Hasn't it been inevitable every years? It seems like the media writes this headline every year. Anyone can find reasons for recession if you look hard enough. Who knows. I am not selling stocks.
The exact timing is always tricky but I have seen the .COM bubble and the 2008 crash. In both it was pretty clear that the economy was in a huge speculative bubble that made no rational sense but the bubble was prolonged until there was no way forward anymore. The 2001 crash was bad, the 2008 crash worse and I think this one will be even bigger. We ran up huge deficits during good times, kept interest rates artificially low to keep things going. And most of the superstar businesses (unicorns) don't even know how to be a business that makes profits.
Everything about this "boom" from 2012 on was, from a market perspective, about as artificial as you could get. At least the events leading up to the .COM and '08 crash there weren't central banks openly putting their thumbs on the scales by being an active market paticipant buying debt securities, the quality of that debt be damned, and making price discovery next to impossible.
The lesson investors took from '08 and certainly from 2020 was that the powers that be will gladly use moral hazard to protect asset prices. Profits are privatized and losses are socialized.
The media didn’t write this headline, or any headline for that matter, because the media is not a singular entity. A person wrote this headline for a publication.
Yes. And it’s actually correct. I’ve thought that US financial system and US dollar would fall since I was roughly 13. The problem is that at some point central banks and governments will be unable to avoid hyperinflation due to debt accumulation. They will be forced to print. Additionally, the debt is inevitable when politicians are bought and paid for and therefore incentivized to provide lucrative contracts to donors, and when interest rates are so low that borrowing is a good idea for private parties. On another note, there is inherent instability in debt-based economics (I don’t think capitalism actually exists at this point, as that word implies the accumulation of capital and current systems substitute capital with debt). If dollars are created through debt and leveraging that debt (as is the case in the USA) a massive default scenario like 2008 becomes a matter of time. If that scenario is large enough it will trigger a deflationary depression that will only further encourage printing as the central bankers try to avoid making all of the debts too expensive to carry. The fact that we’ve avoided a collapse of the current system for so long is more due to cleverness and media cover than anything else. The bankers figured out new ways to manipulate the economy and stall the inevitable but math is real and you can’t do it forever. On a final note, debt based economics will always sacrifice the wealth of future generations for the sake of the current, and this is being felt right now as younger generations are struggling to get started, and the the older generations are living in relative luxury.
"At some point" does a lot of heavy lifting. Without any information to quantify when this breaking point might occur, one might as well be talking about the heat death of the universe.
And what do you mean by "sacrifice the wealth of future generations for the sake of the current"? The government issues bonds to pay for stuff. Then at some point :) the bonds presumably become due, and future generations have to pay it back. Whom do they pay it back to? Isn't it back to themselves? Even assuming there's some proportion of foreign debt holders, they're getting paid back in the currency of the issuing state, which currency has generally deflated more than the bond rate over time, in other words effectively an interest free loan. If you could get a less than base inflation rate loan for 20, 30, 50, 100 years wouldn't you take it? Even assuming the 100 year horizon and thus the loan was to paid back by your estate, don't you think there's a good chance your estate would come out ahead after having paid back that low interest loan than if you had never taken the loan in the first place?
I'm just saying I'm not fully convinced that taking on national debt
is universally bad, if it's payable in the sovereign currency.
Yeah, I’ve thought an economic calamity was likely for over 20 years. As I stated, the math is there but the timing is always unknown. We’re talking about the actions of billions of human beings, and therefore it’s difficult to predict with certainty. What can be said definitively is that the debt service of the US federal government will exceed the current defense budget by 2025. Things are getting closer and closer.
> future generations for the sake of the current, and this is being felt right now as younger are struggling to get started, and the the older generations are living in relative luxury.
I don't disagree with your overall point about sacrificing future generations for the current, but this specific point is probably true regardless as luxury often takes time to acquire.
The 2 phenomenons are very different, if you trace monetary movements from one economic actor to another. They are not even close. It's like comparing a hat and a car.
Let's look at your link for fractional reserve banking:
"Banks only need to keep a specific amount of cash on hand and can create loans from the money you deposit. "
So a bank can loan out more money than it has to loan. In addition to creating money out of thin air, that loan will accumulate interest fees.
It gets even worse when these loans are made to another bank who will loan that money out again.
No, let's look at this system, as I said, "from a distance." The entire system has X number of dollars in it and Y amount of loans. It doesn't take long and the amount of debt exceeds the amount of actual dollars that exist in the system. That is to say, there isn't enough money in the system to pay all of these loans back.
Japan has had 0% interest for decades. It doesn't appear that there is actually an interest based time bomb if we entertain the idea of zero or even negative interest rates. It is only a problem when you insist on positive interest because if the exponential nature of compound interest.
I'm certainly not well educated in finance - but having had my business crushed by the events of 08/09, I started paying a lot more attention to economics than I had previously. From what I can gather, I think part of what is happening is that "the can" keeps getting kicked further down the road. That is to say, we should have already been in or even through a recession. By postponing it, it's just going to be that much worse.
Isn’t a recession necessary to curb inflation? Powell said that economy needs to cool down:
When rates are hiked, a home with a mortgage, using credit cards or seeking loans to start a business become much more expensive. That results in people stopping purchasing homes, cut down on spending, think twice about starting a business. In addition to that companies will lay off workers and enact hiring freezes.
Everyone says it, the signs are obvious, and people here still think we won’t land in a recession.
Kinda feels similar to the irrationality of tesla investors, where everyone knew that the company is overvalued and needs to come down. Yet people continued buying or didn’t want to sell. Why? I would like to know.
Not at all. A global recession has not been strongly forecasted like this for a long time. Sure, anyone can make a prediction, and you will always find some people predicting both directions, but that doesn’t form a common consensus.
A likely recession does not mean that selling stocks is advisable either.
Those recessions were much harder to predict. Suppose a solar flare destroys all electronics. Will we enter a recession? Yes. Obviously yes.
Right now we face an energy, food, and fertilizer shortage. Will that cause a recession? Almost certainly. Or at least it’s a downwards effect. Maybe you think the economies will grow more than they shrink in spite of this for other reasons. But this is a rare easily observed negative pressure for everyone.
Well, yeah, in fact the point is stronger. Economies are feedback systems and oscillate. Recessions are inevitably predicted every few years because recessions simply are inevitable every few years. And yeah, it seems likely (though obviously not certain) that we're due for another.
There's nothing particularly notable here. Speculation markets got overheated[1], now they're correcting and as a side effect money ends up more expensive to do "normal" activity too. Then we'll do it all over again until 2030 or whenever when we come back to write this kind of stuff as if it was a surprise.
[1] For lots of interacting reasons, I'm sure. There's good economics to be done to understand this stuff, but "ZOMG Recession" coverage is just tiresome.
It is not a metaphor if you think the Fed is applying control theory to regulate the economy.
But some people take it too far and think if there was no Fed there wouldn't be any oscillation. That is not true. Bitcoin also "oscillates".
Oscillations happen because of a time lag that leads to an overshooting of the target which then leads to overshooting on the way back and so on.
The economy never becomes perfectly stable but there is no rule that the oscillation can't be smoothed out until it is no longer a problem. We aren't that far yet.
Calling it an "oscillation" means that you know the causal mechanism has a spring-like behavior, which is a more complex model than a random walk. A random walk can easily appear to be an oscillation, but is not one.
Virtually all feedback systems[1] have oscillatory modes in their solutions. Calling something a "random walk" doesn't tell you how the choices of direction are made, but in economics (and electronics) that's something that's subject to analysis. So I like mine better.
[1] Which an economy is, almost by definition: spending makes the people who sold you stuff richer, who then spend; tight purses mean the producers are poorer too.
An autoregressive system with a positive coefficient is a feedback system, yet it is not oscillatory. Any appearance of such is an illusion, like seeing faces in clouds.
Alarmists and pessimists always win either way: If the prediction comes true, they were right and if not everyone is happy and has no reason to blame the alarmists.
It's not just the media, but a lot of very heavy value investors, like Jeremy Grantham, believe that it has been inevitable the entire time. They maintain that we are in a bubble of sorts and that it must correct eventually.