world is filled with workers living paycheck to paycheck who ALL have car loans, that as soon as they drive off the lot are underwater, owing more in debt than the car is worth, for the rest of the life of the debt.
That, coupled with fully insured workers STILL going into debt from dental bills or hospital costs makes for a very financially unstable population. And don't forget the student loan burden..
For me, that is what will cause the next blowup, which will be a transfer of wealth, like in 2007, from the debtees to the debtors, as the GOP has trashed the bank protections Obama was able to enact, and the public, you and me, will once again bail out the rich..
28
@Grace Thorsen Baloney. Obama led the way in bailing out his Wall Street pals, who created the crisis, after the mortgage meltdown. The rest of us paid (and are still paying) that bill.
@bx
The bank bailout came under Bush and his Treasury Secretary Hank Paulson. At least get that right.
@Jack Bank bailout co written by Senator Judd Gregg. republican, who after his term went to work for Goldman Sachs.
From looking at all the empty commercial real estate in NYC I can say that there must be a huge bubble there about to burst.
The low interest rates have spawned too much development and with rents way too high nobody wants to move in. Eventually lanlords will have to lower the rents and that’s when they will not be able to pay back their loans..
25
I am sure the scenarios outlined in the article will play into the upcoming meltdown. But it will probably not be any one thing that triggers it, rather a confluence of events and situations. Here are some other disturbing factors and this all happening right now:
1. Unprecedented levels of personal and credit card debt both in the US and worldwide.
2. Overheated housing markets worldwide.
3. Bundled high risk debt and mortgage products similar to 2007 levels
4. Rising gasoline and diesel prices
32
@Peter US biggest debtor nation in world. Most people I know have zero savings. Driving trucks is biggest employer in 20+ states....
6
The bond market inverted yield curve is one indicator of a coming recession. Trump’s trade wars are primarily political theater, pandering to his base. The few companies and individuals hurt by it are already receiving aid. The greater risk for economic fallout may arrive from unintended consequences caused by all of the angst created by the USA. Markets and investors hate uncertainty. The wave of uncertainty is building and when it breaks over the equity markets, a sell off may spark a downturn.
14
A great risk to our economy is also coming in the form of student debt, which provides a double whammy. The first is the probable default on hundreds of thousands of dollars in undischargable debt being given out to high-risk-for-default students, often to finance education at newly formed for-profit colleges without concern for the employability of the student. The debt often folds in attractive stipends for living expenses and technology luring unsophisticated young people into amassing levels of debt that it will be nearly impossible to pay off. The second part of the whammy, is the aggregate loss of purchasing power of a whole generation of young consumers carrying debt, often equivalent to mortgages, as they start what historically are high consumer years. We have drained our future consumer market and created a bubble of undischargable uncollectible debt. Add that to the rest of the spend today for debt tomorrow policies and we have a reckoning coming.
42
@Ile I totally agree. The student loan debt will be a slow and painful leakage because borrowers can't just walk away like one would with a mortgage. It doesn't help matters when student's debts are out pacing wages. I can see this going on for decades.
Also consider the current outstanding student loan debt is 1.4 trillion. Compare that to subprime mortgage lending in 2007's of 1.3 trillion right before the crash. Student debt is filled with subprime lending in my opinion. Students are majoring in degrees with low wage prospects but strapped with 5 & 6 figure debt. Lending institutions arent verifying if the student's major's potential income is in line with the amount borrowed. Student's grades in high school aren't consider as a default indicator as well. Approximately 3.9 million dropped out with debt in 2015-16. All students shouldn't go to college but political correctness gets in the way of reality.
6
@Ile yes, my generation, the last one where college was affordable without loans if you went to a public university, wasn't hit as hard as the next generations were. We suffered because housing costs soared, we graduated into a bad economy, and the Reagan administration began the process of stripping away benefits that helped middle and working class Americans. In exchange the country has evolved to where the banking industry works solely for the wealthiest, our health care system is not, there is very little affordable housing for anyone, and it's nearly impossible to save because of debts.
What Reagan began in the 1980s has continued to the present day. Our parents were able to save for retirement. Very few of us could. Our parents could live well on one income. We struggle to make it on two if we're married with or without children. Most people I know are one paycheck away from bankruptcy. Lose a job and you lose your entire life. If you're over the age of 50 you've lost your life.
The reckoning is here. It's started for the people in the latter part of the baby boom generation. We can't find new jobs. We weren't able to save for anything. We did the best we could for our children. We took care of our parents too. But the generations that fought in WWII and the Korean War came home, lived well, and decided that what was good enough for them wasn't meant for us.
22
FYI, a whopping big chunk of those unemployable and their debts are from EXACTLY the scamming for-profit "colleges," that good ol' Betsy DeVos is championing.
While chopping safeguards and prosecutions, of course. Which Trumpists would know, were they less politically correct.
4
Living in small town rural Texas for the past ten years, I've noticed something happening in recent years. There are more and more RV type units (not mobile or pre-built homes), pulled upside the main house, being hooked up to electricity and water system from the main house. The main houses are owned by older people while the RVs are being occupied by the families of their adult children or grandchildren. Some of these are on 2-5 acre lots, others on much larger acreage.
These are not all just lazy bum kids, but workers who get up each morning to go to their jobs, usually both mom and dad working while the kids are off to school.
These are young families who simply cannot afford their own housing. This is not a temporary situation of a few months or even a year, but they are staying put for two, three years and still have not moved out, so the "saving up for a deposit" is not the reason. It is only because they have family in the area that they are not living in tents like some commenters write about.
The big overall picture may not look like a recession coming, but for many at the lower end, it's just around the corner.
58
Excellent observation. And what it reminds me of is how Texas handles taxes: chop state tax and the big stuff where you can easily see the costs, and shuffle new fees and taxes onto counties and towns.
Similarly, what you're pointing to is a sitch in which famlies get lumbered with what the economy and markets ought to be doing, which is to expand opportunities for all.
One wonders how much of the same is going on with the elderly and the chronically ill and the disabled, as their numbers grow and right-wingers chop Medicaid and similar programs.
5
Interesting that no one seems to care that personal debt in the US has grown at a rate that far outstrips income growth. That means that the personal wiggle room has shrunk tremendously. In the end debt is what causes almost every single major contraction.
18
You are right in the relation you posit. Wages have been stagnant relative to GDP for more than 3 decades and more markedly so after 2010. However, personal debt in relation to GDP has decreased since 2010 while non financial business in relation to GDP has increased in the same period. Not a good situation for us the 90% whose income depends on wages. the FANG corporations are doing well ( Facebook, Apple, google, Amazon) are appropriating the bulk of profits.
13
“Just a decade after the Great Recession, the average US non-financial business went from 3.4x leverage (debt to earnings) to 4.1x. They are now roughly 20% more leveraged than they were the last time all hell broke loose. While Trump boasts of 4% growth and the US corporate sector never having it so good, the level of corporate debt in the US, alongside rising interest rates, is setting the scene for a new debt crisis.
How will such a crisis emerge? In the next year, US companies must refinance about $4trn of bonds, almost all of it at higher interest rates. This will hit debt-burdened companies that are already struggling and make it almost impossible for some to keep operating. Lenders, i.e. high-yield bond holders, will try to exit their positions all at once only to find a severe shortage of willing buyers. Something, possibly high-yield bonds, will set off a liquidity scramble.
Almost half of US investment-grade companies are rated BBB (just above ‘junk’) and could easily slip into junk status in a downturn. Rising defaults will force banks to reduce lending, depriving previously stable businesses of working capital. This will reduce earnings and economic growth. The lower growth will turn into negative growth and we will enter recession. That is the likely scenario ahead.”
From Michael Roberts blog. In addition the global debt is 2.5 times the global GDP, which suggests that claims on future returns are overly optimistic. FDI has decreased considerably.
15
In the entire discussion, somehow the 'wage growth has taken a backseat. Wage growth alone could spur consumption and sustain economic growth numbers to some extent - even to the extent of increasing corporate profit and hence improve their capacity to pay back the massive debt that is worrisome, but there is no politics in it. But the trade war smacks of politics to a much greater extent and hence it is more unlikely to cause a recession.
6
@AsisAkb The liberal elite like Irwin see low wage growth as a positive. They seek to be both pro-business but liberal on social issues, but when push comes to shove, the liberal social tendency goes bye-bye and the needs of business become primary.
5
@Ed Watters I couldn't totally agree with you on this matter. Now, the social dynamics rightly demand some concern for economic prudence. Without wage growth, the job numbers loose their credential...
The expansion is a house built on sand. Just yesterday I met a young couple who were living in a wooded area down by the railroad track. The guy is employed full-time (I didn't asked about the gal), but they can't afford rent, not even for a studio apartment. I don't know what they're going to do when winter comes. And there are lots of people like them in this town--not mentally ill, not druggies, just ordinary working-class people.
58
Of all the potent threats to the expansion, the most worrisome is the lack of savings and investment in the economy which continues to be at the low end of the global standards. The recent rally of all indices sparked off by tax cuts should have led to savings and investments, which still continues to be a laggard.
The infrastructure investments never happened and now with interest rate rises on the horizon this would high costs for the future.
The real sad tale is the complete lack of traction in the growth in wages which seems to portray the deeper malaise that the economy is for the donors, the rest would continue at the receiving end of all cycles of business.
Not a good denouement.
29
The trade tariffs is a double tax that adds to the cost of goods and adds to the inflation numbers which leads to scenario one and three combined - leading to recession.
Yes - tariffs are double taxation. The tariff itself is a tax and the sales tax on the tariff portion is the second tax. The $10,000 tariff amount on that BMW incurs a sales tax too in addition to the sales tax of the vehicle - at least is states that have a sales tax.
Then there is the fourth and likely worst instigator of an economic collapse - the unknown trump destructive effect that may actually hurt the wealthy too - for a change this time.
7
Our local woodworking shop announced that power tool prices are going up by 10 - 25%. Maybe trade won't be a big deal for everyone, but there are a lot of former Trump voters who will be feeling worse because of his decisions.
Will that crash the economy? No. But it sure won't help.
15
Probably, it will be bigness. Someday the computer models that dominate trading will all send a sell signal. The behemoth investment companies will try to unload their holdings through the narrow funnel of risk-averse trading desks. It won’t be pretty. The one thing you know for sure is the wealthy guys are too big to fail and will be bailed out.
14
I seem to remember a *lot* of people predicting 2008, at least in terms of overinflated, overextended real estate and increasing stories about wildly unqualified buyers. The boom in "mortgage professionals," mostly uneducated, average people with no special training that places like WaMu "certified," was also significant.
By no means an expert here, but if I had to pick something it'd be Wile E. Coyote or debt, because those are things I'm hearing a lot of smart people worry about.
How would you bet in order to prosper if the recession hits? Assume the cause is one of the three in the article.
15
As usual, the GOP has set things up so the crash comes just as their guy is leaving office. Then until 2024 the GOP will blame the recession on the Democratic president. It's a clearly established pattern. Every GOP president has left his successor with a downturn since nixon.
98
What if China gets mad and does something irrational?
Like no longer paying for imported oil with US dollars?
26
I don’t see the tax cuts goosing the economy. Wall Street, yes, but not Main Street.
44
@Gusting and what happens on Wall Street always trickles down to the rest of us in lost jobs, lack of pay raises, and lack of opportunity. Wall Street wins, Main Street loses. Wall Street loses, Main Street loses. Main Street almost never wins in today's United States.
Workers lose their rights at the employer threshold. Workers are treated like disposable plastic bags. Unions have been defanged because of our pro=corporate government and judiciary. In the end the economic elites, no matter what political persuasion they are, do not pay the price. We do. We, the people who vote in the officials that refused to work for us during the Obama years and still refuse to work for us.
6
And a year ago the 3 most likely possible causes of recession were completely different. What IS knowable is that the new tax cuts ARE going to create massive government debt, and the so called party of "fiscal responsibility," the GOP, has become the "tax and spend" party. Whether or not any of this drives the economy into a recession within a year or two is just unknown - no one predicted either dot.com failures or the real-estate belly up. But what we can know is that for the next 50-100 years economic growth in the USA is going to be severely limited by needing to pay off government debt and our ability to respond to crises will be strongly curtailed. US residents are going to be paying through the nose on future debt created by current political idiocy. And along the way there will be a few recessions too.
39
@MSC
The only way we'll be paying through the nose for these profligate GOP spenders is through so-called "entitlement reforms" in the near future. The ideologues like Ryan, Freedumb Caucus, etc. and their enablers know that deficit spending now = big budget cuts later because we don't want to become "like Greece."
16
As I recall, plenty of people warned of both the dot com bust and the real estate bubble. You heard all the time that it made no sense to bet on companies with no profits or give loans to unqualified lenders. People were just happy to keep counting the dollars.
23
Can I cast a provincial ballot for something we'll never see coming.
71
The dismal science continues it’s reign. Dismal because when times are good you are miserable since bad times are coming and during bad times you are miserable because you are miserable! And no matter how high and complicated the economic tower is built you know that unreasoning human greed will knock it down.
25
The economy is pretty much a stochastic process, that is, it is more random than deterministic in its behavior. So it is almost impossible to identify a sure-fire cause and a sure-fire remediation for recessions. But one thing is certain, once the recession happens, there will be a lot of hand-wringing and post-action analysis, which will no doubt prompt Congress to pass some regulations to prevent such an terrible thing from happening again, and then just as certain is that after some passage of time all those regulation will be deemed to stifling of business and will be repealed. And then we cycle back and repeat the whole process all over. That is my plebeian view of how our economy works.
35
Trump can chew gum, walk, and shoot a pedestrian on Fifth Avenue all at the same time. He will surely give us all three scenarios combined.
56
I'm picking the debt load bomb. Fortunately we have a president with lots of experience in personally in using bankruptcy to escape escaping damage. He can show us all how to dump the consequences of our greediness onto others.
44
Good work.
Next please explain:
Why tariffs won't stimulate the economy.
Why U.S. manufacturers can't produce enough
goods to close the trade gap.
I'm trying to explain this to my friends from Trumpland, but they don't get it.
Please help.
Thank you
ancient Canadian economist
34
@David Andrew Henry
Let me try to help.
The US economy GDP is close to $20 TRILLION per year.
The Aluminum Association (http://www.aluminum.org/statistics), an industry lobbying organization, says that the value of aluminum produced in the US is $71 Billion per year.
That is 0.355% (3/1000ths) of the US economy.
The US imports about half of the raw aluminum used each year.
We do not have very many aluminum smelters in the US anymore.
https://www.washingtonpost.com/news/wonk/wp/2018/03/01/foreign-suppliers...
So if you stimulate 3/1000th of the US economy, but you damage all the USERS of aluminum in the US economy (a great deal more than 3/1000th), the net effect is that you are hurting the economy.
It is not rocket science.
1
How about the $1 trillion dollar elephant in the room... Student Loan debt??!
44
Fake debt,
deposit % is 0.5% . Banks get the money at 0% or less and can lend that dollar to eight different students at 8%. Who is getting rich and who is getting skint?
Who are the student lobbyists?
Do they get as much as the bank lobbyists?
3
The housing market is slowing on the west coast, just like it did in 2007.
38
Two words. Deficit spending.
17
I am sick and tired of hearing that the economy is going like “gangbusters”. That may be true, but it is only for the rich. The rest of us who still haven’t fully recovered from the last Great Recession will again be left holding the bag. This will continue on a cycle ad infinitum as long as we effectively have two economies in this country, one for the rich and one for everyone else. There is no incentive for the ones in power to even things out, since they have gotten away magnificently
In the past with having the middle class bail them out.
75
My thoughts exactly.
4
We are certainly overdue for .com crash 2.0. Another article today was about the ridiculous valuations for a very few tech companies. Of the ones mentioned, only Apple makes anything and is profitable because they manage to convince people to pay prices out of all proportion to the value of the products. A fairly small shift in consumer behavior could have big ripple effects. Not everyone wants to live in Amazon world, do they?
15
I'll go with an idea that originated with Bill Maher on his Real Time show a few weeks ago. If a recession will ensure that Donald Trump is defeated in 2020, give me a recession. A recession is survivable. Donald Trump is not.
51
Not much politics in this article but the ramifications are huge. Recession before 2020, Trump loses and Dems take the Presidency.
Recession after the election, Trump will win and it doesn't matter because it's his 2nd term anyway.
So it all boils down to the mid-terms. And there is little chance of a recession happening before November.
7
A single quarter of +4% GDP and the economy is going like "gangbusters"?
Obama did that FOUR times (and +5% one time) and the media then called it the most anemic economic growth post WWII.
Highest gas prices in 4 years
Highest inflation in 6 years
Labor force participation rate stuck around 62%
Wages adjusted for inflation, flat.
Also, the 2001 recession was a function of the 9/11 terrorist attacks. The dot com bubble may have hurt the NASDAQ but in 2000 (when the bubble actually burst) the UR was 4% and the Dow unchanged.
Not much of recession there.
42
all investors (including Warren Buffett and Harry Dent?) are waiting for the next recession to improve their performance! Yes since 1930 the S&P 500 is down one year out of 10!This is why you will see that all the index will have difficulties going down because all the buyers are ,with a lot of money available, ready to buy shares... but also real estate. the next crisis will feature the oil, disappear all businesses that can not pass on the increase to the customers.
4
"Essentially, businesses have been in a sweet spot for years, in which profits have gradually risen while interest rates have stayed low by historical measures. If either of those trends were to change, many companies with higher debt burdens might struggle to pay their bills and be at risk of bankruptcy."
I'm not sure if rising rates would affect corporations immediately. According to SIFMA, as of June 2018 the average maturity of US corporate bonds is 15.2 years and it has increased significantly in past couple decades (from 9.5 years in 1996). So I don't see how rising rates would cause trouble for firms who sold bonds in the low rate environment which would come due in more than a decade. You are implicitly assuming that a large number of corporations need to rollover their debt at higher rates in a couple of years. Can you please share the source for this statistics?
Lower profits is a whole different matter and I agree that's gonna be an issue.
Matt K--Boy, corporations, and the wealthy really needed that tax cut. We're all so lucky that the already successful are doing so well. It really helps the average American. No?
9
Do we want to set a record for longest recovery? Put all of social security into private hands and we will go for another year or so before the bubble bursts catastrophically. That was what Bush II was eager to do. He saw the writing on the wall.
Unfortunately, he couldn't kick the structural deficiency that far down the road to the next resident of the White House.
Regulations are needed for bubbles to release pressure and who wants to mess with the party.
3
"Moreover, with federal deficits on track to rise in the years ahead, the federal government’s borrowing needs could crowd out private borrowing,"....The budget deficit has risen this year to more than $830 billion dollars. It will be more than $1 trillion dollars by 2020. Budget deficits of that magnitude are not sustainable. There will be a significant economic reversal by then, just in time for the new Democrat Administration.
22
@W.A. Spitzer And that has been the GOP playbook. Run up the Debt and then blame it on the Democrats when the economy crashes. The Dems' may be tax and spend but the GOP is Spend and borrow and spend.
48
How will the Federal Reserve deal with the next recession? Will they repeat the crisis-related special programs of the Great Recession where they quadrupled their balance sheet? Oh wait, the federal reserve is still trying to unload those assets, very, very slowly;
https://www.federalreserve.gov/monetarypolicy/bst_recenttrends.htm
So, no, those "special programs" will not be available to the Federal Reserve during the next recession.
18
No mention of the debt taken on by private equity. What are the risks, their magnitude, and how secretive, leveraged, and unknown? Would there be another bailout attempt? The crisis may not arise directly from a failure in the financial plumbing, but secondarily in the political fall-out of another crony bail-out. It will be much more about who is favored and disfavored when it is a cluster of private equity firms. Lots of bitter Lehman-like lemmings throwing tantrums claiming, "We should be the ones receiving bailout money, and we aren't any less deserving of a bailout."
7
There is one phrase which perfectly describes every recession - "Nobody saw that coming." It is some unforeseen event that triggers the reversion to the mean after a boom.
Perhaps it will be an energy crisis triggered in the Mid-East, perhaps it will be the effect of a hard Brexit, or perhaps it will be some cyberattack on the financial system. Or it could be any of the three possibilities set forth in the article (I personally believe that unless something else happens first the Wile E. Coyote effect will be the cause).
And whichever party holds the White House will pay the price, even if they were not the cause. So, imagine that the Democrats win in 2020 and the recession hits on January 21, 2021!
13
@John Graubard,
"Nobody saw that coming" has probably already started.
And there's a reasonable probability that the numbers are wrong, e.g. the unemployment rate is low but, calculated from the other end, the employment rate might well turn out to be falling rather fast (more and more starting to seek work, for instance.
I predict that the new recession will be dated in 2018 or 2019.
4
what about the state and local government debt bubble? impact of SALT tax code changes? people becoming tax refugees? apparently NY and NJ have larger debt loads than countries like Greece and Italy...I think more Detroits are on the horizon
13
@matt
http://www.usdebtclock.org/
Click on the State link for details
"The economic expansion in the United States celebrated its ninth birthday last month. If it survives another year, it will be the longest on record.
But eventually something will kill it. The question is what, and when."
Actually, the question is "who", and the answer is "DJ Trump".
45
Besides those cited, many other factors could be involved in creating the next recession, including more political malfeasance or manipulation by Trump and his acolytes; over-reaction by well-meaning people overcompensating for Trumpist bungling of regulations, tarriffs, etc.; outside events, like conflicts in or with other countries; and the hacking into or takedown of our political or financial systems. For a realistic if so far theoretical scenario of the latter, read Bill Clinton and James Patterson's novel, "The President Is Missing"; it has inspired me to take more assets out of the market and convert them to cash.
Of course I know that the business cycle is a cycle, but irresponsible misleadership ("Deficits don't matter" - Trump and Reagan) has made the cycles more extreme: "Feel good now; who cares about tomorrow?!?" I care. A lot.
15
One more. Monetizating the kitchen sink. Free credit balances exporting inflation. Foreign central banks use the dollar as a reserve. Reserve currency bloat is useful, tempting, addictive, a trap and dangerous.
It’s only a question of when. Not if. And the cupboard is bare this time.
With twin deficits soaring, deflation of the common denominator assured, Weimar troubles threaten on a world scale. Savings are nil. The few are loaded, the many are dependent. Non communicable illnesses are soaring. Obesity and diabetes are 1, 2. Misuse of all drugs a factor.
We’re in trouble.
11
I am an economist and have studied business cycles both as an undergraduate and graduate student; I studied under the last recognized expert in this field, Prof. Arthur Burns. Very few students attended his seminars then. The study of business cycles had allegedly become obsolete. Dr. Heller, President Kennedy's economic advisor, had then declared the end of business cycles due to the application of Keynes's teachings. He retracted this claim later.
How many recessions have we had since?
My first criticism of this article is the author's assertion that "inflation has returned to an healthy level" This is the new abnormal idea that inflation is desirable and healthy at ANY LEVEL. The Fed and other central banks have now divined that this level is TWO PERCENT. What percentage will they conjure when the financial system in the world may collapse when governmental and private debt will turn out to be unmanageable and all tax receipts will have to be devoted to serve the governments' debts? 4,5,6 percent?
This is just one and by no means the major error of this article but only the first one. However, the word limitation prevents me from continuing (300 letters left). Ernest Seinfeld.
10
@Ano. Nymus
Some economic growth, some population growth, and some inflation are all better than none. Inflation hurts the rich more than the poor. It lowers the value of the debt held by the poor, preventing life-long and multi-generational indebtedness (which is close to slavery). Only conservative economists can't see that.
I believe all three factors will contribute, and Brexit will accelerate it too. The Russians know it, and have pushed the West off the cliff.
Democrats need to get ahead of it, predict the disaster before it happens. That way they will be less blamable when it does happen.
Keynesian economics could have so easily prevented it, but Baby Bush in '08 and now Trump in '18 have prevented any common sense interventions. (A 1% increase in income tax on income over $200,000 and remove the social security cap, for example, instead of the totally unnecessary tax cut for corporations and the top 1% of earners.)
36
@priceofcivilization
The rich hold the vast majority of nonfinancial assets. These assets increase in value when inflation occurs. The poor are not given loans, and so hold little debt. When the price of food goes too high, they starve. When the cost of housing goes up, they become homeless (already happening). So I find it hard to understand your assertion about inflation hurting the rich more than the poor
1
@priceofcivilization “democrats need to get ahead” if only they were capable. I beg them to call out trump on what we all know he is doing let him go on defense for a change. Couldn’t we just fire all the Democratic politicians and start over.
Economic activity as measured by GDP can be stronger in one period if some of the growth results from activity being brought forward from future periods.
Inventory building is the typical cause of growth in one period that must be "paid back" in later periods. It was widely reported that many purchases were made in the second quarter of 2018 in advance of the imposition of tariffs or possible tariffs. There are other possible reasons why growth in one period may be unsustainable, and thus be followed by lower growth later.
The tax bill contains a number of provisions, which are boosting capital spending. This accelerates economic activity. The question is how much of this extra economic activity will be borrowed from the future? The immediate expensing for capital spending was made retroactive to 2017. This has clearly added to growth already. However, this could ultimately result in over-investment, which can cause a reduction in growth or a recession.
At a minimum, some of the expansion in plant and equipment spending occurring now may be the result of projects that would have taken place in the future, but now will not occur then and thus drag down economic activity at a later date.
I think that the conditions for overinvestment leading to an eventual recession are greater now than they were previously. .."
https://seekingalpha.com/article/4191838
6
“…mainstream macroeconomic models”, which by the way have near-zero predicting power. Simply stopped reading there. It’s amazing how it all sound very academic and intellectual, but the reality is that “predicting” what will happen 2-4 years out from now is just impossible. Otherwise, asked the guys who saw no crisis coming in 2006.
5
@A
It has been said that Economics is the science that has spent its entire existence vainly attempting to predict the *past* accurately.
1
And what about the risk of most trading countries adopting China's currency and banking system because of our tariffs and dropping the dollar? China has already made inroads in Africa, Afghanistan and other countries building infrastructure and making loans. They may even call in American debt.
3
@Rodrian Roadeye One possible Chinese response would be to greatly expand soybean and corn production worldwide by providing subsidized credit and capital to areas such as South America and Africa that could be used for expanding soybean and corn production.
During the colonial era there were many very large farms owned mostly by Europeans in sub-Sahara Africa. Today, risk/reward profit maximizing investors would tend to avoid investing in large capital-intensive agricultural operations that could be subject to expropriation or the whims of warlords, as was the ultimately case with many of the large farms that had been established during the colonial era.
China could easily decide, either for retaliatory or food security reasons, to have its state controlled or influenced entities to advance the funds needed to develop large efficient capital-intensive farms.
There are many areas in the world in addition to South America and Africa that could be used for expanding soybean and corn production, if the money for modern irrigation and advanced farm equipment was made available on very favorable terms by the Chinese.
Were this to occur, American soybean and corn farmers and the areas that depend on them would be depressed for many years. Many point to the depression in American agriculture in the 1920s that preceded the great depression..." https://seekingalpha.com/article/4188416
8
I notice in this listing of possible scenarios there is no mention of political instability.How can that be ignored? We re approaching mid term elections which may or may not be hacked by the Russians, a change in Congress could set up even more divisions and Mr.Mueller will be coming out with a report.There is not just political grief here but in Great Britain with Brexit and NATO allies who may be facing change in government.There cannot be a prosperous world order with so many countries in political turmoil.Mr.Trump is sowing his own brand of chaos in the political sphere as well as in economics.Mr.Trump finally ran out of banks who would lend to him.Heis raising our debt to a level where that could happen to us.
14
You can unravel an entire sweater by pulling on any loose end. The American economy is an old and worn out sweater.
Instead of practicing fiscal responsibility and putting some money away in the good times, the Republicans just added another half a trillion of debt per year to goose an economy that was doing just fine, all so they could win in 2018.
And that is why I despise the GOP.
116
Add Republican-Reptilian FAILURE (Refusal?) to govern at any level. Refuse to fund essential activities (Like infrastructure maintenance) then say the problems are "Proof" that government does not work.
Especially the underfunding of schools (and Universities) at the state level here in the "red" states. Disgusting.
I find this piece and the comments I read to be way off the mark. Sure, any or all of these issues and more, will cause the next recession in 1,2,3 years. This is small thinking and shows a society denying reality. So short-sighted as to be insane. Think, playing musical deck chairs on the Titanic. Trump and his corrupt enablers in Congress represent the most petty greed-driven worst in our society. Their policies cause real damage to real people. Time for thinking in "whole systems", not silos. When will the media en mass commit to educating the American people that we are facing far greater threats than the next recession caused by the dumb, corrupt and short-sighted?
The very real deadly threats to our economy and all life are those we are quiet about - global warming / climate change is the single greatest threat to the economy, society, and all life. Nuclear war being the other massive threat.
How can any thoughtful person agree with someone like trump, or
james Inhoff (nutcase senator, climate denier from Oklahoma) when 99.9% of all peer reviewed scientific papers on climate tell us this is very real, it's impacts have already begun, and we ain't seen nothin' yet. We believe "hoaxsters" when 98% of ALL climate scientists say this is here, now and we'd better wake up and act fast or the future is dark and deadly for all. Yes, even billionaires, their kids. Recession? Get real. See "Losing Earth-The Decade We Almost Stopped Climate Change"-NY Times Magazine - Sad!
27
@EWH. Yes I agree that climate change is a deadly threat but in addition to that dire warning it is also a costly burden.Where does the money come from to repair communities after tornadoes, hurricanes, flooding and forest fires.No One budgets for these disasters which are happening more frequently and ferociously.
13
If Mueller's investigation, finds Trump a candidate for Impeachment for Treason, that alone will paralyze the country and therefore the economy. We have seen little of the fix the Democrats would propose. Re dong the tax legislation , raising corporate taxes back where they were, and allowing off shore tax havens to avoid taxes, will be too much to digest.Opening up immigration , and jumping into TPP negotiations , will be traumatic .
2
How about high priced oil. Say $150 or $200 crude.
Sound unlikely? Well, an obscure UN organization called the International Maritime Organization (IMO) has mandated that ships switch to very low sulfur fuel beginning in 2020 This will be good for the environment. The problem is that the world’s refiners are not prepared. The needed supply is not there. Prices will rise significantly as the maritime demand forces diesel supplies to be diverted from farmers, truckers and other consumers. In the US retail diesel prices could double.
Ships account for around 6 to 8 percent of world oil use. Half or more of the fuel used has a very high sulfur content. The maritime industry has been the comfortable dumping ground for the dregs of refining for several decades. That ends in seventeen months.
Oil prices tippled to $150/bbl the last time the world inflected a sudden change in fuel specifications. The Great depression started in December 2007, ten months before Lehman failed. The December 2007 start occurred because high priced oil squeezed consumers. The auto industry paid dearly.
The January 2020 oil price squeeze will worse. The good news is that voters will be paying $5 to $7/gallon when they go to the polls in November 2020.
The point, though, is that the next recession will be caused by rising oil prices – just like the last three or four. This one will be the worst.
11
Maybe a trade war. Whatever starts the slowdown, the vulnerability to a meltdown is that most of us are living on the edge. We're maxed out on debt, we have no savings. So anything small--a reduction in hours, a job cut, higher interest rates--has the opportunity to create millions of little tremors. Maybe it will be okay on the macro level. And maybe those tremors will gain energy and sink us all. We (collectively) just don't have the financial capacity to endure even the slightest downturn.
11
Lest we not forget, in addition to raising short term borrowing costs the Fed is also unwinding an enormous balance sheet accumulated through three rounds of quantitative easing. No one knows how that will effect the economy.
16
The current high price of stocks seems largely due to buybacks. That is blatant manipulation of price by the management, and used to be prohibited. But stockholders are eating up the high dividends, and management is rewarding itself with bonuses. Not an encouraging picture.
The price-to-earnings ratio of stocks is now very high (see above) -- similar to that preceding the Great Depression. Also, as others have noted, the interest rates on Treasury bonds have flattened out, so long-term rates barely exceed short-term rates. An inversion of rates, with short-term rates higher than long-term, is a reliable predictor of a coming recession (though it doesn't predict exactly when).
Lots of people have jobs -- lots of them have two or three jobs, just to make ends meet. The Main Street economy is not going gangbusters; it's not going anywhere. Wage increases this year barely keep up with inflation; real wages have fallen over the past several decades because of inflation.
So, yes, it's not a matter of if, but of when the next recession comes.
77
Correction: corporate stock buybacks disguise the magnitude of the price-to-earnings ratio by reducing the number of outstanding shares. Thus, if earnings are flat, the earnings per share appear to be higher.
If I'm correct, then the true price-to-earnings ratio is even higher than it appears. That would constitute a hidden bubble, waiting to be pricked.
Tax cuts and low-interest borrowing from the Fed as an economic treatment are like treating a bad infection with cortisone -- the inflammation goes down, but the sickness progress. They used to say that, with enough cortisone, a patient could walk himself to the morgue.
8
@Duane McPherson
Wow, another professor of Doom and Gloom. Yes, and the sun will expand and become a Red Dwarf which will engulf the Earth and destroy all life, including my roses. So, yes, it's not of matter of if, but when. Yes, there will be something of a series of recessions (and a series of recoveries) in the future. Not if, but when. Always has. Yes, we will all die (although most people think of death as a bad rumor). Not if, but when. In the long run we are all dust. So go out and love someone and have fun. It's later than you know.
Remember, it's always darkest before it goes completely black.
PS. If you're reading this then stop and go do something you'll regret later.
8
@Mark Shyres
Fair enough. Let's enjoy life while we're still alive! And I agree that there will be a series of recessions in the future. I just don't accept that they are unavoidable or totally unpredictable. In the meantime, life is very pleasant and I will take your advice and have fun. And I wish you the same. Pura Vida!
1
You would think that with all the brain power devoted to economics and all the tools available to them that there could be ways to plan ahead and moderate the effects of these three scenarios. But for some reason everyone seems to enjoy riding on a runaway train.
6
As usual corporate leaders' confidence is the psychological tipping point for a recession. At what point do the 3 trends noted cause corporations to curb investment and/or lay off employees to hunker down?
Higher interest rates are a certainty, and so is higher inflation. This is a recipe for a bear market in stocks, and if it tips over with a crash, corporations will wake up to the danger, as they were in 2000 and 2008. The Fed will play it slowly, but late 2019 / early 2020 could be very interesting.
It's hard to see the corporate debt bubble causing systemic problems because corporations' aggregate balance sheets are still strong and getting stronger with retained earnings from the tax cut. The debt we should be worried about is China's. They are way out on a limb, and if China catches a cold it will be very contagious.
The trade war is the wild card. We are already seeing companies suffer, and there isn't enough farm aid to go around. This type of uncertainty will trigger companies in certain sectors to hunker down. And if that spreads, it could be the first sign. The trade war is either going to come and go quickly, or it will be the first of the 3 causes to trigger problems, likely in 2019.
11
I don’t understand all the concern about a fed rate of 2 or 2.5%. Home loans of 3.5% are lower than when I bought my first home in Cleveland in 1962. Corporate taxes are 21% rather than 35%, and capital goods can be written off in the year acquired. I remember paying 18% on corporate debt in 1981. We got through it. The real problem is that with all this additional free money, the corporations are not using it to prepare for the future, but are giving it to shareholders and top executives. Perhaps sharing it with workers might extend the growth for a long time into the future.
60
@David Lake and this exactly the problem!
3
@David Lake...nice thought, but the CEOs are not going to play nice.
4
I find this assessment to be remarkably business/corporation focused. What about consumers? Isn’t it true that without consumers corporations can’t flourish? So, my question is, given that we’ve had nine years of business expansion with all the profits going to corporations and shareholders, where’s the demand coming from to support continued business growth?
If (most) consumers are spending much more than they were during and immediately following the last recession, then there’s only two ways this expansion can continue. One way is through consumer-debt-fueled purchasing (or reduced savings rate), and the other is growth in foreign sales. Either one flashes danger: Rising interest rates will depress consumer demand domestically, while foreign markets could be subject to that as well as the trade war and (don’t discount this) foreigners’ attitudes that the US is a global pariah and should be boycotted. I’ve spoken to many friends abroad who have made a commitment not to buy US products because of their contempt for our so-called “president” and his policies.
126
@Terry Malouf
I believe the plan has been to create enough of a consumer base within China that corporations could abandon the American consumer if need be, or at least render the American consumer irrelevant if they pushed back too hard on corporate rule. China is getting close to that goal, but not sure they're there yet. Mr. Navarro may upset the apple cart, and there will be hell to pay.
1
Although this article somewhat downplays the risks from tariffs and an escalating trade war, I beg to differ. I believe many macroeconomists have overlooked how global the supply chains are for most US businesses that manufacture tangible goods. This means that the risk of ‘unintended’ consequences from tariffs could be much, much greater than has been assumed.
40
Another scenario is a profits recession, like that experienced in the aftermath of the Y2K - dot.com bubble.
If corporate profits begin to decline, for perfectly natural reasons, management will likely begin to lay off workers (in an effort to boost profitability) - thus setting in motion a slowing of the consumer economy.
This slowing of consumer demand can easily lead to even steeper profit declines, and thus more cuts.
Add into this a growing apprehension of rapidly mounting Federal deficits - and NO, the Trump tax plan is not paying for itself - which will naturally lead to a more fiscally conservative stance by corporate management (i.e, more layoffs, fewer pay raises).
And then, of course, there is the possibility of yet another black swan event - a financial crisis in an area that none of the financial modelers saw coming (but should have seen coming).
IMHO, the odds of a major economic slowdown between now and 2020 are high - especially with the king of bankruptcy and the helm of the American ship of state.
Get the life preservers ready.
138
@Matthew Carnicelli: Smart, sobering, and scary analysis.
6
I’m not an economist and I’ve been in business but neither of those really matter... my father who was in business for most of his 89 yrs from manufacturing street barricades to to plastic bottles and in real estate told me long ago there will be a recession or depression every 7 to 10 years whether you like it or not. If you aren’t prepared you’ll wish you had been. We are not even remotely prepared and with the leadership( and I say that mockingly) we have today it’s gonna be a rough ride for most and horrifying for a bunch of folks. I’m semi prepared and getting ready for a tough few years. Best wishes to all we are going to need to stay alert because it’s coming. Try going to the grocery store and you can already see the rise in prices as well as at the gas pump. Oh and I didn’t show my ID at either
302
Suppose you've got a $10million portfolio, 50/50 stocks/bonds, with the stocks 65/35 domestic/intl and the bonds all domestic + 500k cash. How do you prepare?
@JD: When you say "prepared," what does that entail for most people?
@JD I look for the article on best ways to prepare for the cycle first, and added disaster generated by Trump's and GOP's bad leadership second.
Housing is going to fall, like a brick off of an old chimney top. What short term memories we have. Everyone forgot that the chimney must also be cleaned out to prevent the entire house from burning down. Be prepare for an emergency.
50
The expansion of the last decade has been so gradual that there seems a lot of room to run.
2
First of all, introducing a quarterly figure as sustained growth is extremely misleading. The signal is encouraging but hardly impressive. At quarterly rates, we hit 4% five times under the Obama administration. No one would dare apply the word "gangbusters" to the economy then. Our economy however is taking on substantially more risk under the current administration.
The risk of expansion in a growing economy was the entire reason economists scoffed when Jeb! said he would hit 4%. Sure, anyone can make 4% with enough stimulus but you can't sustain it. Whether we overheat or stall is largely irrelevant. Everyone agreed 2-3% was the sweet spot for sustained growth in our rapidly fading recent history.
Now the Fed has to guess at the impact of indirect fiscal stimulus in the form of tax cuts while also dealing with an erratic trade war. No wonder they're having a hard time. No Drama Obama was a lot easier to predict and therefore much better for markets in general. However, wild uncertainty isn't even my biggest concern.
The risks of this business cycle are publicly shared. The potential rewards however are only reaching a very narrow slice of the population. When we go to scrape the economy of the subway platform again, the cost will be publicly shared again. With the current policy determinations coming out of the White House and Congress, I fear even a moderate recession will feel just like the Great Recession for most Americans.
This is my concern.
158
There are a confluence of events happening today that could lead to a recession. Trump's playing with fire regarding a potential trade war. If our politicians feel that current trade treaties or policies aren't beneficial to the USA we should renegotiate those treaties. Congress signed the Smoot Hawley Tariff bill (which became a global trade war) into law, in June, 1930. Until it was repealed in '34, global trade declined by -60%+. The law of unintended consequences was responsible for much of the damage. Our global trading partners couldn't earn the dollars they required through trading to repay US Banks and Government loans from WW l. The US agricultural sector was hit very hard and our banks took a real beating. There are other issues that seem to be playing out through the current trade wars. The EU's reluctance to fund NATO's military budget and China's expansion and militarization of the S. China Sea. And, China's creeping financial expansion into Latin America. Trump hasn't focused on what's necessary to place America back on the right course. We need to stop wasting tax revenue on Mideast military actions. Those countries have been governed by war lords with regional power for thousands of years. They don't want American style democracy. That money, Iraq and Afghanistan are projected to cost $4.8 trillion, could be used for many progressive purposes, domestically, in our own hemisphere and to strengthen support with our allies.
84
@Richard Amen to the reduction of the military in the middle east. Its a start.
3
@Richard,
When you say "The EU's reluctance to fund NATO's military budget", you're wrong on 2 counts:
1 NATO doesn't have a budget per se and
2 looking at the EU's and individual countries' plans and budget policies, it's beginning to feel as if Europe is getting ready to stand on their own.
The Pacific Basin aka Ring of Fire countries also seem to be repositioning themselves.
Trump may have done the US the favour of making it a great deal less relevant.
1
Trump has been trying to reduce existing protectionism against the US.
Severe contractions have not been due to policy error. They have been consequent to a great financial bubble.
This bubble may have climaxed in December-January and this would be confirmed by dislocations in the fall.
This would be anticipated, as with previous such examples by the yield curve reversing to steepening and credit spreads reversing to widening.
That most industrial commodities have already turned down could be a warning on the reversal in the credit markets.
3
The thing that could do it is Dems winning, probably nothing else.
10
@vulcanalexthe expansion started in 2009, one year into a Democratic Presidency and when the Democrats actually controlled Congress. Hard to make the case that this is anything other than a Democratic expansion. At this point in an expansion we should be running a fiscal surplus. Instead we have the largest annual deficit in history.
84
@vulcanalex, Edward D Jones has sent out a news letter titled "Don't Mix Election Politics with Investing". So, apparently I am not the only one who is skittish about investments in over-priced equities at this time. A graph shows that return on stocks and industrial production has been higher during democrat-controlled government. However, inflation and long term government bonds did better during republican-controlled governments, except the long term bonds were at their highest when congress was last controlled by democrats and a republican was president.
5
@vulcanalex
You mean the same Dems who handed the latest GOP administration the current 'gang busters' economy? Or the Dems who handed the last GOP administration a 'gang busters' economy which they then turned in to the worst recession for 70 years?
25
Seems to me that it's even simpler than that.
As stated, the trade war is (a) unlikely to get worse and stay worse for any significant period, and (b) isn't that big a threat to the US economy anyway. And the debt overhang can be sustained as long as the economy grows. So the only actual, direct problem is the Wile E. Coyote: Debt grows even more wildly (see the huge federal deficit, projections of which can't keep up with what the Trump administration is doing), the Fed tightens too much, a few really big debtors collapse, the debt markets react in horror, stock markets are driven down, corporate investment dies, and we have our recession.
For the Fed to fend this off is technically difficult, as Neil says. For the Congress to fend this off is technically difficult but politically, it seems, impossible. Trump, the ultimate lover of debt (he just doesn't pay) is on top of the flaming funeral pyre.
Winston Churchill may be rethinking his famous "democracy is the worst of all systems, except all the rest."
123
@joel bergsman You are probably correct. Trump tax cuts have created trillions of dollars of future indebtedness and his administration's reckless regard for long-standing trading partners and conventions could trigger a reconsideration of world investment in U.S. debt and grind our economy to a standstill.
"Despite U.S. debt’s attractive qualities, continued U.S. debt financing has concerned economists, who worry that a sudden stop in capital flows to the United States could spark a domestic crisis.1 Thus, U.S. reliance on debt financing would present challenges—not if demand from China were halted, but if demand from all financial actors suddenly halted." https://chinapower.csis.org/us-debt/
25
@joel bergsman, it seems to me you are confusing public (federal) debt with private debt. Since the government can create as much money as we need out of thin air, public debt is not the problem. Private debt (household + business) is a real problem since the amount of money banks can create is limited. When banks lend out too much wrt to their reserves, is when we get into trouble, In 2007 the big banks had outstanding loans whose amount was 27 or 28 times their reserves.
But think about this. Why do banks get over leveraged as in 2007 and 1929? It is because money has been flowing net OUT of the private sector and that is because the federal government is not sending enough money INTO the private sector, i.e. it has been not spending enough more than it has been taxing, i.e. the deficit has been negative (1929) or smaller than the amount of money leaving the country net in trade and investment (2007).
So our problem would be not that the federal deficit is getting too large, but that it is getting too small thus increasing private debt.
The Fed is a one trick pony; cut rates during recession.
The problem is the Fed Funds Rate sits at 2.0% currently.
Powell knows that if there is to be a recession in 2020, he'll need a cut in rates that feels dramatic (i.e. a drop of 50-75%) to stimulate markets. But to raise rates by more than 1% / year will almost certainly cause a bear market.
Its a bit like those finger traps we played with as kids; pull too fast and you get stuck.
Interestingly, the REAL economy may not move too much in the next recession but an S&P drop to ~2100 sounds about right, meaning investors will lose close to 30%.
39
I remember listening to a few business news programs on the radio, back in 1999 when the economy was going gangbusters, in which commentators felt it necessary to remind listeners that "the business cycle has not been repealed." This serves as a useful reminder that the economy cannot continue to expand indefinitely and that a recession is inevitable at some point. The big question, of course, is when?
There is room for the argument that the current expansion, because it has been weaker than most in terms of annual GDP growth, has left more slack in the economy and thus more room than usual for a longer period of continued growth than would otherwise be the case. So if (and this is a HUGE, HUGE if) President Trump's tariff policies can lead to renegotiated trade deals instead of a multi-front trade war, and if (another HUGE if) the adverse effects of what I consider to be his ill-advised tax and fiscal policies are delayed, then perhaps the economy can say strong enough through the 2020 campaign to give him a fighting chance to win re-election. But his average approval ratings are only in the low-40s in spite of a strong economy; a recession starting between now and, say, June 2020 would likely cook his re-election goose. If a recession starts next year, it may convince a critical mass of Republicans to get behind a serious primary challenger.
12
Leading indicators came off their highs in 1999, and continued south throughout 2000, so it's not clear that the dotcom bubble caused the recession. Arguably that was an old-fashioned recession in that there was excess investment in particular related to the Internet build out, think Global Crossing. The thing is that we did not have a strong business cycle in the era before the Industrial Revolution. Now, as we at least in the United States, enter a more post-industrial era, those cycles continue to become less pronounced. Throw in data bases, and you can see how supply and demand are likely to be managed more effectively. In short, don't be shocked if we avoid a recession for awhile. The real issue is low growth, at which point, per Japan, yes, you can have frequent contractions, but not because of pronounced cyclical downturns, but just because growth is so anemic. That is more likely how we will get there. Negative growth in the 2020's, because productivity growth stays low (it has nearly reversed in Italy I believe), anemic workforce growth, and perhaps/probably a stagnation in the production of human capital.
8
What about housing? We are already seeing a slowdown in the housing market and it will likely get worse (rising interest rates won't help). Prices are inflated nationwide, and near-bubble levels in some parts of the country. The housing market slowdown, and perhaps outright crash, is the most likely cause of the next downturn. Yes, again.
Sadly, people have short memories.
66
@J. what do you mean "near"? If paying $1.2M for a shack in CA doesn't count as a bubble, I have no idea what does.
1
@Larry L: Housing in certain areas of CA (San Francisco, for example) is expensive, just as it is in New York City and it has been for many years. I don't recall that the rest of the country fared well at the time of the housing market crash because things were over priced pretty much everywhere. These prices are all relative to what is "normal" for the area.
A large part of corporate capital structures consists of long-term debt and common stock.
The common stock proportion has shrank as many managers of large companies have propelled EPS growth via stock buybacks. Since much of this spending for stock buybacks is financed by borrowing long-term, the leverage (debt/equity) ratios for many companies have increased, as well. As debt increases in a firm's capital structure; its risk of bankruptcy or default on its bonds increases.
So, this company's future borrowing or interest costs will increase due to its increased financial riskiness. A simple ratio: the number of times interest expense is earned, which relates net income to interest expense, can act as a warning gauge.
So, due to these higher interest expenses, investments in companies to power organic growth face steeper hurdle rates, with only very high ROI projects chosen. And, the higher hurdle rates now needed for common stock financed investments to meet higher EPS goals, also reduce spending to only very high ROI projects.
So, a pincer type movement reduces organic growth projects to only very high ROI ones. Higher interest expenses due to increased proportions of debt in capital structures; and lower common stock proportions because of stock buybacks, which demand higher EPS returns, act together, to constrain corporate investments. And, the buyback strategy is of lower risk and has more job security, in the short term.
[8/2 Th 10:15 am Greenville NC]
5
@John Joseph Laffiteau MS in Econ - Buybacks have backfired for many companies.
For example Bed, Bath, & Beyond spent more money buying back stock than their total current market cap. IBM has barely kept its stock price steady while buying back huge numbers of shares as revenues shrink.
Few people realize the risk of these capital engineering plays. Businesses use capital to make money. If you throw away capital on buybacks, you are weakening your balance sheet, reducing future earnings. You could easily end up like Toys'R'Us or GE.
43
@John Joseph Laffiteau MS in Econ
Interesting analysis -- hard to tell for sure, but I believe I'm seeing this trend in my industry. If true, it will seriously constrain innovation and growth in the 5-10 year outlook.
4
There is a huge amount of hidden risk in the financial markets. A long period of low interest rates and steady rises in the stock market have encouraged the big financial houses to rely on short-term trades that seem to work, until they don't.
Nobody knew about VIX shorting until it bought down the entire S&P 500. There are many similar hidden risks
21
Higher Education loans are the new subprime mortgages.
70
@MNMoore Student Loans are vastly overstated as a risk to the economy and as an existential problem. That's not to say paying them off isn't burdensome, but its just not a systemic risk.
In 2003, mortgage debt (not including all the financial leverage, swaps and CDOs) was $3T. That's 3x the current size of student loans and only a fraction of the leverage that was tied up in mortgages in 2008.
Student loan debt may slow overall economic growth but, paradoxically, it may save some millennials from ruin as they can't truly overextend themselves into mortgage debt because of the student loan payments they carry.
8
The subprime mortgages may have been over valued, but they were secured. The Thirteenth Amendment precludes foreclosing on the actual human beings holding student loans. The layers of self deception on this issue are reminiscent of 2006.
8
@Arturo While your argument may be logically true, it overlooks the psychological aspect of crushing student loan debt on our young citizens who will energize and finance the future of the nation. A recession of youthful enthusiasm is even more damaging than the size of debt involved. The economy is driven not by cold reason but hot emotions.
5
Forgot one, i.e., our sorry excuse for a president decides with sidekick, Bolton, decides to wage war on Iran or Montenegro. Then most bets are off.
33
The actual events that trigger the next downturn are not going to be the root cause, which is feckless Republican economic policies and priorities that tank the economy. Again.
So dumb.
193
I don't believe that there is a corporate debt bubble. Even though borrowing has increased, the proceeds have been used for acquisitions that drive greater earnings. Companies with high debt burdens have developed diversified subsidiaries and can use their monopoly power to drive prices upward - giving them substantial earnings to cover debt service.
I also believe that this trade war is more of a political stunt than economic policy - it will be over once the midterms are completed and the GOP gets what it needs from its base.
Lastly, economists tend to over-consider monetary policy as a driver of economic conditions. It is only a small slice of what drives investor confidence. Treasury yields play a role too, but are also a small piece of what drives things.
I believe that the next downturn will be caused by either another bubble or rising political unrest abroad.
The bubble will likely come from tech or housing again - because after 2001/2008 both industries went back to business as usual and renamed their risky practices to stay under the radar. Regulation has become more lax.
Also, the world is falling apart. The Mid East has become a huge proxy war with the Saudis at the core, India is about to implode due to Hindu unrest, South America's energy partners are close to anarchy, Europe is facing a host of issues, Russia is stirring the pot everywhere, the US is gridlocked. All it takes is one small correction to send everything down the rabbit hole.
We shall see.
16
@Clay "...it will be over once the midterms are completed and the GOP gets what it needs..." But then there's 2020 to contend with and 2022, ad infinitum. Every two years we go through the act-for-the-sake-of-political-expediency routine. THAT is our biggest problem with government. The politicians spend more time running for office and fundraising to run for office than they do governing.
18
@Clay, I read a recent book: The Great Leveler: a History of Violence from the Stone Age through the 21stCentury. I bet most Americans aren't aware (I wasn't) that MacArthur was ordered to nationalize all Japanese industry after their defeat in WW II so that the ruling Zaibatsu families could not capture all of the profits and use them to invade their Asian neighbors. Does this sound familiar in regards to the US and it's Mid East follies? Great Britain never foresaw it's loss as the world super power pre-WWI.
6
From what I have heard, import duties and restrictions at the US border should make the costs of ordinary goods more expensive. This, as usual, would hit ordinary working families the most: those who shop at Walmart, Costco, and Dollar Stores. With more money going to basic purchases, ordinary consumers will have to buy less of other goods and services. This should suppress overall demand for domestic products. Also this rise in cost of basic goods, combined with the systemic shortage of employable workers that is likely to last for decades, should put strong upward pressure on wages. In short, I would expect that import duties would have a detectable effect on inflation.
I presume some economists have factored this in, but the article doesn't discuss it, at least not directly. Are we headed for stagflation?
27
The "Business Cycle" is cyclical, sometimes even if you know your history you are fated to repeat it. There is no reason to over think this, boom and bust is how we roll. Spend less than you earn and you'll be OK. Who knows how or when, but a downturn will happen again and the longer this expansion goes the sooner it will end. This time it's not different. This comment is not profound, just sensible.
15
There's an old joke that economists have predicted nine out of the last five recessions. But it turns out that there is a reliable statistical predictor of recessions: when the two-year treasury yield is higher than the ten-year yield, a situation known as an inversion.
Nine out of the last ten times that such an inversion occurred, a recession followed within two years. And as it happens, the gap between two-year and ten-year yields has been narrowing for some time. Today's NYT bond report puts the spread at .31 percent, or about one-third what it was a year ago.
Prominent economists such as Morgan Stanley are predicting that the two-year and ten-year yields will invert sometime in the middle of 2019; if that prediction is correct, the odds of a recession by 2021 are very high.
politicsbyeccehomo.wordpress.com
49
@Ecce Homo - Yes, but in the past, such inversions happened when the short-term rate was unusually high, not when the long-term rate was unusually low.
Quantitative tightening should eventually impact the long-term rates, but low rates in Europe are dragging them down.
3
Please stop writing about government borrowing "crowding out" private borrowing. When the govt runs a larger deficit, it is putting more money into private hands via spending than it is taking out via taxes. That extra money in private hands is then exchanged for govt debt. Deficit spending creates demand for govt debt securities.
(The inflationary effects of deficit spending are very real, and may lead to higher interest rates via the Fed's reaction, as this article did a decent job explaining. But that's not what the phrase "crowding out" suggests.)
5
I recall hearing a lot about crowding out from conservative economists when the Democrats held the Oval Office and Congress. None of them seem concerned about crowding out during the tax-cut debate which created a greater hole in public finances than any policies Democrats have undertaken. I guess this is one of those economic processes that only comes into play when the Democrats are in control.
24
The role of government in the economy is overstated. It may be because politicians in power take too much credit when economic times are good and give too much blame to the party in power when times are bad.
Most economic activity is due to market forces causing recurring boom and bust cycles. Only in their arrogance have the policymakers believed that they are able to control the economy. In the 1990's many believe that they had solved the issues and we would avoid any prolonged recession. We know how that worked out.
The next recession is surely coming, just when is debatable. This is a good article outlining some of the factors that may help usher in the downturn but just as likely is something unforeseen,
5
The article lists corporate debt as one of three potential causes - but not US government debt? Assuming Congress continues to be unsuccessful in reducing government spending to match the greatly reduced income tax revenues, US government will be (is) piling up a HUGE debt. Even at today's still low rates, that's got to be a drag on the economy. Add in higher interest rates, and it could easily ignite all sorts of bad stuff like inflation.
If foreign production of steel is a national security risk, why isn't foreign held debt? So I think our debt could be both a fiscal and security risk in the future - placing it ahead of the three issues listed in the article.
10
@deedubs, click on the ChinaPower link from the comment by John from San Diego, CA fmi.
Genuinely curious, why is corporate debt a bigger risk of causing a recession than the student loan debt bubble? It seems to me that tuition has far outpaced inflation, driven by easy access to credit; default rates within first 3 months of repayment are up significantly. While the job market has improved, wages are down, making it difficult for young students to cover all of their living expenses plus repayment.
86
@Banana
Total student loan debt is very small compared to total corporate debt. Outstanding student loans total about 5 percent of American GDP. As noted in this article, outstanding corporate debt has grown rapidly in the last ten years and now totals about 25 percent of GDP.
Furthermore, most student loan debt is held by or guaranteed by the federal government. The economic impact of defaults on those loans would be muted by absorption of those loans by the federal government.
Widespread student loan defaults would be economically damaging, but not nearly as much as widespread corporate debt defaults. Widespread student loan defaults are much more likely to be the result of a recession than the cause of one.
politicsbyeccehomo.wordpress.com
23
https://amp.businessinsider.com/student-loan-crisis-mortgage-crisis-2017-7
1
@Ecce Homo While the federal government does "absorb" the over a trillion dollars of student debt, it does NOT absolve the students of the debt merely shifting it back to the government to collect. Sure the lenders will be OK, but the devastation to our country's future generation would be immense.
1
This is an Interesting and excellent article.
It should be noted that both democratic and republican administrations can cause implosions.
Clinton did it with letting business run wild, getting rid of Glass Steagall and then the Dotcom implosion.,
Bush 2 did similar work and then the 2008 disaster.
Obama should be given credit for avoiding this. He gave us eight yrs. of boring steady growth, low inflation, high employment and no recession.
557
@Paul
If the recession occurs before 11/3/20, Mr. Trump will be out of office.
1
@Mary- Agreed Mary, but incompetent demagogues like Trump can last a long time before the implosion comes.
Bush 2's economy did not implode till app. seven yrs. after he was in office.
Clinton's never fully imploded in his eight yrs. in office.
You cannot predict history.
@Paul
and no scandals!
I shake my head with all the "experts" in economics; they are just guessing like everyone else. 2008 meltdown, almost no expert predicted it.
I still like the old joke when I was in school about economic courses. The professors don't change the test from year to year, they only change the correct answers.
29
@Charleston Yank
I would suggest that perhaps you should learn a bit more about economics. It's easy to discount science with aphorisms and intuition but a reasoned opinion based on good research is better that a flippant outlook on academic research. I'd be more worried, like in the "old joke you mentioned, if the answers didn't change change over time as we learned new facts and tested new theories....
15
@DSS
You might be saying something here, but your contrast of "good research" and "academic research without explaining yourself makes me just dismiss your point of view.
@Charleston Yank - every real estate appraiser in this country predicted it. I knew on precisely May 11, 2006 it was on the way, and by 2007 so did most of my peers.
7
The massive costs and disruptions of climate change are oddly absent from your scenarios. But already, workers sickened by heat are walking off the job, planes can't take off in the thin hot air, crops are failing, aging electrical grids are pushed to their limits supplying AC, nuclear power plants have to shut down because warming ocean waters can't cool them, insurers have to cover more and more storm damage, etc., etc. There will be a collapse in real estate value in the fiendishly hot and dry Southwest, and in coastal properties, and places at high fire risk. Fossil fuel stocks will also be shed. This is the big story, and little hiccups like tariffs mean nothing next to it.
441
Yes, @Portia!!
There are major environmental changes in process effecting agriculture, tourism, housing, utilities, etc., etc..
Unless and until economists start shouting informed and relevant strategies from the rooftops, the old paradigms will not shift in time to benefit long term sustainability on the planet.
9
@Portia Your points are well taken, but the effects probably won't have a major impact on the economy in the near (2-5 year) term and therefore probably won't cause the next recession. In a way, that's too bad, because people might take the problem more seriously. However, for the longer term, you are absolutely correct
6
@Likely Voter Hard to know what the timeline is. Already enormous damage has been done to this year's wheat crop. Probably many other impacts on food prices & futures. And as the reality of climate change finally claims worldwide attention -- those fires are pretty dramatic -- I think asset pricing is going to change dramatically.
Maybe not, if Democrats can take back power, stop the putting of good money into dying industries and moves forward a sustainable, vegan, green economy and infastructure. If good trades deals are created, renewed. If they supports programs and policies that give the spending public more money as they are the strongest support for any consumer based economy. As for debt, is mainly an issue of hysteria. Debt is not a problem, not managing it is.
If the government understands that the world has changed and has the understanding and dedication to move forward as well, there is no reason for another recession ever. This is a new world and old patterns, including economic ones, don't necessarily apply anymore or have to.
21
@Una Rose
"This is a new world and old patterns, including economic ones, don't necessarily apply anymore or have to."
Exactly, to a word, what the crazies of the dot.com boom were saying just before it blew up.
6
So Obama's economic expansion has led to the conditions that could result in disaster? Where were the warnings before Trump took office? Everyone knew the Fed would have to address the expansion. It's been like a can kicked down the road.
1
@AACNY
"So Obama's economic expansion has led to the conditions that could result in disaster?"
Read the article.
It's Trump's trade war exacerbated by the Republican tax bill, which will raise debt and therefore interest rates, affecting current debt and future borrowing.
If the Republicans had not blocked the second planned phase of the stimulus, with good job-creating investments in infrastructure, the economy would be in a much better place.
As for the Fed's role in the expansion, which you seem to blame on Obama, they were forced to intervene when the Republicans blocked the traditional successful approach to pull us out of a near-depression: a government stimulus (which, in contrast to the Republican tax slash for the wealthy donors) would have paid for itself by increased tax revenue.
260
@AACNY Yup, and it always was. The difference is that now and ever since the Reagan years our government has not worked for 99% of us. It's listened to the likes of the Koch Brothers, ALEC, and corporations whose interests run directly counter to ours. Why? Because they want to make certain that the average American will never be in a position where he/she can be a threat to their financial rule. That rule is all for me and none for you.
7
@AACNY: If only Hillary had done a better job of warning people that the Fed would have to address the expansion we wouldn't be in this mess today.
1
This upcoming recession story has been pushed since the election; never would have happened if a democratic had won period. We have the lowest unemployment in 50 YEARS and the lowest minority unemployment since they began to record. U.S. companies (no longer taxed at 35 % thank you president) have invested their money here and more revenue is pouring in. Next year's taxes will bring more money in along with internet states tax (now due to the Supreme Court ruling). Why can't we enjoy the good times without the doom and gloom constant prophecy. You were not worried when business and the economy was stagnant under Obama nor his doubling the deficit. The American public is much wiser than the press assumes or gives us credit.
6
@Jan And far too many of the jobs covered by that low unemployment rate are do not pay a living wage, do not offer benefits, are not full-time, or are non-permanent 'gig economy' jobs. A low unemployment rate means very little when underemployed, underpaid workers with little job stability don't make enough money to buy the consumer goods and services that drive America's economy.
248
@Jan, huh.
"U.S. companies (no longer taxed at 35 % thank you president) have invested their money here and more revenue is pouring in."
Did you mean to say that more companies are buying back stock, and the deficit is growing?
29