The Fourth Horseman of the Next Recession Approaches
fuqua.duke.edu
fuqua.duke.edu
Are there any books you would recommend for better understanding of the global economy? Ones that really stick to what we know or have observed, not drawing conjectures such as the one in the article? I must say that my friends who have studied economics at prestigious universities often fail to explain to answer "some pretty basic questions" I have about the world economy.
1) Did the yield curve invert before the dot com crash or 2008?
2) Was this thought of at those times as a recession indicator. Was it being widely discussed? Or was it off the radar?
Yes to both. In fact it inverted before every single crash in recorded history and there has been a crash every single time it did happen.
The complication is that sometimes it's years before the crash occurs. Largely due to government deficit spending offsetting and delaying the crash.
>2) Was this thought of at those times as a recession indicator. Was it being widely discussed? Or was it off the radar?
For sure it was. It's been a known metric for many decades. Old article from February: https://www.cnbc.com/2019/02/20/a-recession-indicator-with-a...
It has been triggered twice now.
There are other metrics as well.
[1] https://money.cnn.com/2005/12/27/news/economy/inverted_yield...
To understand what's going on is that the bond market inversion is because fallible people who are analyzing the situation and putting their money into bonds. They are buying 10 year bonds when 3 month bonds would be cheaper.
That's a very irrational thing to do; unless you're predicting a crash; and when the rates invert it also means there's a very large amount of $ going into those bonds.
Not to mention that when this happens it makes headlines and causes the politicians to scramble and try to fix the problem. This is where the delay comes in; the politicians spend $ to cover up the hole in the economy delaying the recession.
This is actually a huge problem, Canada is around 170% debt to disposable income. If you delay the recession the only thing that happens is that it goes to 180%+ making the problem that much worse.