The Growing Risk of a 2020 Recession and Crisis
project-syndicate.org
project-syndicate.org
That said, they didn't really point to anything that compelling to make me worry about 2020. At least, they didn't any more than I was worried in 2019, 2018, or 2017. They say the initial benefits of the tax cut will wear off, but doesn't the structure itself not change until at least 10 years? Are they saying that the tax cuts are a bandaid for an underlying issue? If so, what's the underlying issue?
But yes, a significantly large number of people cannot predict a crisis, it is catch-22.
Michael Lewis himself has made bad predictions, as have thousands of others.
I think you'll have a hard time finding someone who made more than one correct prediction (and none, or at least very few incorrect ones). It's easy to be correct if you just throw everything at the wall as see what sticks.
Yes, but not so many made a fortune from it, and even fewer who gave a proper explanation of why the crisis is going to happen and weren't just lucky.
These guys from "The Big Short" movie were explicitly betting against CDO, not against SNP500 as other lucky folks who also made a lot of money.
> I think you'll have a hard time finding someone who made more than one correct prediction (and none, or at least very few incorrect ones).
Predicting one of 5 crisis during lifetime (with real money) and simply not losing money during other 4 crisis is a huge success for predictor I think.
> It's easy to be correct if you just throw everything at the wall as see what sticks.
Only those predictors who throw real money at the wall count, not these endless newspaper analysts.
TL;DR I don't believe those folks from the movie were just lucky.
And that the system currently in place rewards those who use these crisis to their advantage?
1) the people running the fed are not particularly rich. If there is some grand economic engineering scheme, these people would be 100x more wealthy.
2) if these things are predictable, where are the predictions? Besides one lucky guy who nobody knew of beforehand, nobody publicly predicted the 2008 crisis. Why aren't these qualified individuals stepping forward? The Big Short guy has gotten tons of fame and money from his prediction. If people could reliably predict these things, they would do so much more often.
3) I don't see any obvious way that a financial crisis benefits the fed or politicians or whatever shadow governments you're alluding to.
4) if such sophisticated economic engineering was possible, surely the benefactors would go about it in a much more subtle way.
I think you get the point. Believing your version takes a lot more leaps of faith than accepting that an incredibly complicated and sometimes irrational system is hard to predict.
But that isn't the case right now. So to raise interest rates right now would require some additional inflationary pressure to counteract that. Which is actually pretty easy to do -- you can print money and use it to give everybody tax credits. Literally just give everybody $10,000 every year for as long as inflation remains reasonable.
The "problem" is that it sounds too good to be true, so even if it would work, people start looking for the catch, even if there isn't one. Meanwhile it would cost banks business because the combination of having more money and paying higher interest rates would cause people to use the money to pay back (or not take out) bank loans, so you get well-financed opposition.
You can't create the money through making new loans, obviously, because at a higher interest rate people will borrow less. Instead the government does it, analogous to how it mints coins, but by changing number in a computer rather than necessarily physically minting new currency.
It could be that new money would cause consumer interest rates to stay low even if the Fed raises the rate the banks pay to borrow money, because they could lend out some of the new money instead of borrowing from the Fed, but if that happens it can be counteracted by increasing their reserve requirements.
KEY POINTS Nonfarm payrolls rose 224,000 in June, well above market expectations of 165,000, according to the Labor Department.
The unemployment rate edged higher to 3.7% but was still near 50-year lows.
Wage growth was 3.1% year over year, one-tenth of a point below market expectations.
Professional and business services led the job gains with 51,000, while health care added 35,000 and transportation and warehousing contributed another 24,000. Construction also added 21,000 and manufacturing, despite teetering on contraction recently, saw another 17,000 jobs added, above the 8,000 per month average in 2019 and getting closer to the 22,000 a month in 2018.
My second point is, it is also hard to tell if you are not in a bubble, and you won't know until retroactively you see why.
Are thing's overpriced? Maybe, but we've gotten to used to saying everything's a bubble.
First, it has to be pointed out that the unemployment rate is always at its nadir directly before the market peaks. So good job numbers only mean that the recession hasn't arrived yet, not that we haven't passed an inflection point where a recession is right around the corner. You could imagine a chart that looks like half of a parabola, where present day is right before the minimum. I made a terrible mspaint diagram to make this clearer:
https://i.imgur.com/pYiMfUt.png
But also, there are major problems with even the data's ability to describe the current situation. For one, the jobs numbers regularly need to be restated as additional data comes in. It's not unusual at the start of a contraction in the business cycle for data from many months earlier to be revised sharply downward, revealing that the drop actually began sooner than anyone realized. For this reason jobs numbers are an extremely lagging indicator, with very limited value for predicting the future.
Second, the "unemployment" number has a very particular definition which is more subtle than you think. It excludes people who are no longer looking for work. Fortunately, the government tracks statistics on the total proportion of the population currently working, and the dramatic declines in the headline unemployment number (10% to 4%!) look less impressive when plotted against the relatively minor change in the actual employment-population ratio. Notice the difference in the scales of the left and right Y-axes:
https://i.imgur.com/wIjfVWo.png
You can play with the charting settings to get an even more vivid picture of just how little things are really improving:
https://i.imgur.com/mq1H8kD.png
The unemployment number plummets because people have given up finding work. The idea that the labor market is tight and drawing in formerly unemployed people to the labor force is exactly backwards.
What does an unemployment rate of 3.7% mean when the labor force participation rate fell off a cliff in 2009 and has never recovered?
https://fred.stlouisfed.org/series/CIVPART
What does it mean when long-term government debt in Europe and Japan has a negative yield, or short-term debt in the US yields more than long-term debt, or defaults on mortgages and consumer loans are increasing?
If the economy is booming, what does it mean when there's incredible pressure on the Federal Reserve to reduce interest rates that are already historically low?
If the economy is healthy, what does it mean when the government runs record-setting deficits and piles up more trillions in unpayable debt?
Shouldn't we pay off debt during the boom, so we have something left in the tank for the bust?
Defaults on mortgages and consumer loans are increasing. We see trade war, actual war, mass migration, splintering nations, evaporating civil society, ineffective institutions and levels of inequality not seen in generations.
These are signs of deep dysfunction with no obvious solutions. Governments, banks and corporations have few tools to deal with crisis when it happens.
What exactly does a 3.7% unemployment rate mean in this context?
Default rates on loans have been falling so not sure where you're getting your data: https://www.corelogic.com/blog/2019/01/mortgage-delinquency-...
I am concerned about the national debt but expanding the economy is one of the best ways to deal with it.
The trade war with China is a risk factor but not clear whether it's good or bad at this point.
There are always signs of dysfunction if you look for it. In this context, 3.7% unemployment and 3+% wage growth is good news for U.S. economy.
What changes is the sentiment of investors and whether they collectively believe improvement will continue. If yes, then stock values will continue to rise.
In the mean time, profits can continue to increase while stock values drop. I would not be concerned about that.
I'm not a trader, have no confidence I can time the market. I buy for long term hold (expect the company to take a major share of a growing market) and for dividends. In the case of the dividend investments, if the stock appreciates substantially (60%+) then yes, I do sell it and lock in the profit, reinvest in a higher yielding stock. But I don't try to time it.
What do you propose?
https://obamawhitehouse.archives.gov/sites/default/files/ima...
http://www.brfekoxen.com/wp-content/uploads/2016/03/riksbank...
Thus it might not be the best barometer of the global economy
Before the 2008 recession[1], the market peaked in October 2007. Earnings had reached the all-time-high ($104.38 inflation adjusted) on Jun 30, 2007.
Over the following twelve months (second half of 2007/first half of 2008) earnings were $60.12, and over the next twelve months 2008/09 just $8.92.
Earnings improved from there, but it still took 4 additional years to get back to $100 of earnings over a twelve months period ($78.84 on 2009/10, $95.15 on 2010/11, $98.12 on 2011/12).
[1] GDP growth remained positive in the first half of 2008 but by the end of the year it was officially decided that the recession had actually started in Decemeber 2007.
Why is immigration into the United States so crucial? Why is the same not said, eg, of China, India, Israel, etc.?
https://www.newsobserver.com/opinion/article227483414.html
Not having enough people to harvest the crops will impact the economy, for example.
https://www.japantimes.co.jp/opinion/2019/06/26/commentary/j...
https://topics.amcham.com.tw/2018/11/taiwan-embraces-southea...
https://www.forbes.com/sites/ralphjennings/2018/03/19/taiwan...
Automation hits some industries harder than others. It's barely affected restaurant workers, for example, but has decimated mining labor.
Another recent example is processing meat. The US has a shortage of labor, but robots can't do the work and Americans refuse to.
Further reading: https://en.m.wikipedia.org/wiki/Alabama_HB_56#Impact
An obvious alternative would be adopting policies to raise the domestic birthrate to the population replacement rate, e.g. increasing the child tax credit, and various policies to disconnect housing costs from school quality so that prospective parents don't change course when they see how much more it costs to buy a house in a good school district.
If birth rates are low, how does your economy function with many older workers who can't/won't do labor like construction?
Why is Japan opening itself up for immigration specifically to fill jobs? What other solution should they have chosen?
Do you have a concrete policy proposal for a country like today's Japan?
As far as the claim that capitalism doesn't require infinite growth: that doesn't seem mathematically possible, ans it's certainly an unorthodox claim. I'd say that puts the burden on you to provide evidence (or, at the very least, explain).
the basics of econ, growth isn't even mentioned when it comes to capitalism.
In general, highly developed nations seem to be dependent on immigration, because the local population doesn’t want to grow fast enough and may even be shrinking. (Hungary may be unrelated; I get the impression they’re shrinking for the same reason that East Germany was shrinking, not because they are “highly developed”; certainly Andrássy Avenue looked like it hadn’t been repaired since the fall of the USSR when I visited).
Hungary is in need of skilled employment in areas like construction, hospitality, trades, IT, and administration, but cannot attract or train enough workers and retain them domestically with the levels of pay employers are willing and able to pay. Such skilled workers can simply relocate elsewhere in Europe and increase their take-home pay.
Hungary is the closest point to cross into the land-contiguous portion of the Schengen area from the southeastern migration route into the EU, so you can easily catch a train to an attractive destination like Germany. Despite the narrative of the Orban government, few of these incoming migrants want to stay in Hungary. The government could incentivize them to stay, if it wanted, but for racial and religious reasons, it doesn't.
This leaves the state in a difficult situation. In the early years of foreign investment, it was attractive because its highly educated workforce and labor costs lower than Western Europe. But now it's subject to skill drain and brain drain and its value proposition has been reduced.
In contrast, high-skill immigration to Silicon Valley has been a crucial contributor to American tech dominance over the last several decades. (Though I wonder how much of this is the negative effect of brain-draining top talent from potential competitors... well, I guess we now have a natural experiment where China is no longer being effectively drained.)
Any references for this? It's also pretty easy to argue that US domestic oil production is driving the economy, at least if you just look at growth. It's producing almost twice as much oil as 10 years ago.
https://www.bloomberg.com/news/articles/2019-05-03/if-this-i...
https://www.reuters.com/article/us-usa-stocks-weekahead/half...
Gawker did some amazing coverage of this guy back in its heyday: https://gawker.com/tag/nouriel-roubini
Canada for example has around 170% household debt to disposable income. If it was at 100%, it means the interest on the debt owed is exactly the same amount as how much you earn. You don't get to spend and you don't get to reduce your debt, you are only paying the interest.
At 170% you're incurring significant more debt every year and you have literally no chance of reducing your debt.
Household debt typically is mortgage, car loans, and student loans.
What are the 3 major articles you constantly hear about?
Housing is unaffordable; aka mortgages are too expensive. Car manufacturers closing plants and laying off significant numbers of people. How about the crippling student loans? You know the debt you literally cant even bankrupt.
There's a certainty that the recession is coming in 2020. The thing that is interesting is multiple times now in history the governments of the world prolonged or attempted to prevent these debt cycle recessions. It 100% of the time has made the situation worse. Usually resulting is far worse recessions.
There's also another factor. There is a depression every 50-100 years or so. We're due for one.
There's 1 way to potentially see a depression coming. Social tensions spike far worse than during a recession.
Don't know if you're following US politics... I'm pretty sure we are seeing this right now.
"The chance of a next recession is 100 percent."
I think that it makes a lot of sense that people think about that. So many underlying issues are happening in the markets at the moment. My biggest fear is that Democracy in Western countries might not come out well after another one.
My biggest fear is that Democracy in Western
countries might not come out well after
another one.
His delivery style in particular is highly abrasive, and his economic pieces always deeply tainted by his politics.
I'd read with having researched his background first.
edit: his twitter stream doesn't exactly feel like what an educated, well-read academic would produce. You be the judge:
After receiving a BA in political economics at Bocconi University, Milan and a doctorate in international economics at Harvard University, he became an academic at Yale and a visiting researcher/advisor at the International Monetary Fund (IMF), the Federal Reserve, World Bank, and Bank of Israel. Much of his early research focused on emerging markets. During the administration of President Bill Clinton, he was a senior economist for the Council of Economic Advisers, later moving to the United States Treasury Department as a senior adviser to Timothy Geithner, who in 2009 became Treasury Secretary.
Yes, clearly Nouriel Roubini is not an educated, well-read academic. /s